Mini LBO Underwrite

1. FY 2026 – FY 2030 cash‑flow build‑up

($ m)	FY 2026	FY 2027	FY 2028	FY 2029	FY 2030
Revenue	972.0	1 040.0	1 102.4	1 157.6	1 215.4
EBITDA (‑% margin)	136.1 (14 %)	156.0 (15 %)	176.4 (16 %)	192.0 (16.5 %)	206.6 (17 %)
Cash interest – TL (9 %)	43.2	41.0	37.6	32.8	26.8
Cash interest – Mezz (12 %)	21.6	22.0	22.5	22.9	23.4
Total cash interest	64.8	63.1	60.1	55.7	50.2
Mandatory amort. (TL)	4.8	4.8	4.8	4.8	4.8
Cash taxes (25 % on EBIT‑interest)	17.8	23.2	29.1	34.1	39.1
Capex (3 % of rev.)	29.2	31.2	33.1	34.7	36.5
Δ NWC (0.5 % of Δ rev)	0.36	0.34	0.31	0.28	0.29
FCF after required payments	19.1	33.4	49.0	62.4	75.8
Optional TL pay‑down (all FCF)	19.1	33.4	49.0	62.4	75.8
Ending term‑loan balance	456.1	417.9	364.1	296.8	216.2
Ending mezzanine balance (incl. 2 % PIK)	183.6	187.3	191.0	194.8	198.7
Total debt	639.7	605.2	555.1	491.6	415.0

All numbers are rounded to one decimal; the model assumes cash is swept to the term loan each year (no dividends).

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2. Exit‑year (FY 2030) equity return

Purchase price = 12 × $120 m = $1 440 m
Transaction fees = 2 % × $1 440 m = $28.8 m (funded by equity)

Sources

• Term‑loan (4.0×) = $480 m
• Mezzanine (1.5×) = $180 m
• Equity = $1 440 m + $28.8 m – $660 m = $808.8 m

Exit (end of FY 2030)

• Exit EBITDA = $206.6 m (17 % margin)
• Exit EV = 10.5 × $206.6 m = $2 169.6 m
• Exit fees = 1 % × $2 169.6 m = $21.7 m
• Debt at exit = $415.0 m (TL $216.2 m + Mezz $198.7 m)

Net proceeds to equity = $2 169.6 m – $415.0 m – $21.7 m = $1 732.9 m

• MOIC = $1 732.9 m / $808.8 m = 2.14×
• IRR (5‑year) = (2.14)^(1/5) – 1 ≈ 16.5 %

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3. Sensitivity – equity IRR vs. exit multiple & exit‑year EBITDA margin

Exit‑year EBITDA margin	9.5×	10.5×	11.5×
16 % ($194.5 m)	11.7 %	14.6 %	17.3 %
17 % ($206.6 m)	13.6 %	16.5 %	19.1 %
18 % ($218.8 m)	15.4 %	18.3 %	20.9 %

IRR is calculated as (Net Proceeds / $808.8 m)^(1/5) – 1.

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4. Underwriting risks (5)

1. Customer concentration – >50 % of revenue comes from a handful of large data‑center operators; loss of a key contract would sharply reduce cash flow.
2. Contract renewal / pricing risk – the business relies on long‑term service contracts; failure to renew or price‑renegotiations could erode recurring revenue.
3. Margin compression – labor‑ and parts‑cost inflation may pressure EBITDA if price escalators (CPI + 1‑2 %) are not fully passed through.
4. Technology shift – emerging liquid‑cooling, free‑air cooling or modular data‑center designs could diminish demand for traditional HVAC maintenance.
5. High leverage‑service burden – cash interest + mandatory amortisation runs $55‑65 m / yr; a modest EBITDA decline could breach covenants and trigger mandatory prepayments.

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5. Down‑side protection levers (5)

1. Substantial equity cushion – equity represents ~55 % of enterprise value, providing a first‑loss buffer for lenders.
2. Long‑term, inflation‑linked contracts – >80 % of contracts contain annual price escalators (CPI + 1‑2 %) that protect revenue and margins.
3. Mandatory amortisation + cash sweep – 1 % annual amortisation plus the model’s optional pay‑down reduces leverage from 5.5× to ~2.0× by exit.
4. Covenant package & interest‑reserve – the credit agreement requires minimum EBITDA/ cash‑flow covenants and a 3‑month interest reserve, giving early warning of performance slippage.
5. Escrow / hold‑back – 10 % of the purchase price is placed in escrow for 2 years to cover representation‑and‑warranty claims and any performance shortfalls.

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Bottom line:

• Base‑case return ≈ 16.5 % IRR and 2.1× MOIC (exit at 10.5×, 17 % margin).
• The model is sensitive to both exit multiple and margin – a 1‑point drop in exit EBITDA margin cuts IRR by ~2‑3 pp, while a 1‑point rise adds ~2‑3 pp.
• Strong equity cushion, contract escalators and rapid deleveraging provide meaningful downside protection, but concentration risk and leverage service remain key underwriting concerns.