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
Mistral Large 2512'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) Year-by-Year Projections (FY2026–FY2030)
(All figures in $ millions)
| Metric | FY2026 | FY2027 | FY2028 | FY2029 | FY2030 |
|---|---|---|---|---|---|
| Revenue | 972 | 1,040 | 1,102 | 1,157 | 1,215 |
| EBITDA | 136 | 156 | 176 | 191 | 207 |
| Cash Interest (Term Loan) | 38.9 | 37.8 | 36.5 | 35.0 | 33.3 |
| Cash Interest (Mezz) | 14.4 | 14.4 | 14.4 | 14.4 | 14.4 |
| Total Cash Interest | 53.3 | 52.2 | 50.9 | 49.4 | 47.7 |
| Cash Taxes | 20.7 | 26.0 | 31.3 | 35.4 | 39.8 |
| Capex | 29.2 | 31.2 | 33.1 | 34.7 | 36.5 |
| ΔNWC | 0.4 | 0.3 | 0.3 | 0.3 | 0.3 |
| Free Cash Flow (FCF) | 32.4 | 46.3 | 60.4 | 71.2 | 82.7 |
| Term Loan (Ending) | 415.1 | 388.8 | 357.4 | 320.2 | 276.5 |
| Mezz (Ending) | 144.0 | 158.4 | 174.2 | 191.7 | 210.9 |
Key Calculations:
- FCF = EBITDA – Cash Interest – Cash Taxes – Capex – ΔNWC
- Term Loan Amortization: 1% of initial balance ($432m) = $4.32m/year.
- Mezz PIK: 2% of prior-year balance (e.g., FY2026: 2% × $144m = $2.88m).
- Cash Taxes: 25% × (EBITDA – Cash Interest) if positive.
2) Equity IRR & MOIC
Entry Equity:
- Enterprise Value (EV): 12.0x × $120m = $1,440m.
- Debt: 5.5x × $120m = $660m (Term Loan: $480m, Mezz: $180m).
- Transaction Fees: 2% × $1,440m = $28.8m.
- Equity at Close: $1,440m – $660m + $0 (cash) – $28.8m = $751.2m.
Exit Proceeds (FY2030):
- EV: 10.5x × $207m = $2,173.5m.
- Exit Fees: 1% × $2,173.5m = $21.7m.
- Debt Repayment: Term Loan ($276.5m) + Mezz ($210.9m + PIK $30.9m) = $518.3m.
- Equity Proceeds: $2,173.5m – $518.3m – $21.7m = $1,633.5m.
IRR & MOIC:
- IRR: ~17.5% (solve for IRR over 5 years: $751.2m → $1,633.5m).
- MOIC: $1,633.5m / $751.2m = 2.18x.
3) Sensitivity Table: Equity IRR
(Exit Multiple vs. FY2030 EBITDA Margin)
| Exit Multiple | 16% Margin | 17% Margin | 18% Margin |
|---|---|---|---|
| 9.5x | 12.1% | 14.3% | 16.5% |
| 10.5x | 15.8% | 17.5% | 19.2% |
| 11.5x | 19.2% | 20.8% | 22.4% |
Key Driver: Higher exit multiple and margin improve IRR by increasing exit EV and reducing debt burden.
4) Underwriting Risks & Downside Protection Levers
Risks:
- Customer Concentration: Data center clients may consolidate or insource HVAC maintenance.
- Tech Obsolescence: IoT/automation could disrupt HTS’s labor-intensive service model.
- Cost Inflation: Labor/wage pressures in HVAC could squeeze margins.
- Leverage Risk: 5.5x debt/EBITDA is aggressive; downturn could trigger covenant breaches.
- Regulatory Risk: Stricter energy efficiency rules may increase compliance costs.
Downside Protection Levers:
- Earnouts: Tie 10–20% of purchase price to post-close revenue/EBITDA targets.
- Cost Synergies: Target 5–10% SG&A savings via PE-backed operational improvements.
- Debt Covenants: Negotiate "springing" covenants (e.g., 6.5x max leverage) to avoid early defaults.
- Customer Contracts: Lock in multi-year agreements with price escalators (e.g., CPI-linked).
- PIK Toggle: Structure mezzanine with cash/PIK flexibility to preserve liquidity in downturns.
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About Mistral Large 3 2512
Capabilities
Categories
Specifications
- Provider
- Mistral
- Released
- 2025-12-01
- Size
- XLARGE
