The Top 6 Moelis Interview Questions
When I'm asked by those interested in restructuring what firms to target I always include Moelis in that listing.
This is not just because Moelis has very strong restructuring deal flow (although that is certainly true). It's also because Moelis is one of the strongest banks in the restructuring space that also happens to offer a generalist program at the analyst and the associate level, which provides you exposure to both restructuring and M&A.
Note: Centerview is another firm with great deal flow on the RX and M&A side that also offers a generalist program.
The generalist nature of Moelis allows you to maintain optionality through your first few years in banking. If you end up really enjoying restructuring, then you can try to get staffed on more restructuring deals and exit into a top-tier distressed buy-side firm.
On the other hand, if you end up realizing restructuring isn't quite for you, you can try to get staffed on more M&A deals and make a pivot toward more traditional buy-side exits.
Some people have concerns that the generalist nature of Moelis may end up making you a jack of all trades, master of none. I personally put no stock into that kind of thinking. Moelis has great deal flow across restructuring and M&A along with a stellar name brand.
However, I would recommend figuring out as soon as possible which kind of exits you want to target given how early buy-side recruiting happens now. If you get a summer analyst position at Moelis, you should figure out which area you want to try to focus in on during your full-time stint by the end of your summer.
Preparing For a Moelis Interview
Preparing for a Moelis interview is a bit more of a pain given that you can expect to face questions on both restructuring and M&A.
However, because of the breadth of potential interview questions it also does mean that relatively speaking the bar is set a bit lower.
Because of the firm's reputation on the M&A side many candidates come in having prepared almost exclusively for M&A. Thus, if you can stand out on the restructuring side of the interview, then that can create a real competitive advantage for you over other candidates.
The following are six common interview questions from Moelis. If you're looking for more RX-specific questions, be sure to check out other posts on this site such as the much longer one done on the top 15 restructuring interview questions and the introduction to what restructuring investment banking is.
Also, if you want to more deeply understand what restructuring is, what restructuring solutions are, and get access to hundreds of interview questions be sure to check out the restructuring guide. The guide isn't meant to just help you ace your interview, it's also meant to help you understand what restructuring investment banking really is in practice so you can excel when you hit the desk.
Question 1: Why Moelis?
Obviously this is a classic question that crops up in every investment banking interview. Usually you need to make up some nonsense about why the bank you're applying to is unique and special, which is rarely remotely true.
However, with Moelis there is a differentiating quality given that you will get terrific exposure to both M&A and restructuring during your analyst or associate stint.
You should make it clear in your answer that you're eager to learn more about both M&A and restructuring and that Moelis is unique in not making you choose between the two. You should also add that getting exposure to M&A and RX allows for you to better understand the full life cycle of a company; how capital structures are right-sized when over-levered and how companies can achieve growth through mergers or acquisitions.
Another unique attribute of Moelis is their analyst and associate class sizes. Because everyone is a generalist, the class sizes are much larger than what you would have if you did RX at Evercore or PJT.
This isn't something to underrate. The camaraderie and friendships you build during your grinding analyst years is very much a real thing. Personally, I wish I had a larger class size.
Showing that you value getting to work alongside many different analysts or associates shows a certain level of maturity. I would certainly include this in your answer as well.
Question 2: If given a CIM, what would you quickly look at to determine if the company may be of interest to a private equity company?
This is a bit of a spin on a more traditional question. I would preface any answer to questions surrounding what an ideal target of a private equity firm would be by saying that obviously PE firms don't have the kinds of restrictive criteria they once had. Some PE firms are now more open to looking at companies that could have a growth story, even if that requires paying a higher multiple today, for example.
However, as a general principle some of the things contained within a CIM you would immediately look to would be:
- What has the historical capex spending been? Generally, you want it to be below 10%. However, if it's very low - perhaps just a few percent - that could be a sign of the company deferring capex spending to make their numbers look better today.
- What are the EBITDA growth rates both in the past and forecasted for the future? Have they been consistent over the past five years? Generally, you'd want them to be around 10% or more although depending on the industry this can vary.
