Mini LBO Underwrite

Below is a concise analysis based solely on the provided information. All calculations are shown clearly with step-by-step math. Figures are in $ millions and rounded to 1 decimal place for readability (internal calcs use more precision). The model assumes:

• Debt at close (end FY2025 / start FY2026): Term Loan (TL) = $480.0; Mezzanine (Mezz) = $180.0.
• Entry Enterprise Value (EV) = 12.0x * $120.0 EBITDA = $1,440.0.
• Transaction fees = 2% * $1,440.0 = $28.8 (funded by equity).
• Initial equity = $1,440.0 + $28.8 - $660.0 debt = $808.8.
• TL interest: 9% on beginning balance.
• TL mandatory amortization: 1% of initial principal = $4.8 per year (paid if cash available).
• Mezz cash interest: 12% on beginning balance.
• Mezz PIK: 2% on beginning balance (accrues to principal at year-end).
• FCF before principal payments = EBITDA - total cash interest - cash taxes - capex - ΔNWC.
• Free cash flow after debt service = FCF before principal payments - TL mandatory amortization (remainder used for optional TL paydown; assumes positive FCF covers mandatory).
• Total annual TL paydown = mandatory + optional.
• No cash build (starting cash = $0; all excess sweeps to TL).
• 5-year hold (entry t=0 end FY2025; exit t=5 end FY2030).
• No intermediate equity cash flows (no dividends).

1) Year-by-Year Table (FY2026–FY2030)

Metric	FY2026	FY2027	FY2028	FY2029	FY2030
Revenue	972.0	1,040.0	1,102.5	1,157.6	1,215.5
(Calc)	900*1.08	972*1.07	1,040.0*1.06	1,102.5*1.05	1,157.6*1.05
EBITDA	136.1	156.0	176.4	191.0	206.6
(Calc)	972*0.14	1,040.0*0.15	1,102.5*0.16	1,157.6*0.165	1,215.5*0.17
TL Cash Interest	43.2	41.0	38.3	35.1	31.4
(Calc; Beg TL)	0.09*480.0	0.09*455.5	0.09*425.9	0.09*390.3	0.09*348.4
Mezz Cash Interest	21.6	22.0	22.5	23.0	23.5
(Calc; Beg Mezz)	0.12*180.0	0.12*183.6	0.12*187.3	0.12*191.0	0.12*194.9
Cash Taxes	17.8	23.3	28.9	33.2	37.9
(Taxable Inc)	max(0,136.1-64.8)=71.3	max(0,156.0-63.1)=92.9	max(0,176.4-60.8)=115.6	max(0,191.0-58.1)=132.9	max(0,206.6-54.9)=151.7
(Calc)	0.25*71.3	0.25*92.9	0.25*115.6	0.25*132.9	0.25*151.7
Capex	29.2	31.2	33.1	34.7	36.5
(Calc)	0.03*972.0	0.03*1,040.0	0.03*1,102.5	0.03*1,157.6	0.03*1,215.5
ΔNWC (outflow)	0.4	0.3	0.3	0.3	0.3
(Inc Rev)	72.0	68.0	62.5	55.1	57.9
(Calc)	0.005*72.0	0.005*68.0	0.005*62.5	0.005*55.1	0.005*57.9
FCF Before Principal Payments	23.9	38.1	53.3	65.7	77.5
(Calc)	136.1-64.8-17.8-29.2-0.4	156.0-63.1-23.3-31.2-0.3	176.4-60.8-28.9-33.1-0.3	191.0-58.1-33.2-34.7-0.3	206.6-54.9-37.9-36.5-0.3
Free Cash Flow After Debt Service	19.1	33.3	48.5	60.9	72.7
(Calc)	23.9-4.8	38.1-4.8	53.3-4.8	65.7-4.8	77.5-4.8
Ending TL Balance	455.5	425.9	390.3	348.4	300.5
(Beg - Total Paydown)	480.0-(4.8+19.1)	455.5-(4.8+33.3)	425.9-(4.8+48.5)	390.3-(4.8+60.9)	348.4-(4.8+72.7)
Ending Mezz Balance	183.6	187.3	191.0	194.9	198.8
(Beg + PIK)	180.0+ (0.02*180.0)	183.6+ (0.02*183.6)	187.3+ (0.02*187.3)	191.0+ (0.02*191.0)	194.9+ (0.02*194.9)

2) Equity IRR and MOIC (Base Case)

• FY2030 EBITDA = $206.6.
• Exit EV = 10.5x * $206.6 = $2,169.3.
• Exit fees = 1% * $2,169.3 = $21.7.
• Net debt at exit = Ending TL ($300.5) + Ending Mezz ($198.8) - cash ($0) = $499.3.
• Exit equity proceeds = $2,169.3 - $499.3 - $21.7 = $1,648.3.
• MOIC = $1,648.3 / $808.8 = 2.04x.
• IRR: Solve $808.8 = $1,648.3 / (1 + r)^5 → r ≈ 15.3% (calculated via formula: r = ($1,648.3 / $808.8)^(1/5) - 1).

3) Sensitivity Table: Equity IRR

Varies exit multiple and FY2030 EBITDA margin (all other assumptions fixed; FY2030 revenue fixed at $1,215.5; recomputes EBITDA, EV, fees, and equity proceeds accordingly).

Exit Multiple \ FY2030 Margin	16% (EBITDA $194.5)	17% (EBITDA $206.6)	18% (EBITDA $218.8)
9.5x	10.8%	12.2%	13.6%
(Exit EV / Equity)	$1,847.8 / $1,326.8	$1,963.7 / $1,442.7	$2,079.6 / $1,558.6
10.5x	13.7%	15.3%	16.8%
(Exit EV / Equity)	$2,042.3 / $1,521.3	$2,169.3 / $1,648.3	$2,296.3 / $1,775.3
11.5x	16.5%	18.1%	19.8%
(Exit EV / Equity)	$2,236.8 / $1,715.8	$2,374.9 / $1,853.9	$2,512.9 / $1,991.9

(Equity = EV - net debt $499.3 - fees 1% of EV; IRR via same 5-year formula as above.)

4) Underwriting Risks and Downside Protection Levers

5 Underwriting Risks:

1. Customer concentration: Reliance on a few large data center clients could lead to revenue loss if contracts are terminated or renegotiated.
2. Economic downturn: Reduced data center expansion (e.g., due to recession) could slow revenue growth below 5-8% assumptions.
3. Margin compression: Rising labor/material costs for HVAC services could erode EBITDA margins below 14-17% targets.
4. Regulatory changes: New environmental regs on HVAC efficiency could increase capex needs beyond 3% of revenue.
5. Interest rate risk: Floating rates (not specified but implied) could raise effective interest above 9-14% if rates rise.

5 Concrete Downside Protection Levers:

1. Recurring contracts: mostly service-based revenue provides sticky, predictable cash flows to service debt.
2. Cash flow sweep: Mandatory sweep of excess FCF to TL paydown accelerates deleveraging (e.g., from 5.5x to ~2.4x by exit).
3. Mezz structure: PIK component defers cash outflows, preserving liquidity for senior debt service.
4. Conservative leverage: Starting at 5.5x with amortization ensures net debt/EBITDA declines to <3x by FY2028.
5. Exit flexibility: Ability to exit at lower multiples (e.g., 9.5x) still yields positive IRR (>10%) in sensitivities.