How do you prepare a portfolio company for exit, starting 12–24 months ahead?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Exit value is engineered well before the process. Starting 12–24 months out: clean up the equity story and financials (audited, reliable numbers, a clear and defensible adjusted-EBITDA bridge), de-risk the obvious diligence findings a buyer would chip on (customer concentration, key-person dependence, working-capital quirks, one-off add-backs that won't survive scrutiny), and demonstrate a credible, fundable growth runway the next owner can underwrite. Institutionalize the business — systems, management depth, governance — so it isn't dependent on the sponsor. Optimize the capital structure and ensure no looming maturities or covenant issues. Decide the likely exit route (trade sale, secondary, IPO) and tailor preparation to it, often commissioning vendor due diligence (financial, commercial, legal) to control the narrative and speed the process. The aim is a clean, well-evidenced, growth-with-runway story that maximizes price and certainty and minimizes the buyer's reasons to discount.
WHAT INTERVIEWERS LISTEN FOR
- ✓Start 12–24 months out: clean financials and a defensible EBITDA bridge
- ✓De-risk likely diligence chips (concentration, key-person, add-backs)
- ✓Institutionalize the business; show a fundable growth runway
- ✓Tailor to exit route; commission vendor due diligence to control the narrative
COMMON MISTAKES
- ✗Starting exit prep only when the process launches
- ✗Leaving obvious diligence red flags unaddressed
- ✗An equity story dependent on the sponsor
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