3 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
Gemini 3.1 Pro Preview'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
Here is the underwriting analysis for HarborTech Services (HTS) based on the provided parameters.
1. Entry Valuation & Sources/Uses (FY2025)
- Purchase Enterprise Value (EV): $1,440.0m (12.0x $120m EBITDA)
- Transaction Fees: $28.8m (2.0% of EV)
- Total Uses: $1,468.8m
- Term Loan (4.0x): $480.0m
- Mezzanine Debt (1.5x): $180.0m
- Sponsor Equity: $808.8m (Total Uses less Total Debt)
2. 5-Year Financial Projections (FY2026 – FY2030)
Assumptions: TL required amort is 1.0% of original principal ($4.8m/yr). Mezzanine PIK accrues at 2.0% annually. Cash taxes exclude PIK from interest deductions.
| ($ in millions) | FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|---|---|---|---|---|
| Revenue | 972.0 | 1,040.0 | 1,102.4 | 1,157.6 | 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% |
| (-) Term Loan Cash Interest (9.0%) | (43.2) | (41.0) | (37.6) | (32.8) | (26.8) |
| (-) Mezzanine Cash Interest (12.0%) | (21.6) | (22.0) | (22.5) | (22.9) | (23.4) |
| (-) Cash Taxes (25%) | (17.8) | (23.2) | (29.1) | (33.8) | (39.1) |
| (-) Capex (3.0% of Rev) | (29.2) | (31.2) | (33.1) | (34.7) | (36.5) |
| (-) ΔNWC (0.5% of Inc. Rev) | (0.4) | (0.3) | (0.3) | (0.3) | (0.3) |
| (-) Required TL Amortization (1.0%) | (4.8) | (4.8) | (4.8) | (4.8) | (4.8) |
| FCF After Required Debt Service* | 19.1 | 33.4 | 49.0 | 61.7 | 75.8 |
| Ending Term Loan Balance | 456.1 | 417.9 | 364.1 | 297.6 | 217.0 |
| Ending Mezzanine Balance | 183.6 | 187.3 | 191.0 | 194.8 | 198.7 |
| *100% of this FCF is swept to optional Term Loan paydown. |
3. Exit Valuation & Returns (End of FY2030)
- Exit EBITDA: $206.6m
- Exit Multiple: 10.5x
- Gross Enterprise Value: $2,169.6m
- Less: Exit Fees (1.0% of EV): ($21.7m)
- Net Enterprise Value: $2,147.9m
- Less: Ending Total Debt: ($415.7m) (TL: $217.0m + Mezz: $198.7m)
- Ending Equity Value: $1,732.2m
Returns:
- MOIC: 2.14x ($1,732.2m / $808.8m)
- Equity IRR: 16.5%
4. Sensitivity Analysis: Equity IRR
Assumes the exit-year EBITDA margin impacts FY2030 EBITDA, FY30 cash flow/taxes, and the resulting exit valuation.
| Exit Margin \ Exit Multiple | 9.5x | 10.5x | 11.5x |
|---|---|---|---|
| 16.0% | 11.7% | 14.6% | 17.2% |
| 17.0% (Base) | 13.6% | 16.5% | 19.1% |
| 18.0% | 15.3% | 18.2% | 20.8% |
5. Underwriting Risks & Downside Protection Levers
5 Underwriting Risks:
- Customer Concentration: The data center market is dominated by a few hyperscalers (AWS, MSFT, Google); losing a single top-tier tenant contract could severely impact revenue.
- Skilled Labor Shortage & Wage Inflation: HVAC technicians are in high demand. Wage inflation could outpace service contract price escalators, compressing margins.
- High Entry Leverage: 5.5x starting leverage with expensive mezzanine debt leaves the business vulnerable to cash flow crunches if top-line growth stalls early in the hold period.
- Data Center Capex Slowdown: A macro cooling of AI/cloud infrastructure build-outs would limit new greenfield service contract opportunities, risking the 5–8% growth projections.
- Multiple Contraction: Entering at 12.0x leaves limited room for error. A shift in interest rates or market sentiment could compress exit multiples well below the modeled 10.5x (e.g., historical 8-9x HVAC averages).
5 Downside Protection Levers:
- Mission-Critical Recurring Revenue: Data center cooling is non-discretionary (downtime costs millions). High switching costs and multi-year contracts provide a highly visible, sticky revenue floor.
- Aggressive De-leveraging Sweep: By sweeping 100% of excess cash flow to the Term Loan, HTS rapidly de-risks the balance sheet, dropping senior leverage from 4.0x to ~1.0x by exit.
- Asset-Light Capex Flexibility: With maintenance capex at only 3% of revenue, management can easily defer non-essential tech/fleet upgrades to preserve cash in a recessionary scenario.
- Pass-Through Pricing Mechanisms: Service contracts can be structured with CPI-linked or wage-linked automatic escalators, shifting the burden of inflation directly to the end customer to protect EBITDA margins.
- SG&A & Route Optimization: In a downside scenario, HTS can pause hiring, consolidate technician routing (improving utilization), and cut back-office overhead to defend the 14-17% margin profile.
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About Gemini 3.1 Pro Preview
Capabilities
Categories
Specifications
- Provider
- Released
- 2026-02-19
- Size
- XLARGE
- Context
- 1,048,576 tokens
