Stages of A Private Equity Deal
Revealing How Private Equity Deals Really Work
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, Last Updated :
Feb 19, 2025
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In private equity, you're either in a calm period or fully immersed in a live deal. When a firm is working on a potential acquisition, life gets stressful, intense, and fast-paced. But this is exactly why PE investors make the big bucks. Today, we’ll be diving deep into the three stages of a live deal.
The first stage of a live deal is all about evaluation and ends with submitting the first-round bid. This stage typically lasts 3-4 weeks, and while it's not the most intense part of the process, PE associates juggle multiple deals at once.
Typically, investment bankers representing the seller will send over a Confidential Information Memorandum (CIM), a 30-50 page document outlining key details of the company, including its operations, financials, customer base, revenue breakdowns, investment highlights, and risks.
As a private equity associate, your job is to:
Digest these materials to understand the company's financial health and strategic position
Plug the financials into a basic leveraged buyout (LBO) model using a standard template to test assumptions
Summarize everything into a 1-2 page investment memo that highlights key business aspects, risks, and potential returns
This memo is then presented to the Investment Committee (IC), a group of senior investors within the firm who review and approve major investment decisions. If the IC gives the green light, the PE firm submits a Letter of Intent (LOI) to the bankers. This non-binding document outlines the firm’s interest in acquiring the company, proposed purchase price, deal structure, financing plan, key conditions, and timeline.
Fun fact: For every 100 CIMs reviewed in Stage 1, only about 10% move to the next stage. This level of selectivity highlights why PE investors are known for being extremely diligent and patient before making an acquisition.
Stage 2: Heavy Diligence and the Check-In Bid
If the first-round bid is accepted, the process moves into due diligence, the most intense stage of the deal. This is where private equity professionals push past 80 hours a week for multiple weeks on end. This stage of the deal typically lasts 4-6 weeks.
Phase 1: Management Meeting
The deal team travels to the company’s office to meet with its management team. This meeting covers strategy, industry trends, financials, and more. PE professionals arrive prepared with in-depth questions about operations, customer trends, and capital expenditures to evaluate the company’s potential.
Phase 2: Research & Analysis
The deal team gains access to the data room, a secure online repository containing hundreds of documents, financial models, and contracts.
Associates analyze customer trends, build data books, and create exhibits for internal presentations.
The firm also conducts expert calls with industry specialists, customers, and former employees—some of which cost thousands of dollars per hour.
Phase 3: Financial Modeling
At this point, associates refine the LBO model, incorporating newly acquired information from the data room to adjust assumptions. This model is constantly iterated with the Principal and Partner leading the deal.
Phase 4: Investment Committee & Check-In Bid
The team updates the investment memo to reflect new findings and prepare for another IC meeting.
If IC approves, the PE firm submits a check-in bid with updated terms.
Stage 3: Final Diligence and Closing the Deal
At this stage, the PE firm has a deep understanding of the company and is close to finalizing the transaction. This stage lasts 1-3 weeks.
Commercial Diligence: Firms like McKinsey, Bain, or BCG conduct market studies to validate growth assumptions and competitive positioning.
Quality of Earnings (QofE): Audit firms such as PwC or Ernst & Young verify financials to ensure accuracy.
Legal Agreements: Lawyers draft the purchase agreement, covering deal structure, covenants, and closing conditions.
A final investment memo is presented to IC. If approved, the final negotiations and purchase agreement signing take place.
What Happens Next?
After the deal closes, the company becomes the private equity firm's portfolio company (PortCo), and the focus shifts to improving and growing the business.
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