Below is a simplified 5-year LBO model for HarborTech Services (HTS) using only the assumptions provided.

---

1) Entry, sources & uses

Purchase price

• FY2025 EBITDA = $120.0m
• Entry multiple = 12.0x
• Enterprise Value = 12.0 × 120.0 = $1,440.0m

Fees

• Transaction fees = 2.0% of EV
• = 2.0% × 1,440.0 = $28.8m

Uses

• Purchase of business: $1,440.0m
• Fees: $28.8m
• Total Uses = $1,468.8m

Sources

Total leverage = 5.5x EBITDA

• Term Loan = 4.0x × 120.0 = $480.0m
• Mezzanine = 1.5x × 120.0 = $180.0m
• Total debt = $660.0m

Equity funds the rest:

• Equity = 1,468.8 - 660.0 = $808.8m

---

2) Operating model and debt schedule (FY2026–FY2030)

Key modeling conventions used

• Revenue grows per schedule.
• EBITDA = Revenue × margin.
• Term Loan:
  • 9.0% cash interest on beginning balance
  • 1.0% annual amortization of original principal = $4.8m/year
  • all residual FCF used for optional paydown
• Mezzanine:
  • 12.0% cash interest on beginning balance
  • 2.0% PIK on beginning balance, added to principal
• Cash taxes = 25% × max(0, EBITDA - cash interest)
  where cash interest = Term Loan cash interest + Mezz cash interest
• FCF after debt service shown after:
  • cash interest
  • cash taxes
  • capex
  • ΔNWC
  • required Term Loan amortization
• Then that FCF is used for optional Term Loan paydown

---

Year-by-year model

$ in millions

FY	Revenue	EBITDA	Term cash int.	Mezz cash int.	Cash taxes	Capex	ΔNWC	FCF after debt service*	End Term Loan	End Mezz**
2026	972.0	136.1	43.2	21.6	17.8	29.2	0.4	18.3	456.9	183.6
2027	1,040.0	156.0	41.1	22.0	23.2	31.2	0.3	55.4	396.6	187.3
2028	1,102.4	176.4	35.7	22.5	29.5	33.1	0.3	77.7	314.1	191.0
2029	1,157.5	191.0	28.3	22.9	34.9	34.7	0.3	88.1	221.3	194.9
2030	1,215.4	206.6	19.9	23.4	40.8	36.5	0.3	105.8	110.7	198.8

* FCF after debt service =
EBITDA - cash interest - cash taxes - capex - ΔNWC - required TL amortization

** End Mezz includes 2.0% PIK accrual each year

---

3) Supporting math by year

FY2026

• Revenue = 900.0 × 1.08 = 972.0
• EBITDA = 972.0 × 14.0% = 136.08
• Term cash interest = 9.0% × 480.0 = 43.20
• Mezz cash interest = 12.0% × 180.0 = 21.60
• Cash taxes = 25% × (136.08 - 64.80) = 17.82
• Capex = 3.0% × 972.0 = 29.16
• ΔNWC = 0.5% × (972.0 - 900.0) = 0.36
• Required TL amortization = 4.8
• FCF after debt service = 136.08 - 43.20 - 21.60 - 17.82 - 29.16 - 0.36 - 4.80 = 18.34
• Optional TL paydown = 18.34
• End Term Loan = 480.0 - 4.8 - 18.34 = 456.86
• Mezz PIK = 2.0% × 180.0 = 3.60
• End Mezz = 180.0 + 3.60 = 183.60

FY2027

• Revenue = 972.0 × 1.07 = 1,040.04
• EBITDA = 1,040.04 × 15.0% = 156.01
• Term cash interest = 9.0% × 456.86 = 41.12
• Mezz cash interest = 12.0% × 183.60 = 22.03
• Cash taxes = 25% × (156.01 - 63.15) = 23.21
• Capex = 31.20
• ΔNWC = 0.5% × (1,040.04 - 972.0) = 0.34
• FCF after debt service = 55.45
• Optional TL paydown = 55.45
• End Term Loan = 456.86 - 4.8 - 55.45 = 396.61
• End Mezz = 183.60 × 1.02 = 187.27

FY2028

• Revenue = 1,040.04 × 1.06 = 1,102.44
• EBITDA = 1,102.44 × 16.0% = 176.39
• Term cash interest = 9.0% × 396.61 = 35.69
• Mezz cash interest = 12.0% × 187.27 = 22.47
• Cash taxes = 25% × (176.39 - 58.16) = 29.56
• Capex = 33.07
• ΔNWC = 0.31
• FCF after debt service = 77.68
• End Term Loan = 396.61 - 4.8 - 77.68 = 314.13
• End Mezz = 187.27 × 1.02 = 191.02

