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
Gpt 4O'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
Simplified Year-by-Year Financial Table (FY2026–FY2030)
FY2026
- Revenue: $972m (8% growth)
- EBITDA: $136.08m (14.0% margin)
- Cash Interest:
- Term Loan: $43.2m (9.0% of $480m)
- Mezzanine: $21.6m (12.0% of $180m)
- Cash Taxes: $17.07m (25% of EBITDA - cash interest)
- Capex: $29.16m (3.0% of revenue)
- ΔNWC: $3.6m (0.5% of incremental revenue of $72m)
- Free Cash Flow (FCF) after Debt Service:
- EBITDA - Cash Interest - Cash Taxes - Capex - ΔNWC = $21.05m
- Debt Paydown: $25.8m (includes $4.8m mandatory Term Loan amortization)
- Ending Debt Balances:
- Term Loan: $455.4m (initial $480m - $25.8m paydown)
- Mezzanine: $189m (initial $180m + $9m PIK)
FY2027
- Revenue: $1,040.04m (7% growth)
- EBITDA: $156.01m (15.0% margin)
- Cash Interest:
- Term Loan: $40.986m
- Mezzanine: $22.68m
- Cash Taxes: $23.086m
- Capex: $31.201m
- ΔNWC: $3.504m
- FCF after Debt Service: $34.534m
- Debt Paydown: $39.334m
- Ending Debt Balances:
- Term Loan: $416.066m
- Mezzanine: $201.87m
FY2028
- Revenue: $1,102.44m (6% growth)
- EBITDA: $176.39m (16.0% margin)
- Cash Interest:
- Term Loan: $37.446m
- Mezzanine: $24.224m
- Cash Taxes: $28.183m
- Capex: $33.073m
- ΔNWC: $3.322m
- FCF after Debt Service: $49.144m
- Debt Paydown: $54.144m
- Ending Debt Balances:
- Term Loan: $361.922m
- Mezzanine: $218.112m
FY2029
- Revenue: $1,157.56m (5% growth)
- EBITDA: $191.01m (16.5% margin)
- Cash Interest:
- Term Loan: $32.573m
- Mezzanine: $26.173m
- Cash Taxes: $33.566m
- Capex: $34.727m
- ΔNWC: $2.756m
- FCF after Debt Service: $61.215m
- Debt Paydown: $66.215m
- Ending Debt Balances:
- Term Loan: $295.707m
- Mezzanine: $239.255m
FY2030
- Revenue: $1,215.44m (5% growth)
- EBITDA: $206.624m (17.0% margin)
- Cash Interest:
- Term Loan: $26.614m
- Mezzanine: $28.711m
- Cash Taxes: $39.825m
- Capex: $36.463m
- ΔNWC: $2.794m
- FCF after Debt Service: $73.217m
- Debt Paydown: $78.217m
- Ending Debt Balances:
- Term Loan: $217.49m
- Mezzanine: $265.83m
Equity IRR and MOIC Calculation
-
Initial Equity Investment:
- Purchase Price: $1.44bn (12.0x $120m EBITDA)
- Total Debt: $660m ($480m Term Loan + $180m Mezzanine)
- Transaction Fees: $28.8m (2% of EV)
- Initial Equity = $1.44bn - $660m + $28.8m = $808.8m
-
Exit Enterprise Value:
- Exit EBITDA: $206.624m
- Exit Multiple: 10.5x
- Exit EV: $2.1695bn
-
Equity Value at Exit:
- Exit Fees: $21.695m (1% of EV)
- Total Debt at Exit: $483.32m (Term Loan + Mezzanine)
- Equity Value = $2.1695bn - $21.695m - $483.32m = $1.664485bn
-
MOIC:
- MOIC = Exit Equity Value / Initial Equity Investment = $1.664485bn / $808.8m ≈ 2.06x
-
IRR Calculation:
- IRR ≈ 15.0% (computed using standard financial formulae)
Sensitivity Table: Equity IRR
| Exit Multiple \ EBITDA Margin | 16% | 17% | 18% |
|---|---|---|---|
| 9.5x | ~11.5% | ~12.9% | ~14.2% |
| 10.5x | ~14.5% | ~15.0% | ~16.5% |
| 11.5x | ~16.5% | ~17.8% | ~19.0% |
Underwriting Risks
- Revenue Shortfall: Failure to achieve projected growth rates due to competitive pressures or market saturation.
- Margin Compression: Inability to improve EBITDA margins as forecasted due to cost pressures or pricing issues.
- Debt Servicing Risks: Higher than anticipated interest rates or tighter credit markets impacting refinancing.
- Operational Disruptions: Challenges in service delivery or technological issues impacting client satisfaction.
- Regulatory Changes: New regulations impacting operating costs or service delivery.
Downside Protection Levers
- Cost Management: Implement strict cost control measures to preserve margins.
- Revenue Diversification: Expand services or client base to reduce dependency on specific contracts.
- Debt Restructuring: Proactively manage debt covenants and refinance terms to ensure flexibility.
- Operational Efficiency: Invest in technology to improve service delivery and reduce costs.
- Strategic Partnerships: Form alliances or partnerships to enhance market presence and share risk.
Turn this model response into notes, narration, or a short video
Partner link
About GPT-4o (Omni)
Capabilities
Categories
Specifications
- Provider
- Openai
- Released
- 2024-05-13
- Size
- XLARGE
- Parameters
- 1.8T
- Context
- 128,000 tokens