- Has there been volatility in revenue, FCF, EBITDA, or net income over the past five years? Generally the one thing a PE fund will still today want to avoid is volatile earnings given one year of them can have a rather large negative impact on the ultimate IRR of the investment.
- How commoditized is the product? Niche products with some kind of protective moat (and thus some kind of pricing power) are always preferred.
- Who comprises the management team? If this is already a sponsor-owned company that is being flipped that won't necessarily preclude another sponsor from being interested. However, it's always of interest to a PE fund when you can potentially acquire a more "traditional" company with an established management team that is likely to stay on post-acquisition.
Question 3: What is FCCR?
The fixed charge coverage ratio (FCCR) is simply (EBITDA - Capex - Cash Taxes) / (Cash Interest Expense + Mandatory Debt Repayment).
If you think about this formula for a few minutes you'll see all this is really saying is: do we have enough cash flow - using the rough approximation in the numerator - to meet what our actual cash obligations are that arise from our capital structure (the denominator).
You'll often see FCCR minimums in secured debt instruments such as revolvers and term loans. For example, a minimum FCCR of 1.0x is frequently used.
FCCR can often be the trigger for springing maturities. Springing maturities are an essential thing to keep an eye out for when looking at cap tables in restructuring (as we go over in the course with some examples).
Question 4: If we have EV / EBITDA of 10x, Net Debt / EBITDA of 4x, and equity value of 300 then what is our enterprise value?
These kinds of questions are increasingly common.
The trick to these kinds of questions - insofar as there is one - is just to set everything up with a common variable.
Obviously the common variable here is EBITDA, which we will denote as "E". So we have EV = 10(E) and Net Debt = 4(E).
Therefore, our enterprise value formula is 10(E) = 4(E) + 300. Moving 4(E) over to the right hand side, we now have 6(E) = 300. Dividing by 6 we get E = 50.
Since our EV formula was rearranged to being EV = 10(E), and now knowing that E = 50, we have a EV of 500.
Question 5: When looking at the adjusted EBITDA of a distressed company, what kind of add backs would you expect to find?
As a general principle you should think about one-time expenses or otherwise rare expenses that could have occurred in the relevant time period.
Some examples would be:
- Restructuring fees (consulting or banking)
- Legal fees (in excess of those that normally occur)
- Goodwill impairments
- Bad debt expenses
- Asset write downs
Question 6: Let's say that a PE firm acquires a $200m EBITDA company for 10x with 60% debt. The company's EBITDA over the five-year hold goes to $300m. All cash is swept out to pay down debt, which at year 5 amounts to $400m having been paid in total. No cash is left at the time of exit, which is for a 10x multiple. What's the IRR?
This is a bit of a longer question. What the interviewer is looking for is that you don't get overwhelmed and can get through each of the steps (none of which, individually, are that difficult).
First, the EV at initiation will obviously be $2,000m (or $2bn). $1,200m of the acquisition will be funded by debt, and we can assume the remaining $800m will be funded by equity.
The EV at exit will be $300m*10x or $3,000m. Since debt of $400m was paid down, with no cash being left over, that leaves us with $800m of debt remaining at exit.
At exit the equity proceeds will just be the $3,000m minus the debt remaining of $800 or $2,200m.
So $800m of equity was put into the company, $2,200 is taken out at exit five years later, which gives a 2.75x return.
You should know rough IRR calculations for various multiples like 2x, 3x, and 4x. A 2x return over five-years is 15% and a 3x return over five-years is 25%. Thus we can guess the IRR as being in the low-twenties.
Note: It's perfectly fine (and expected) for you to simply lay out the round multiples and associated IRRs and then narrow in on roughly what the actual IRR would be. No one expects you to calculate the actual IRR in your head.
Preparing for Moelis interviews will likely be somewhat challenging due to the breadth of possible questions that can be asked. In particular, most face difficulty with the restructuring questions since there is so little online about them.
As a parting note I'd recommend in your spare time going on YouTube and looking up any recent interviews given by Ken Moelis himself. It always shows initiative and / or a bit of cleverness to drop a line said by Ken himself if you're asked what you think of the M&A or restructuring landscape at present. Here's a recent interview he gave on Bloomberg.
Best of luck with your prep.