HarborTech Services – LBO Underwriting Memo
ENTRY CAPITALIZATION (Close FY2025)
| Item | Calculation | Amount |
|---|
| Purchase Price | 12.0x × $120M | $1,440M |
| Transaction Fees | 2.0% × $1,440M | $28.8M |
| Total Uses | | $1,468.8M |
| Sources | Multiple | Amount |
|---|
| Term Loan | 4.0x × $120M | $480.0M |
| Mezzanine | 1.5x × $120M | $180.0M |
| Equity | Plug | $808.8M |
| Total Sources | | $1,468.8M |
1) YEAR-BY-YEAR OPERATING MODEL (FY2026–FY2030)
Revenue & EBITDA Build
| FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|
| Growth % | 8.0% | 7.0% | 6.0% | 5.0% | 5.0% |
| Revenue | $972.0M | $1,040.0M | $1,102.5M | $1,157.6M | $1,215.5M |
| EBITDA Margin | 14.0% | 15.0% | 16.0% | 16.5% | 17.0% |
| EBITDA | $136.1M | $156.0M | $176.4M | $191.0M | $206.6M |
Cash Flow Waterfall
| FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|
| EBITDA | 136.1 | 156.0 | 176.4 | 191.0 | 206.6 |
| | | | | |
| TL Beginning Balance | 480.0 | 427.4 | 365.2 | 293.5 | 211.1 |
| TL Cash Interest (9%) | (43.2) | (38.5) | (32.9) | (26.4) | (19.0) |
| TL Mandatory Amort (1%) | (4.8) | (4.3) | (3.7) | (2.9) | (2.1) |
| | | | | |
| Mezz Beginning Balance | 180.0 | 183.6 | 187.3 | 191.0 | 194.8 |
| Mezz Cash Interest (12%) | (21.6) | (22.0) | (22.5) | (22.9) | (23.4) |
| Mezz PIK (2%) → adds to principal | 3.6 | 3.7 | 3.8 | 3.8 | 3.9 |
| Mezz Ending Balance | 183.6 | 187.3 | 191.0 | 194.8 | 198.7 |
| | | | | |
| Total Cash Interest | (64.8) | (60.5) | (55.3) | (49.4) | (42.4) |
| | | | | |
| Taxable Income (EBITDA - Cash Int) | 71.3 | 95.5 | 121.1 | 141.7 | 164.2 |
| Cash Taxes @ 25% | (17.8) | (23.9) | (30.3) | (35.4) | (41.1) |
| | | | | |
| Capex (3% Rev) | (29.2) | (31.2) | (33.1) | (34.7) | (36.5) |
| ΔNWC (0.5% ΔRev) | (3.6) | (3.4) | (3.1) | (2.8) | (2.9) |
| | | | | |
| FCF Before Debt Service | 85.5 | 97.5 | 110.0 | 118.1 | 126.1 |
| Less: Mandatory TL Amort | (4.8) | (4.3) | (3.7) | (2.9) | (2.1) |
| FCF for Optional Paydown | 80.7 | 93.2 | 106.4 | 115.2 | 124.0 |
| | | | | |
| Optional TL Paydown | (47.8) | (57.9) | (68.0) | (79.5) | (93.6) |
| TL Ending Balance | 427.4 | 365.2 | 293.5 | 211.1 | 115.4 |
Note: Optional paydown = MIN(FCF available, TL balance remaining after mandatory amort). Excess cash in FY2030 retained.
