Perella Weinberg Partners IB Interview Questions

WACC is the weighted average cost of capital: the blended annual return a company has to earn to satisfy everyone who funds it. It is the rate you discount unlevered free cash flow at in a DCF. You build it by weighting the cost of equity and the after-tax cost of debt by each one's share of total capital, measured at market value: WACC = E/(D+E) x cost of equity + D/(D+E) x cost of debt x (1 - t). Cost of equity comes out of CAPM. Cost of debt is the yield the company pays on its debt today, and it gets tax-affected because interest is deductible. The equity term does not.

A valuation deck usually opens with an executive summary and a company overview, then puts a valuation summary page (the 'football field') near the front. The football field is a bar chart showing the value range from each method. Backup pages for each method come next: trading comparables, precedent transactions, a discounted cash flow (DCF) analysis, and often a leveraged buyout (LBO) analysis. An appendix with the detailed assumptions closes the deck.

The three statements are the income statement, the balance sheet, and the cash flow statement. Net income, the bottom of the income statement, is the first line of the cash flow statement. It also raises retained earnings on the balance sheet, after any dividends. The cash flow statement adjusts net income to find the change in cash, and ending cash becomes the cash line on the balance sheet.

Yes. Say enterprise value (what the whole business is worth to lenders and owners together) stays at $1mm. The PE firm still earns a return, because the company's cash flow pays down the acquisition debt over the holding period. At exit, less of the $1mm goes to lenders and more goes to the equity, so the firm gets back more than it put in.

Three useful extra methods are LBO analysis, sum-of-the-parts, and the dividend discount model. An LBO analysis finds the highest price a private equity buyer could pay and still earn its target return. Sum-of-the-parts values each business segment on its own and adds them up. The dividend discount model values a company's shares as the present value of the dividends it is expected to pay.

Five SaaS companies are Salesforce, Adobe, ServiceNow, Workday, and Atlassian. Each sells software that customers reach over the internet. Customers pay a recurring subscription for it instead of buying a one-time license and installing it on their own servers. Of the five, Adobe usually has the highest gross margin, roughly the high 80s percent in recent years. Salesforce and Workday sit lower, in the mid-to-high 70s, because they spend more on hosting, implementation, and professional services.

The three main valuation methods are comparable companies, precedent transactions, and a discounted cash flow (DCF) analysis. Comparable companies values a business at the multiples similar public companies trade at today, such as enterprise value (the value of the whole business to lenders and shareholders) divided by EBITDA (a rough measure of operating cash profit). Precedent transactions uses the multiples buyers paid in past acquisitions of similar companies. Those multiples include a control premium, the extra a buyer pays to take control. The DCF values the company on its own cash flows instead of market prices. It projects unlevered free cash flow (the cash available to all investors before any payments to lenders) and discounts it to today at WACC (weighted average cost of capital, the blended return lenders and shareholders require) to get enterprise value.

Yes. Beta measures how a stock's returns move relative to the overall market. It goes negative when the stock tends to rise while the market falls. Real negative-beta companies are rare. Gold producers are the usual example, because gold often gains when investors are scared and equities are selling off.

Advertising and marketing. SG&A stands for selling, general and administrative expense, the operating costs outside the direct cost of making the product. The pieces that move with volume are the selling costs: advertising, promotions, sales commissions, payment processing fees. Fivefold revenue growth in a year is normally demand you paid for. The fixed pieces, rent and insurance and salaried admin, barely move.

Interest hits all three statements. It is an expense, so pre-tax income drops. Net of the tax saving, net income, cash and retained earnings each fall by the after-tax amount. Principal (the amount originally borrowed) is not an expense, so it skips the income statement. Repaying it is a financing outflow on the cash flow statement, and on the balance sheet cash and debt both go down.

Pick one deal where Perella Weinberg Partners (PWP) had a clear role, and take it in five steps: the parties, the strategic rationale, the structure and valuation, PWP's role, and your own view. For a 2021 interview, PWP's own listing in June 2021 works well. PWP became a public company by merging with FinTech Acquisition Corp. IV, a SPAC (special purpose acquisition company: a shell company that raises cash in an IPO for the sole purpose of merging with a private business). The combined company trades on Nasdaq under the ticker PWP.

No impact on EBITDA. EBITDA (earnings before interest, taxes, depreciation and amortization) is calculated before depreciation is subtracted, so a $10 increase in depreciation leaves it where it was. The $10 lowers operating income (EBIT) and pre-tax income. At a 25% tax rate, net income falls by $7.50.