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
Grok 4 1 Fast'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
1) Simplified LBO Model (FY2026–FY2030, $m)
| Year | Revenue | EBITDA | TL Cash Int. | Mezz Cash Int. | Cash Taxes | Capex | ΔNWC | FCF After Debt Service* | End TL | End Mezz | End Total Debt |
|---|---|---|---|---|---|---|---|---|---|---|---|
| FY26 | 972.0 | 136.1 | 43.2 | 21.6 | 17.8 | 29.2 | 0.4 | 19.1 | 456.1 | 183.6 | 639.7 |
| FY27 | 1,040.0 | 156.0 | 41.1 | 22.0 | 23.2 | 31.2 | 0.3 | 33.6 | 417.9 | 187.3 | 605.2 |
| FY28 | 1,102.4 | 176.4 | 37.6 | 22.5 | 29.1 | 33.1 | 0.3 | 49.7 | 364.1 | 191.0 | 555.1 |
| FY29 | 1,157.6 | 191.0 | 32.8 | 22.9 | 33.8 | 34.7 | 0.3 | 62.8 | 297.6 | 194.8 | 492.4 |
| FY30 | 1,215.4 | 206.6 | 26.8 | 23.4 | 39.1 | 36.5 | 0.3 | 77.6 | 217.0 | 198.7 | 415.7 |
*FCF After Debt Service = (EBITDA - cash int - taxes) - capex - ΔNWC - TL mand. amort (1% beg. TL); excess → optional TL paydown. All rounded; PIK non-cash (2% beg. Mezz → principal).
Key math ex. FY26: Cash int = 480×9% + 180×12% = 64.8; Tax = 25%×(136.1-64.8) = 17.8; Pre-out = 53.5; Out = 29.2+0.4+4.8(mand.) = 34.4; FCF = 19.1.
2) Equity IRR and MOIC
- Entry equity: $808.8m (uses = 1,440 EV + 28.8 fees; debt 660 → equity bal.).
- Exit EV (FY30): 10.5 × 206.6 = 2,169.5; fees = 21.7; debt = 415.7 → Equity out = 1,732.1.
- MOIC = 1,732.1 / 808.8 = 2.14x.
- IRR = 16.5% ((2.14^(1/5)) - 1; 5-yr hold, no int. CFs).
3) Equity IRR Sensitivity (%)
| Exit EBITDA Margin / Multiple | 9.5x | 10.5x | 11.5x |
|---|---|---|---|
| 16% | 11.9% | 14.3% | 17.1% |
| 17% (base) | 13.4% | 16.5% | 19.3% |
| 18% | 15.4% | 18.2% | 21.0% |
Math: Vary FY30 EBITDA only (rev fixed); recompute FY30 FCF/debt (higher EBITDA → more TL paydown, lower debt); EV = mult × EBITDA30; equity out = EV - debt - 1% fees; IRR from -808.8 (t=0) to out (t=5).
4) Underwriting Risks & Downside Protection Levers
5 Risks:
- Revenue growth miss: Data center capex cycles slow (e.g., AI hype fades).
- Margin compression: Labor/inflation > pricing power on recurring contracts.
- Customer concentration: Loss of top 5 clients (assume >50% rev).
- Capex overrun: Supply chain for HVAC tech disrupts maintenance.
- Refi risk: Rates rise → TL repricing post-initial period.
5 Concrete Levers:
- Debt sweep: ~$242m TL paydown over 5 yrs → leverage 3.5x → 1.0x at exit.
- Recurring contracts: >80% rev sticky → resilient base growth.
- EBITDA build: +370bps margin → cushions int. coverage >2.5x avg.
- Mezz repayment at exit: Caps PIK bloat (~+11% principal growth).
- Covenants: 20%+ headroom on 4.5x leverage test (post-sweep).
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About Grok 4.1 Fast
Capabilities
Categories
Specifications
- Provider
- Xai
- Released
- 2025-11-21
- Size
- XLARGE
