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
Intellect 3'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 $0. - Assume all free cash flow after required payments is used for optional Term Loan paydown (no dividends). OPERATING ASSUMPTIONS (FY2026–FY2030) Base case: - Revenue growth: 8%, 7%, 6%, 5%, 5% - EBITDA margin: 14.0%, 15.0%, 16.0%, 16.5%, 17.0% - Capex: 3.0% of revenue - Change in NWC: 0.5% of incremental revenue (cash outflow) - Cash tax rate: 25% applied to max(0, EBITDA - cash interest) (simplified) EXIT (end of FY2030) - Exit multiple: 10.5x FY2030 EBITDA - Exit fees: 1.0% of enterprise value - Mezzanine (including PIK) is repaid at exit. TASK 1) Build a simplified year-by-year table (FY2026–FY2030) with: revenue, EBITDA, cash interest (by tranche), cash taxes, capex, ΔNWC, free cash flow after debt service, and ending debt balances (Term Loan + Mezz). 2) Compute equity IRR and MOIC. 3) Provide a sensitivity table of equity IRR vs exit multiple (9.5x / 10.5x / 11.5x) and exit-year EBITDA margin (16% / 17% / 18%). 4) List 5 underwriting risks and 5 concrete downside protection levers. Keep it concise, but show the math clearly.
Response
HarborTech Services (HTS) - LBO Projection Model
1. LBO Projection Model (FY2026-FY2030)
| ($ millions) | FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|---|---|---|---|---|
| Revenue | $972.0 | $1,040.0 | $1,102.3 | $1,157.4 | $1,215.3 |
| EBITDA | $136.1 | $156.0 | $176.4 | $191.0 | $206.6 |
| Cash Interest - Term Loan | $43.2 | $43.2 | $43.2 | $43.2 | $43.2 |
| Cash Interest - Mezzanine | $21.6 | $21.6 | $21.6 | $21.6 | $21.6 |
| Cash Taxes | $0.0 | $22.8 | $38.2 | $56.6 | $60.5 |
| Capex | $29.2 | $31.2 | $33.1 | $34.7 | $36.5 |
| ΔNWC | $0.4 | $0.3 | $0.3 | $0.3 | $0.3 |
| FCFADS | $41.9 | $57.2 | $73.4 | $87.1 | $99.0 |
| Ending Debt Balances: | |||||
| Term Loan | $450.6 | $417.0 | $379.0 | $336.2 | $287.8 |
| Mezzanine | $180.0 | $180.0 | $180.0 | $184.9 | $191.1 |
Calculations:
a. Debt balances:
- Term Loan: Mandatory amortization of 1.0% of original principal ($4.8m) plus any optional prepayment from FCFADS
- Mezzanine: Original principal plus PIK interest (2.0% of beginning balance)
b. Cash taxes: 25% rate applied only when EBITDA > total cash interest. For FY2026, EBITDA ($136.1m) < total cash interest ($64.8m), so cash taxes = $0.
2. Equity Returns Calculation
- Entry Equity: $788.8m
- Exit Equity: $1,465.4m
- MOIC: 1.86x
- Equity IRR: 13.2%
3. Sensitivity Analysis: Equity IRR
| 16% Margin | 17% Margin | 18% Margin | |
|---|---|---|---|
| 9.5x Exit | 11.5% | 12.7% | 14.0% |
| 10.5x Exit | 12.9% | 13.2% | 14.6% |
| 11.5x Exit | 14.3% | 15.7% | 17.2% |
4. Underwriting Risks & Downside Protection
Underwriting Risks:
- Customer Concentration Risk: Top 5 customers account for 35% of revenue
- Integration Risk: Acquisition of smaller competitors may not integrate smoothly
- Debt Load: High leverage (5.5x) with significant interest payments ($64.8m annually)
- Interest Rate Risk: 40% of debt floating, exposed to potential rate increases
- Competition: Larger players (e.g., Schneider, Siemens) may target HTS's key accounts
Downside Protection Levers:
- Senior Debt Carve-outs: Covenant packages include 3.0x EBITDA minimum at entry
- EBITDA-based Maintenance Covenants: Quarterly EBITDA tests at 3.0x minimum
- Debt Service Reserve Account: $15m reserve funded at close from equity
- Limited Distribution Traps: No dividends until term loan <3.5x EBITDA
- Seller Notes: $50m seller note subordinate to senior debt with contingent payoffs
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About INTELLECT-3
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- Openrouter
- Released
- 2025-11-27
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- LARGE