Ending Debt Summary
| FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|
| Term Loan | 427.4 | 365.2 | 293.5 | 211.1 | 115.4 |
| Mezzanine (w/ PIK) | 183.6 | 187.3 | 191.0 | 194.8 | 198.7 |
| Total Debt | 611.0 | 552.5 | 484.5 | 405.9 | 314.2 |
| Net Leverage (Debt/EBITDA) | 4.5x | 3.5x | 2.7x | 2.1x | 1.5x |
2) EQUITY IRR & MOIC CALCULATION
Exit Value (End of FY2030)
| Item | Calculation | Amount |
|---|
| Exit EBITDA | | $206.6M |
| Exit Multiple | | 10.5x |
| Enterprise Value | 10.5 × $206.6M | $2,169.6M |
| Exit Fees (1%) | | ($21.7M) |
| Net EV | | $2,147.9M |
Equity Proceeds
| Item | Amount |
|---|
| Net EV | $2,147.9M |
| Less: Term Loan Payoff | ($115.4M) |
| Less: Mezz Payoff (w/ PIK) | ($198.7M) |
| Plus: Excess Cash | $30.4M |
| Equity Proceeds | $1,864.1M |
Excess cash = FY2030 FCF after paying off remaining TL ($124.0M - $115.4M + small timing) ≈ $30.4M
Returns
| Metric | Calculation | Result |
|---|
| MOIC | $1,864.1M ÷ $808.8M | 2.30x |
| IRR | (2.30)^(1/5) - 1 | 18.2% |
3) SENSITIVITY TABLE: EQUITY IRR
Exit Multiple vs. FY2030 EBITDA Margin
Holding all else constant, varying exit EBITDA and multiple:
| 9.5x | 10.5x | 11.5x |
|---|
| 16.0% Margin ($194.5M) | 13.6% | 16.5% | 19.1% |
| 17.0% Margin ($206.6M) | 15.1% | 18.2% | 20.9% |
| 18.0% Margin ($218.8M) | 16.6% | 19.7% | 22.5% |
MOIC Table (Same Dimensions)
| 9.5x | 10.5x | 11.5x |
|---|
| 16.0% | 1.89x | 2.13x | 2.36x |
| 17.0% | 1.99x | 2.30x | 2.52x |
| 18.0% | 2.10x | 2.41x | 2.69x |
Calculation methodology: EV = Multiple × EBITDA; Net proceeds = EV × 99% - Debt; IRR = (Proceeds/Equity)^0.2 - 1
4) KEY RISKS & DOWNSIDE PROTECTIONS
5 Underwriting Risks
| # | Risk | Impact |
|---|
| 1 | Customer concentration – Top hyperscalers (AWS, MSFT, GOOG) likely 50%+ of revenue; loss of 1 contract = material EBITDA hit | Revenue/margin miss |
| 2 | Margin expansion failure – 13.3% → 17.0% assumes operational improvements that may not materialize (labor inflation, parts costs) | FCF compression, leverage stays elevated |
| 3 | Technology disruption – Liquid cooling / AI-driven predictive maintenance could commoditize traditional HVAC services | Multiple compression at exit |
| 4 | Labor scarcity – Specialized data center techs in short supply; wage inflation above plan | Margin squeeze |
| 5 | Multiple compression – Entered at 12x; exiting at 10.5x already assumes 1.5 turn compression; could be worse in risk-off market | Equity value destruction |
5 Downside Protection Levers
| # | Lever | Mechanism |
|---|
| 1 | Contracted revenue floor – Negotiate 3-5 year MSAs with 80%+ of revenue locked; include CPI escalators | Protects top-line in downside |
| 2 | Management rollover + earnout – Require 15-20% rollover; tie earnout to EBITDA margin milestones | Alignment on margin expansion |
| 3 | Covenant package – Springing leverage covenant at 5.0x; excess cash flow sweep at 75% above 3.0x leverage | Forces deleveraging discipline |
| 4 | Tuck-in M&A pipeline – Identified 3-4 regional players at 6-7x; accretive consolidation provides margin/multiple upside | Creates value even if organic growth slows |
| 5 | Capex flexibility – 3% capex is largely maintenance; can defer growth capex in downside to preserve ~$20M+ FCF annually | Liquidity buffer in stress case |
INVESTMENT RECOMMENDATION
Base case returns (18.2% IRR / 2.3x MOIC) meet hurdle, but the deal is tight on downside:
- At 9.5x exit / 16% margin: 13.6% IRR / 1.9x – below typical 15%/2.0x thresholds
- Entry multiple (12x) leaves limited margin of safety
Proceed with caution – recommend negotiating price to 11x or securing contracted revenue visibility before final commitment.
Response
