Mini LBO Underwrite

1. Sources & Uses (Entry at End FY2025)

Uses

• Purchase Price: $1,440.0m (12.0x $120m EBITDA)
• Transaction Fees: $28.8m (2.0% of EV)
• Total Uses: $1,468.8m

Sources

• Term Loan: $480.0m (4.0x EBITDA)
• Mezzanine: $180.0m (1.5x EBITDA)
• Total Debt: $660.0m (5.5x EBITDA)
• Equity: $808.8m (Plug)
• Total Sources: $1,468.8m

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2. Year-by-Year Financial Model (FY2026–FY2030)

Assumptions Applied:

• Rev Growth: 8% → 7% → 6% → 5% → 5%
• EBITDA Margin: 14.0% → 17.0%
• Tax Base: EBITDA - Cash Interest.
• Amortization: 1% of Original TL Principal ($4.8m/yr).
• Optional Paydown: All FCF after mandatory amort goes to Term Loan.

Metric ($m)	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
Margin %	14.0%	15.0%	16.0%	16.5%	17.0%
Cash Interest:
- Term Loan (9.0%)	($43.2)	($41.3)	($38.0)	($33.2)	($27.3)
- Mezzanine (12.0%)	($21.6)	($22.0)	($22.5)	($22.9)	($23.4)
Total Cash Int.	($64.8)	($63.3)	($60.5)	($56.1)	($50.7)
Cash Taxes (25%)	($17.8)	($23.2)	($29.0)	($33.7)	($39.0)
Capex	($29.2)	($31.2)	($33.1)	($34.7)	($36.5)
ΔNWC	($3.6)	($0.3)	($0.3)	($0.3)	($0.3)
Free Cash Flow	$15.9	$31.8	$48.7	$61.3	$75.4
Mandatory Amort	($4.8)	($4.8)	($4.8)	($4.8)	($4.8)
Optional TL Paydown	($11.1)	($27.0)	($43.9)	($56.5)	($70.6)
Ending Balances:
Term Loan	$464.1	$432.3	$383.6	$322.3	$246.9
Mezzanine (w/ PIK)	$183.6	$187.3	$191.0	$194.8	$198.7
Total Net Debt	$647.7	$619.6	$574.6	$517.1	$445.6

(Note: Mezzanine balance grows by 2.0% PIK annually. Term Loan interest calculated on beginning balance for simplicity, consistent with "simplified" instruction.)

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3. Returns Analysis (Exit End FY2030)

Exit Valuation

• Exit EBITDA: $206.6m
• Exit Multiple: 10.5x
• Enterprise Value: $2,169.5m
• Less Exit Fees: ($21.7m) (1.0% of EV)
• Less Total Debt: ($445.6m) (TL $246.9m + Mezz $198.7m)
• Net Equity Value: $1,702.2m

Returns

• Initial Equity: $808.8m
• MOIC: 2.1x ($1,702.2m / $808.8m)
• IRR: 16.0%

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4. Sensitivity Analysis (Equity IRR)

Exit Multiple	16.0% Margin	17.0% Margin (Base)	18.0% Margin
9.5x	11.6%	13.5%	15.3%
10.5x	14.5%	16.0%	17.5%
11.5x	17.2%	19.0%	20.7%

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5. Underwriting Risks & Downside Protection

Top 5 Risks:

1. Multiple Contraction: Entry at 12.0x vs Exit at 10.5x creates a significant valuation headwind; the investment relies heavily on EBITDA growth to offset the multiple decline.
2. Execution Risk: The plan requires expanding EBITDA margin from 13.3% to 17.0% in 5 years; failure to achieve operational efficiencies (scale, routing, purchasing) will crush returns.
3. Interest Rate Volatility: The Term Loan is floating rate; a sustained 200bps rate increase would significantly reduce free cash flow available for deleveraging.
4. Customer Concentration: "Data centers" implies a concentrated customer base (hyperscalers); loss of a single major contract could materially impact revenue.
5. Refinancing Risk: Mezzanine debt is expensive (14%+ all-in); if the credit markets are closed in Years 3–4, the company cannot refinance to lower interest costs, dampening equity value.

Top 5 Downside Protection Levers:

1. Recurring Revenue Base: Mission-critical maintenance contracts for data centers are non-discretionary and highly sticky, providing downside revenue protection.
2. Aggressive Deleveraging: The model generates ~$230m of cumulative FCF for debt paydown, reducing Net Debt from $660m to ~$446m, significantly lowering the equity breakeven point.
3. Margin Floor: Even if margin expansion fails, the business generates strong cash flow; at a constant 13.3% margin, the company still pays down debt, providing a cushion.
4. Asset Liquidity: HVAC service platforms are attractive to strategic buyers (e.g., HVAC manufacturers, facility management firms), providing an alternative exit path if financial sponsors are absent.
5. NWC Efficiency: The minimal NWC requirements (0.5% of incremental revenue) ensure cash flow conversion is high, preventing cash from being trapped in working capital during growth.