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'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. YEAR-BY-YEAR OPERATING 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 = $1,440m - $660m + $28.8m = $808.8m
Operating Model (FY2026-2030):
| ($m) | FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|---|---|---|---|---|
| Revenue | 972.0 | 1,040.0 | 1,102.4 | 1,157.5 | 1,215.4 |
| Growth % | 8.0% | 7.0% | 6.0% | 5.0% | 5.0% |
| EBITDA | 136.1 | 156.0 | 176.4 | 191.0 | 206.6 |
| Margin % | 14.0% | 15.0% | 16.0% | 16.5% | 17.0% |
| Cash Interest: | |||||
| - Term Loan (9%) | 43.2 | 38.5 | 33.7 | 28.7 | 23.6 |
| - Mezz Cash (12%) | 21.6 | 21.6 | 21.6 | 21.6 | 21.6 |
| Total Cash Interest | 64.8 | 60.1 | 55.3 | 50.3 | 45.2 |
| Cash Taxes | 17.8 | 24.0 | 30.3 | 35.2 | 40.4 |
| 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 | 24.0 | 40.4 | 57.4 | 70.6 | 84.3 |
| Debt Balances (EoY): | |||||
| Term Loan | 451.2 | 405.6 | 343.4 | 267.6 | 178.5 |
| Mezz (incl. PIK) | 183.6 | 187.3 | 191.0 | 194.9 | 198.8 |
| Total Debt | 634.8 | 592.9 | 534.4 | 462.5 | 377.3 |
Notes:
- Term Loan amortization: 1% mandatory + optional paydown from FCF
- Mezz PIK: 2% × beginning balance added to principal annually
2. EQUITY RETURNS
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 - $377.3m - $21.7m = $1,770.3m
Returns:
- MOIC = $1,770.3m ÷ $808.8m = 2.19x
- IRR = 17.0% (5-year holding period)
3. SENSITIVITY ANALYSIS
IRR Sensitivity (%):
| Exit Multiple → | 9.5x | 10.5x | 11.5x |
|---|---|---|---|
| FY30 Margin ↓ | |||
| 16.0% | 13.4% | 16.0% | 18.4% |
| 17.0% | 14.5% | 17.0% | 19.4% |
| 18.0% | 15.5% | 18.0% | 20.3% |
4. UNDERWRITING RISKS & DOWNSIDE PROTECTION
Key Risks:
- Customer concentration - Large data center operators could consolidate/renegotiate
- Technology disruption - AI-driven predictive maintenance could reduce service needs
- Recession impact - Data center expansion could slow, reducing new contract growth
- Margin compression - Labor shortage/wage inflation in skilled HVAC technicians
- Leverage sustainability - 5.5x entry leverage with limited deleveraging runway
Downside Protection Levers:
- Debt structure flexibility - Negotiate PIK toggle on mezzanine for liquidity preservation
- M&A optionality - Identify bolt-on targets to accelerate growth/cross-sell
- Contract escalators - Build inflation adjustments into multi-year service agreements
- Working capital optimization - Accelerate collections, extend payables for cash generation
- Opex variabilization - Convert fixed costs to variable through outsourcing non-core functions
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About Claude Opus 4
Capabilities
Categories
Specifications
- Provider
- Anthropic
- Released
- 2025-05-22
- Size
- XLARGE
- Parameters
- Not disclosed
- Context
- 200,000 tokens
