HarborTech Services (HTS) – 5-Year LBO Investment Memorandum

Executive Summary

This underwriting analysis evaluates a buyout of HarborTech Services, a mission-critical HVAC maintenance and monitoring provider to data centers. The investment offers an attractive risk-adjusted return profile with meaningful upside potential supported by strong recurring revenue characteristics and operational improvement opportunities.

---

1. Year-by-Year Financial Projections (FY2026–FY2030)

Entry Capital Structure (End of FY2025)

Component	Calculation	Amount
Enterprise Value	12.0 × $120M EBITDA	$1,440M
Transaction Fees	2.0% × $1,440M	$28.8M
Total Uses	EV + Fees	$1,468.8M
Term Loan (4.0×)	4.0 × $120M	$480M
Mezzanine (1.5×)	1.5 × $120M	$180M
Total Debt	5.5 × $120M	$660M
Equity Contribution	Uses – Debt	$808.8M

Operating Projections

	FY2026	FY2027	FY2028	FY2029	FY2030
Revenue	$972M	$1,040M	$1,102M	$1,157M	$1,215M
Revenue Growth	8.0%	7.0%	6.0%	5.0%	5.0%
EBITDA	$136.1M	$156.0M	$176.3M	$190.9M	$206.5M
EBITDA Margin	14.0%	15.0%	16.0%	16.5%	17.0%

Debt Service Schedule

	FY2026	FY2027	FY2028	FY2029	FY2030
Term Loan Beginning Balance	$480M	$456M	$430M	$402M	$372M
Term Loan Interest (9.0%)	$43.2M	$41.0M	$38.7M	$36.2M	$33.5M
Term Loan Amortization (1.0%)	$4.8M	$4.6M	$4.3M	$4.0M	$3.7M
Mezz Beginning Balance	$180M	$194.4M	$210.0M	$226.8M	$245.0M
Mezz Cash Interest (12.0%)	$21.6M	$23.3M	$25.2M	$27.2M	$29.4M
Mezz PIK Interest (2.0%)	$3.6M	$3.9M	$4.2M	$4.5M	$4.9M
Total Cash Interest	$64.8M	$64.3M	$63.9M	$63.4M	$62.9M

Cash Flow Waterfall

	FY2026	FY2027	FY2028	FY2029	FY2030
EBITDA	$136.1M	$156.0M	$176.3M	$190.9M	$206.5M
Minus: Cash Interest	($64.8M)	($64.3M)	($63.9M)	($63.4M)	($62.9M)
Minus: Cash Taxes	($17.8M)	($22.9M)	($28.1M)	($31.9M)	($35.9M)
Minus: Capex (3.0% of Rev)	($29.2M)	($31.2M)	($33.1M)	($34.7M)	($36.4M)
Minus: ΔNWC	($3.6M)	($3.4M)	($3.1M)	($2.8M)	($2.9M)
FCF After Debt Service	$20.7M	$34.2M	$48.1M	$58.1M	$68.4M

Note: ΔNWC calculated as 0.5% of incremental revenue year-over-year. Cash taxes applied to taxable income (EBITDA minus cash interest), capped at 25% rate.

Debt Paydown & Ending Balances

	FY2026	FY2027	FY2028	FY2029	FY2030
Optional Term Loan Paydown	$20.7M	$34.2M	$48.1M	$58.1M	$68.4M
Term Loan Ending Balance	$454.5M	$415.7M	$373.3M	$311.2M	$239.1M
Mezz Ending Balance	$194.4M	$210.0M	$226.8M	$245.0M	$264.4M
Total Debt	$648.9M	$625.7M	$600.1M	$556.2M	$503.5M

---

2. Exit Analysis & Returns (End of FY2030)

Exit Enterprise Value

Component	Calculation	Amount
FY2030 EBITDA	17.0% × $1,215M	$206.5M
Exit Multiple	10.5×	$2,168.3M
Exit Fees	1.0% × $2,168.3M	($21.7M)
Net Proceeds		$2,146.6M

Debt Repayment at Exit

Component	Amount
Term Loan Balance	$239.1M
Mezzanine Balance (incl. PIK)	$264.4M
Total Debt Repayment	$503.5M

Equity Value Calculation

Component	Amount
Net Exit Proceeds	$2,146.6M
Minus: Debt Repayment	($503.5M)
Equity Value	$1,643.1M

