PE Due Diligence: Industry Knowledge for Case Interviews

Private equity due diligence is the engine behind every PE deal — and consulting firms are deeply embedded in it. Bain derives an estimated 40%+ of its revenue from PE-related work, and firms like L.E.K., OC&C, and Roland Berger have completed over 2,200 commercial due diligence engagements in recent years alone. If you’re interviewing at any firm with a PE practice, you need more than frameworks — you need to think like a PE investor.

This guide focuses on the industry knowledge that separates strong candidates from average ones. For the step-by-step case-solving framework, see our PE Due Diligence Case Framework.

How PE Firms Think About Deals

PE investors operate under a fundamentally different logic than corporate acquirers. Every investment must clear a financial hurdle — typically a 20-25% internal rate of return (IRR) — within a defined holding period of 3-7 years. This constraint shapes every question you’ll face in a PE due diligence case.

The deal thesis rests on four value creation levers:

mindmap
  root((Value Creation))
    Revenue Growth
      Organic expansion
      Add-on acquisitions
      New markets/products
    Margin Improvement
      Operational efficiency
      Procurement savings
      SG&A rationalization
    Multiple Expansion
      Sector re-rating
      Scale premium
      Improved governance
    Deleveraging
      Debt paydown from cash flow
      Refinancing at lower rates

In our experience working with candidates preparing for PE-focused interviews, the most common mistake is treating a PE case like a generic M&A case. PE cases demand that you quantify the return path — not just assess strategic fit.

Types of Due Diligence in PE Transactions

A typical PE deal involves multiple workstreams running in parallel. Understanding which type of DD your case focuses on helps you prioritize your analysis.

Most consulting interview cases focus on commercial due diligence — assessing whether the target company operates in an attractive market with a defensible position. Based on our analysis of 800+ case interview prompts, roughly 70% of PE cases test commercial DD skills.

Sector-Specific DD Patterns

PE firms specialize by sector, and each sector has distinct DD priorities. Knowing these patterns signals genuine industry fluency in your interview.

Healthcare

Healthcare is the most active PE sector, representing approximately 18% of global PE deal volume. Due diligence priorities include:

• Regulatory risk: Reimbursement rate changes, FDA approval timelines, compliance with healthcare-specific regulations
• Payor mix analysis: Revenue split across private insurance, Medicare/Medicaid, and self-pay
• Recurring revenue quality: Patient retention rates, contract renewal cycles, subscription-based models

Explore more in our Healthcare Industry Deep Dive.

Technology

Tech deals account for roughly 25% of PE activity by value. Key DD considerations:

• Revenue quality: Recurring vs. one-time revenue; net revenue retention rates above 110% are considered strong
• Customer concentration: Top-10 customer share; concentration above 30% is a red flag
• Technical debt: Migration costs, platform scalability, security posture

See our Technology Industry Deep Dive for more sector context.

Consumer & Retail

Consumer deals focus heavily on brand durability and channel economics:

• Brand strength: Aided vs. unaided awareness, Net Promoter Score trends, pricing power
• Channel mix: DTC vs. wholesale vs. marketplace; margin implications of each
• Working capital cycles: Inventory turns, supplier payment terms, seasonal cash flow patterns

Browse Consumer Goods cases and Retail cases in our case library.

Financial Services

PE interest in financial services has grown significantly, with deal volume up approximately 15% year-over-year. DD priorities include:

• Regulatory capital requirements: Impact on distributable cash flow
• Credit quality: Loan loss provisions, non-performing asset ratios
• Fee-based vs. spread income: Durability and cyclicality of revenue streams

Our Financial Services Industry Deep Dive covers these patterns in detail.

The Commercial DD Framework PE Firms Actually Use

While the textbook approach covers market, company, and financials, the way experienced PE professionals structure a commercial DD follows a specific logical sequence:

flowchart TD
    A["1. Market Assessment"] --> B["2. Competitive Position"]
    B --> C["3. Customer Quality"]
    C --> D["4. Financial Performance"]
    D --> E["5. Value Creation Plan"]
    E --> F{Invest?}
    F -->|IRR > Hurdle Rate| G["Proceed to LOI"]
    F -->|IRR < Hurdle Rate| H["Pass or Renegotiate Price"]

    style A fill:#e8f4f8,stroke:#2c3e50
    style E fill:#e8f4f8,stroke:#2c3e50
    style G fill:#d4edda,stroke:#155724
    style H fill:#f8d7da,stroke:#721c24

Each step feeds the next. Market attractiveness means nothing if the company has a weak competitive position. Strong positioning is undermined by poor customer quality (high churn, concentration risk). And solid fundamentals only matter if the numbers work at the proposed price.

What Interviewers Test at Each Stage

Valuation Basics You Need to Know

You won’t build a full LBO model in a case interview, but you need to understand the key concepts. PE valuation typically uses an EV/EBITDA multiple approach:

• Entry multiple: What the fund pays (e.g., 10x EBITDA)
• Exit multiple: What the fund sells at (e.g., 11-12x if sector re-rates or company improves)
• EBITDA growth: Driven by revenue growth and margin expansion during the hold period
• Leverage: Debt magnifies equity returns; a typical LBO uses 50-65% debt financing

A simplified return calculation: if a fund buys at 10x EBITDA, grows EBITDA by 50% over 5 years, exits at 11x, and pays down 40% of debt — the equity return exceeds 3x, translating to a roughly 25% IRR.

For a deeper dive into valuation methods, see our Financial Analysis cases.

Preparing for PE DD Cases

Based on our work with candidates who’ve successfully landed offers at PE-focused practices, here are the highest-impact preparation strategies:

1. Read real deal announcements: Follow PE trade publications to understand current deal rationales and sector trends
2. Practice market sizing with financial anchoring: PE interviewers expect you to triangulate market sizes using revenue data, not just population-based estimates. Our Market Sizing Techniques guide covers this approach
3. Build valuation intuition: Practice quick IRR estimates — if an investment doubles in 3 years, that’s roughly 26% IRR; tripling in 5 years is about 25% IRR
4. Study sector-specific metrics: Know what “good” looks like for key metrics in 2-3 sectors (e.g., net revenue retention >110% in SaaS, same-store sales growth >3% in retail)
5. Practice with PE-specific cases: Work through due diligence scenarios in our Private Equity case collection

Key Takeaways

• PE due diligence cases require financial return thinking — every analysis must connect back to whether the deal clears the fund’s IRR hurdle (typically 20-25%)
• Four value creation levers drive PE returns: revenue growth, margin improvement, multiple expansion, and deleveraging
• Commercial DD is the most common focus in consulting interviews, testing market assessment, competitive positioning, and customer quality
• Sector knowledge matters: healthcare, tech, consumer, and financial services each have distinct DD priorities and red flags
• You need valuation intuition, not full LBO models — understand entry/exit multiples, EBITDA growth, and leverage mechanics
• The strongest candidates quantify their value creation plans with specific dollar impacts, not generic strategic recommendations

Ready to put this knowledge into practice? Explore Private Equity cases in our case library, or test your skills with an AI Mock Interview that simulates a real PE due diligence scenario.