FY2029

• Revenue = 1,102.44 × 1.05 = 1,157.56
• EBITDA = 1,157.56 × 16.5% = 191.00
• Term cash interest = 9.0% × 314.13 = 28.27
• Mezz cash interest = 12.0% × 191.02 = 22.92
• Cash taxes = 25% × (191.00 - 51.19) = 34.95
• Capex = 34.73
• ΔNWC = 0.28
• FCF after debt service = 88.07
• End Term Loan = 314.13 - 4.8 - 88.07 = 221.26
• End Mezz = 191.02 × 1.02 = 194.84

FY2030

• Revenue = 1,157.56 × 1.05 = 1,215.44
• EBITDA = 1,215.44 × 17.0% = 206.62
• Term cash interest = 9.0% × 221.26 = 19.91
• Mezz cash interest = 12.0% × 194.84 = 23.38
• Cash taxes = 25% × (206.62 - 43.29) = 40.83
• Capex = 36.46
• ΔNWC = 0.29
• FCF after debt service = 105.75
• End Term Loan = 221.26 - 4.8 - 105.75 = 110.71
• End Mezz = 194.84 × 1.02 = 198.74

---

4) Exit and equity returns

Exit enterprise value

• FY2030 EBITDA = $206.62m
• Exit multiple = 10.5x
• Gross EV = 10.5 × 206.62 = $2,169.54m

Exit fees

• 1.0% of EV = 21.70m

Net EV after fees

• 2,169.54 - 21.70 = $2,147.84m

Debt repaid at exit

• Term Loan = 110.71m
• Mezzanine incl. PIK = 198.74m
• Total debt repaid = 309.45m

Equity value at exit

• 2,147.84 - 309.45 = $1,838.39m

MOIC

• Initial equity = 808.80m
• Exit equity = 1,838.39m
• MOIC = 1,838.39 / 808.80 = 2.27x

IRR

• 5-year hold, no interim distributions:
• IRR = (2.2729)^(1/5) - 1 ≈ 17.8%

---

5) Sensitivity: Equity IRR vs exit multiple and FY2030 EBITDA margin

Assumption for sensitivity:

• FY2030 revenue held constant at $1,215.44m
• Only exit-year EBITDA margin changes to 16% / 17% / 18%
• Debt balances held constant at base-case FY2030 exit debt:
  • Term Loan 110.71m
  • Mezz 198.74m
• Exit fees remain 1.0% of EV

Step: FY2030 EBITDA under each margin

• 16% margin: 194.47m
• 17% margin: 206.62m
• 18% margin: 218.78m

Formula

• Equity exit value = EBITDA × Exit Multiple × 99% − 309.45
• MOIC = Equity exit value / 808.80
• IRR = MOIC^(1/5) − 1

Equity IRR sensitivity table

FY2030 EBITDA Margin \ Exit Multiple	9.5x	10.5x	11.5x
16.0%	12.5%	16.0%	19.3%
17.0%	14.6%	17.8%	20.8%
18.0%	16.6%	19.5%	22.3%

For reference, corresponding MOICs:

FY2030 EBITDA Margin \ Exit Multiple	9.5x	10.5x	11.5x
16.0%	1.80x	2.10x	2.41x
17.0%	1.98x	2.27x	2.58x
18.0%	2.16x	2.46x	2.75x

---

6) 5 underwriting risks

1. Data center spending cyclicality / customer concentration

   • If hyperscaler or colocation customers delay projects or consolidate vendors, recurring growth could slow.

2. Margin expansion risk

   • Base case assumes EBITDA margin rises from 13.3% to 17.0%; failure to realize pricing, mix, or efficiency gains would pressure returns.

3. Labor availability and wage inflation

   • Mission-critical HVAC service depends on skilled technicians; labor shortages could raise cost to serve and impair SLAs.

4. High fixed cash interest burden

   • At close, annual cash interest is $64.8m, plus mezz PIK accretion; if EBITDA underperforms, deleveraging slows quickly.

5. Exit multiple compression

   • Entry at 12.0x, exit underwritten at 10.5x already assumes some compression; a weaker market could compress further.

---

7) 5 concrete downside protection levers

1. Lower entry price / structure discipline

   • Re-trade valuation or require seller rollover to reduce day-1 equity risk and improve downside MOIC.

2. Reduce mezzanine portion

   • Replace some mezz with equity or cheaper senior debt to lower cash interest + PIK drag and improve resilience.

3. Contract quality diligence

   • Underwrite only revenue backed by long-term service agreements, renewal visibility, inflation escalators, and termination protections.

4. Operational value-creation plan tied to labor productivity

   • Route density, remote monitoring utilization, technician scheduling, and procurement savings to protect margin if growth softens.

5. Mandatory cash sweep / tighter deleveraging

   • Apply all excess cash to senior debt, avoid dividends, and maintain liquidity controls to preserve exit optionality in a downside case.

---

Bottom line

Base case returns:

• Equity invested: $808.8m
• Exit equity value: $1,838.4m
• MOIC: 2.27x
• 5-year IRR: 17.8%

For an IC lens: this screens as a reasonable but not exceptional LBO—return profile is acceptable, but it relies on meaningful margin expansion and steady deleveraging to offset relatively full entry valuation and expensive subordinated capital.