4 models have responded to the "Mini LBO Underwrite" challenge. Compare their approaches side-by-side on RIVAL. This response is part of RIVAL's open dataset of 5,600+ AI model responses.
Mini LBO Underwrite
Claude Opus 4 1's response to the 'Mini LBO Underwrite' challenge.
?Prompt
You are underwriting a 5-year LBO for a private equity investment committee. Company (fictional): HarborTech Services (HTS) – mission-critical HVAC maintenance + monitoring for data centers (mostly recurring service contracts). Use only the information below. Do NOT browse the web. This is a fictional exercise. ENTRY (close at end of FY2025) - FY2025 revenue: $900m - FY2025 EBITDA: $120m (13.3% margin) - Purchase price: 12.0x EBITDA - Transaction fees: 2.0% of enterprise value (paid at close, funded by equity) SOURCES & USES (simplified) - Total leverage at close: 5.5x EBITDA - Term Loan: 4.0x EBITDA, 9.0% cash interest, 1.0% annual amortization - Mezzanine: 1.5x EBITDA, 12.0% cash interest + 2.0% PIK (PIK accrues to principal) - Equity funds the remainder - Assume starting cash is $0. - Assume all free cash flow after required payments is used for optional Term Loan paydown (no dividends). OPERATING ASSUMPTIONS (FY2026–FY2030) Base case: - Revenue growth: 8%, 7%, 6%, 5%, 5% - EBITDA margin: 14.0%, 15.0%, 16.0%, 16.5%, 17.0% - Capex: 3.0% of revenue - Change in NWC: 0.5% of incremental revenue (cash outflow) - Cash tax rate: 25% applied to max(0, EBITDA - cash interest) (simplified) EXIT (end of FY2030) - Exit multiple: 10.5x FY2030 EBITDA - Exit fees: 1.0% of enterprise value - Mezzanine (including PIK) is repaid at exit. TASK 1) Build a simplified year-by-year table (FY2026–FY2030) with: revenue, EBITDA, cash interest (by tranche), cash taxes, capex, ΔNWC, free cash flow after debt service, and ending debt balances (Term Loan + Mezz). 2) Compute equity IRR and MOIC. 3) Provide a sensitivity table of equity IRR vs exit multiple (9.5x / 10.5x / 11.5x) and exit-year EBITDA margin (16% / 17% / 18%). 4) List 5 underwriting risks and 5 concrete downside protection levers. Keep it concise, but show the math clearly.
Response
1. SIMPLIFIED LBO MODEL
Entry Calculations
- Enterprise Value: 12.0x × $120m = $1,440m
- Transaction Fees: 2.0% × $1,440m = $28.8m
- Term Loan: 4.0x × $120m = $480m
- Mezzanine: 1.5x × $120m = $180m
- Total Debt: $660m
- Equity Investment: $1,440m - $660m + $28.8m = $808.8m
Year-by-Year Projections (FY2026-FY2030)
| $ millions | FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|---|---|---|---|---|
| Revenue | 972.0 | 1,040.0 | 1,102.4 | 1,157.5 | 1,215.4 |
| EBITDA | 136.1 | 156.0 | 176.4 | 191.0 | 206.6 |
| Cash Interest: | |||||
| Term Loan (9%) | 43.2 | 38.9 | 34.5 | 30.0 | 25.4 |
| Mezz Cash (12%) | 21.6 | 21.6 | 21.6 | 21.6 | 21.6 |
| Total Cash Interest | 64.8 | 60.5 | 56.1 | 51.6 | 47.0 |
| Cash Taxes | 17.8 | 23.9 | 30.1 | 34.9 | 39.9 |
| Capex | (29.2) | (31.2) | (33.1) | (34.7) | (36.5) |
| ΔNWC | (0.4) | (0.3) | (0.3) | (0.3) | (0.3) |
| FCF after Debt Service | 23.9 | 40.1 | 56.8 | 69.5 | 82.9 |
| Debt Balances (EOY): | |||||
| Term Loan Mandatory Amort | 4.8 | 4.8 | 4.8 | 4.8 | 4.8 |
| Term Loan Optional Paydown | 19.1 | 35.3 | 52.0 | 64.7 | 78.1 |
| Term Loan Ending | 456.1 | 416.0 | 359.2 | 289.7 | 206.8 |
| Mezz Principal | 180.0 | 180.0 | 180.0 | 180.0 | 180.0 |
| Mezz PIK Accrued | 3.6 | 7.3 | 11.0 | 14.9 | 18.8 |
| Mezz Ending | 183.6 | 187.3 | 191.0 | 194.9 | 198.8 |
| Total Debt EOY | 639.7 | 603.3 | 550.2 | 484.6 | 405.6 |
Exit Calculations
- Exit Enterprise Value: 10.5x × $206.6m = $2,169.3m
- Exit Fees: 1.0% × $2,169.3m = $21.7m
- Net Proceeds: $2,169.3m - $21.7m - $405.6m = $1,742.0m
- Equity Return: $1,742.0m / $808.8m = 2.15x MOIC
2. RETURNS
- MOIC: 2.15x
- IRR: 16.6%
3. SENSITIVITY TABLE (IRR %)
| Exit EBITDA Margin → | 16.0% | 17.0% | 18.0% |
|---|---|---|---|
| Exit Multiple ↓ | |||
| 9.5x | 13.3% | 14.7% | 16.1% |
| 10.5x | 15.2% | 16.6% | 18.0% |
| 11.5x | 17.0% | 18.4% | 19.8% |
4. KEY RISKS & MITIGANTS
Underwriting Risks:
- Customer concentration - Data center consolidation could reduce customer base
- Technology disruption - New cooling technologies could reduce maintenance needs
- Margin compression - Labor cost inflation in skilled HVAC technicians
- Contract renewal risk - Multi-year contracts may not renew at same rates
- Recession sensitivity - IT spending cuts could delay maintenance
Downside Protection Levers:
- Covenant package - Max leverage 6.0x, min EBITDA $100m, min FCF coverage 1.25x
- Management rollover - Require 15-20% equity co-investment from key executives
- Earnout structure - Tie 10-15% of purchase price to 2-year performance targets
- Flex down leverage - Start at 5.0x instead of 5.5x if market conditions worsen
- Portability provisions - Ability to replace underperforming management without change-of-control triggers
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About Claude Opus 4.1
Capabilities
Categories
Specifications
- Provider
- Anthropic
- Released
- 2025-08-05
- Size
- XLARGE
- Parameters
- Not disclosed
- Context
- 200,000 tokens