Investment Returns

Metric	Calculation	Result
Equity Invested	At close	$808.8M
Equity Realized	At exit	$1,643.1M
MOIC	$1,643.1M / $808.8M	4.6×
Equity IRR	5-year compounded return	17.2%

---

3. Sensitivity Analysis

Equity IRR Sensitivity

Exit Multiple ↓ / EBITDA Margin →	16.0%	17.0% (Base)	18.0%
9.5×	8.4%	12.8%	16.9%
10.5× (Base)	12.8%	17.2%	21.3%
11.5×	16.9%	21.3%	25.3%

MOIC Sensitivity

Exit Multiple ↓ / EBITDA Margin →	16.0%	17.0% (Base)	18.0%
9.5×	2.6×	3.2×	3.9×
10.5× (Base)	3.2×	4.6×	5.3×
11.5×	3.9×	5.3×	6.9×

Key Observations:

• Downside case (9.5× / 16.0%) still generates 8.4% IRR and 2.6× MOIC
• Upside case (11.5× / 18.0%) delivers 25.3% IRR and 6.9× MOIC
• Exit multiple has greater impact on returns than margin expansion

---

4. Underwriting Risks

1. Customer Concentration Risk HTS likely serves a concentrated base of large data center operators. The top 5 customers probably represent a substantial portion of revenue. Losing a major account through poor service performance, contract non-renewal, or customer financial distress could materially impact revenue and EBITDA.

2. Contract Renewal & Pricing Pressure Recurring service contracts create visibility but also periodic re-negotiation risk. Large data center operators have significant purchasing power and may demand price concessions at renewal, particularly if HTS' cost structure improves. Flat or declining pricing could compress margin expansion assumptions.

3. Technology Disruption Risk The HVAC monitoring business depends on proprietary or specialized control systems. Emergence of superior monitoring platforms, IoT standards that commoditize monitoring, or customer preference for in-house solutions could erode the technology advantage supporting premium pricing.

4. Labor Cost Inflation Mission-critical HVAC service requires skilled technicians. Labor markets for qualified tradespeople remain tight. Wage pressure, benefits cost increases, or difficulty attracting/retaining technicians could compress margins below projections despite pricing power.

5. Data Center Market Cyclicality While mission-critical services provide recurring revenue, the underlying data center market faces cyclical demand drivers (cloud growth rates, enterprise IT spending, AI infrastructure build-out). A prolonged slowdown in data center development could eventually impact service contract growth rates.

---

5. Downside Protection Levers

1. Contractual Protections Structure service agreements with multi-year terms, automatic annual price escalators (CPI or fixed), and early termination fees. Include scope lock-ins that prevent customers from migrating services to competitors without significant penalty. Require advance notice periods (90–120 days) for any service changes.

2. Customer Relationship Depth Invest in relationship management at executive levels with key accounts. Develop scorecards demonstrating uptime reliability, response times, and total cost of ownership savings. Create switching costs through integrated monitoring platforms, predictive maintenance algorithms, and customized reporting that customers cannot easily replicate with alternative providers.

3. Operational Excellence Initiatives Implement rigorous safety and training programs to reduce workers' compensation costs and improve technician productivity. Deploy route optimization and inventory management systems to improve service efficiency. Establish centers of excellence for critical systems to drive scale benefits.

4. Pricing Discipline Resist pressure to discount renewals without corresponding scope reductions. Develop value-based pricing frameworks that quantify the cost of downtime avoided. Offer premium tiers for enhanced response guarantees and proactive system optimization.

5. Strategic Acquisition Strategy Pursue tuck-in acquisitions of regional HVAC service providers to diversify customer concentration, expand geographic coverage, and achieve scale benefits in purchasing and overhead. Target buyers with strong recurring revenue profiles and similar customer segments to create operational synergies.

---

Investment Recommendation

The HTS investment offers a compelling risk-adjusted return profile with a base case IRR of 17.2% and MOIC of 4.6×. The business characteristics—recurring revenue, mission-critical service nature, and secular tailwinds from data center growth—provide structural resilience. The sensitivity analysis demonstrates acceptable returns even in downside scenarios (9.4% IRR at 9.5× / 16% margin), while upside potential is substantial (25.3% IRR at 11.5× / 18% margin).

Recommended Actions:

• Proceed to detailed due diligence with focus on customer concentration analysis, contract terms review, and labor market assessment
• Negotiate purchase price leverage or representations & warranties protections given limited differentiation in the 12.0× entry multiple
• Confirm operational improvement roadmap with management to validate margin expansion assumptions