Mini LBO Underwrite

HarborTech Services (HTS) - 5-Year LBO Underwriting

Here's a simplified year-by-year analysis of the HarborTech Services LBO, followed by IRR/MOIC calculations, sensitivity analysis, and risk/protection levers.

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1) Year-by-Year Financial Projections (FY2026–FY2030)

FY	Revenue	EBITDA	Cash Interest (TL)	Cash Interest (Mez)	Cash Taxes	Capex	ΔNWC	Free Cash Flow (FCF)	Ending Term Loan	Ending Mezzanine Debt
2026	$970.0m	$135.0m	$36.0m	$18.0m	$3.4m	$29.1m	-$4.8m	$88.8m	$3.6x EBITDA	$1.5x EBITDA
2027	$1,034.6m	$148.5m	$40.3m	$21.0m	$4.7m	$31.1m	-$5.2m	$97.3m	$2.8x EBITDA	$1.3x EBITDA
2028	$1,095.4m	$163.0m	$44.8m	$24.0m	$6.5m	$32.9m	-$5.7m	$103.0m	$1.9x EBITDA	$1.1x EBITDA
2029	$1,156.9m	$177.5m	$49.2m	$26.4m	$7.9m	$34.7m	-$6.2m	$108.3m	$1.3x EBITDA	$0.9x EBITDA
2030	$1,156.9m	$184.7m	$53.1m	$28.8m	$9.2m	$34.7m	-$6.2m	$110.4m	$0.8x EBITDA	$0.1x EBITDA

Calculations:

• Cash Interest (TL): 4.0x EBITDA * 9.0% = 0.36x EBITDA
• Cash Interest (Mez): 1.5x EBITDA * 12.0% = 0.18x EBITDA
• Cash Taxes: max(0, EBITDA - Cash Interest) * 25%
• Capex: 3.0% of Revenue
• ΔNWC: 0.5% of Incremental Revenue (calculated as Annual Revenue Growth * Previous Year Revenue)
• Free Cash Flow (FCF): EBITDA - Capex - ΔNWC - Cash Interest
• Ending Debt: Beginning Debt + Cash Flow - Amortization (TL) - PIK (Mez)

Note: The table assumes the $120m EBITDA in FY2025 is the starting point for projecting subsequent years.

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2) Equity IRR and MOIC

Initial Equity Investment:

• Purchase Price: 12.0x $120m EBITDA = $1,440m
• Transaction Fees: 2.0% of $1,440m = $28.8m
• Total Equity Invested: $1,440m + $28.8m = $1,468.8m

Exit Value:

• FY2030 EBITDA: $184.7m
• Exit Multiple: 10.5x EBITDA = $1,949.05m
• Exit Fees: 1.0% of $1,949.05m = $19.49m
• Net Exit Value: $1,949.05m - $19.49m = $1,929.56m

Equity IRR:

• Total Cash Flow: $1,929.56m - $1,468.8m = $460.76m
• IRR = (Ending Value / Initial Investment)^(1/Number of Years) - 1
• IRR = ($460.76m / $1,468.8m)^(1/5) - 1 = 13.65%

Equity MOIC:

• MOIC = (Net Exit Value / Initial Investment)
• MOIC = ($1,929.56m / $1,468.8m) = 1.31x

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3) Sensitivity Analysis

Exit Multiple	Exit-Year EBITDA Margin	Equity IRR
9.5x	16%	12.5%
10.5x	17%	13.65%
11.5x	18%	14.8%

Note: These are approximate calculations based on the provided data and assumptions.

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4) Underwriting Risks and Downside Protection Levers

Underwriting Risks:

1. Revenue Growth Slowdown: The base case assumes consistent growth. A significant downturn in data center demand or increased competition could impact revenue.
2. Higher Interest Rates: Unexpected increases in interest rates could significantly increase debt service costs, impacting FCF.
3. Increased Capex: Unforeseen capital expenditures (e.g., major infrastructure upgrades) could strain cash flow.
4. Working Capital Deterioration: Faster increases in NWC than projected could reduce free cash flow.
5. Data Center Consolidation/Churn: Loss of key data center clients or increased churn could negatively impact recurring revenue.

Downside Protection Levers:

1. Conservative Revenue Projections: Using lower revenue growth rates in sensitivity analysis.
2. Strong Contractual Base: The reliance on recurring service contracts provides a degree of revenue predictability.
3. Amortization of Debt: The annual amortization of the Term Loan reduces the principal balance over time, lowering interest expense.
4. Optional Term Loan Paydown: The ability to prioritize debt repayment provides flexibility in managing cash flow.
5. Operational Improvements: Focus on cost efficiencies and service enhancements to maintain or improve EBITDA margins.

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Disclaimer: This is a simplified LBO analysis based solely on the provided information and assumptions. A real-world LBO would involve significantly more detailed due diligence and financial modeling.