Private Equity Due Diligence Cases: Framework and Practice Guide

Private equity due diligence cases test whether you can evaluate an acquisition target under time pressure and recommend a clear invest-or-pass decision. Based on our analysis of 800+ case interviews, PE due diligence questions appear in roughly 25% of all M&A-related cases at top consulting firms — and that number rises to over 60% when interviewing for PE-focused practices.

What Makes PE Due Diligence Cases Different

PE due diligence cases differ from standard M&A cases in three critical ways:

In our experience working with candidates targeting PE-focused consulting roles, the single biggest mistake is applying a corporate M&A framework without adjusting for the financial sponsor’s perspective. PE firms care about IRR and multiple-on-invested-capital (MOIC), not strategic synergies.

The PE Due Diligence Framework

A structured approach to PE due diligence covers three interconnected workstreams:

flowchart TD
    A[PE Due Diligence] --> B[Commercial DD]
    A --> C[Financial DD]
    A --> D[Operational DD]
    B --> B1[Market attractiveness]
    B --> B2[Competitive position]
    B --> B3[Growth sustainability]
    C --> C1[Quality of earnings]
    C --> C2[Working capital analysis]
    C --> C3[Debt capacity]
    D --> D1[Cost optimization levers]
    D --> D2[Management capability]
    D --> D3[Technology & systems]
    B1 --> E[Investment Thesis]
    C1 --> E
    D1 --> E
    E --> F{Invest or Pass?}

Commercial Due Diligence

This is where most case interviews focus. You need to assess whether the target’s revenue is sustainable and growable under PE ownership.

Key questions to address:

• Market size and growth: Is the addressable market growing at 5%+ annually? What are the secular tailwinds?
• Customer concentration: Do the top 10 customers represent more than 40% of revenue? High concentration signals risk.
• Competitive moat: What prevents margin erosion? Look for switching costs, network effects, or regulatory barriers.
• Revenue quality: What percentage is recurring vs. one-time? Recurring revenue above 70% significantly de-risks the investment.

Financial Due Diligence

Financial DD validates reported earnings and identifies hidden risks in the numbers.

Focus areas:

• Quality of earnings (QoE): Strip out one-time items, related-party transactions, and aggressive accounting. Adjusted EBITDA is typically 10-20% lower than reported.
• Working capital normalization: Identify seasonal patterns and calculate true cash conversion.
• CapEx requirements: Distinguish maintenance CapEx (required to sustain operations) from growth CapEx (discretionary investment).
• Debt capacity: Assess how much leverage the business can support (typically 4-6x EBITDA for mid-market deals).

Operational Due Diligence

Operational DD identifies the value creation levers a PE firm can pull post-acquisition.

Common improvement areas:

• Procurement savings through supplier consolidation (typically 5-15% of addressable spend)
• Pricing optimization using data-driven segmentation
• SG&A rationalization, particularly in duplicated back-office functions
• Technology modernization to reduce manual processes

How to Structure Your Answer

When you receive a PE due diligence case, follow this sequence:

1. Clarify the investment thesis — Ask what the PE firm believes about this asset. Is it a platform for roll-up? A margin expansion story? A growth equity play?
2. Scope the analysis — You cannot cover everything. Prioritize the 2-3 areas most relevant to the thesis.
3. Gather data systematically — Request specific exhibits (revenue breakdown, customer data, cost structure).
4. Stress-test assumptions — Challenge the bull case. What happens if growth slows by 50%? If a key customer churns?
5. Deliver a recommendation — PE cases demand a binary answer: invest or pass. Always state your conviction level and key risks.

Common PE Due Diligence Case Scenarios

Based on our work with candidates, these are the most frequently tested scenarios:

Quantitative Skills You Need

PE cases are math-heavy. You should be comfortable calculating:

• IRR approximation: A 2x return in 3 years ≈ 26% IRR; in 5 years ≈ 15% IRR
• Leverage impact: If equity is 40% of purchase price and EBITDA grows 20%, equity value grows approximately 50%
• Multiple expansion/compression: Entry at 8x, exit at 10x on grown EBITDA — quantify the value bridge
• Debt paydown: Annual free cash flow × hold period = principal reduction, directly accruing to equity

Key Takeaways

• PE due diligence cases require a financial sponsor lens — focus on IRR and MOIC, not strategic synergies
• Structure your analysis around commercial, financial, and operational workstreams
• Always clarify the investment thesis before diving into analysis
• Revenue quality (recurring vs. one-time) and customer concentration are the two most commonly tested commercial DD topics
• Practice mental math for IRR approximation and leverage impact calculations
• Deliver a clear invest-or-pass recommendation with conviction level and key risks stated

Prepare With Real Cases

Strengthen your PE due diligence skills by practicing with private equity cases from our case library. For M&A fundamentals, review the M&A case framework guide and explore financial services case patterns. When you are ready, test your skills under pressure with our AI Mock Interview — it simulates the time constraints and follow-up questions you will face in real PE practice interviews.