Mini LBO Underwrite

Let’s build the LBO model step-by-step using only the provided data.

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1. SOURCES & USES (at Close – End FY2025)

• EBITDA (FY2025): $120m

• Purchase Price (12.0x): $120m × 12.0 = $1,440m

• Transaction Fees (2.0% of EV): 0.02 × $1,440m = $28.8m

• Total Use of Funds: $1,440m + $28.8m = $1,468.8m

• Debt at Close (5.5x EBITDA):

  • Term Loan: 4.0 × $120m = $480.0m
  • Mezzanine: 1.5 × $120m = $180.0m
  • Total Debt: $660.0m

• Equity Required: $1,468.8m – $660.0m = $808.8m

Note: Starting cash = $0. All FCF after debt service goes to optional Term Loan paydown.

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2. YEAR-BY-YEAR MODEL (FY2026–FY2030)

Key Formulas

• Revenueₜ = Revenueₜ₋₁ × (1 + growthₜ)
• EBITDAₜ = Revenueₜ × marginₜ
• Cash Interest:
  • Term Loan: 9.0% × beg. Term Loan balance
  • Mezz: 12.0% × beg. Mezz balance
• PIK Interest (Mezz): 2.0% × beg. Mezz balance → added to principal
• EBIT = EBITDA – Capex – Depreciation
  • But taxable income = EBITDA – cash interest (per simplification)
• Cash Taxes = 25% × max(0, EBITDA – cash interest)
• Capex = 3.0% of revenue
• ΔNWC = 0.5% × ΔRevenue = 0.5% × (Revenueₜ – Revenueₜ₋₁)
• FCF after debt service = EBITDA – cash interest – cash taxes – capex – ΔNWC
• Optional paydown = FCF after debt service
• Ending debt = Beg. debt + PIK – optional paydown (Term Loan only)

Let’s compute year-by-year.

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FY2026

• Revenue: $900 × 1.08 = $972.0
• EBITDA: $972 × 14.0% = $136.08
• Cash Interest:
  • Term Loan: 9% × $480 = $43.2
  • Mezz: 12% × $180 = $21.6
• PIK (Mezz): 2% × $180 = $3.6 → Mezz ending = $180 + $3.6 = $183.6
• Cash Taxes: 25% × max(0, $136.08 – $64.8) = 25% × $71.28 = $17.82
• Capex: 3% × $972 = $29.16
• ΔNWC: 0.5% × ($972 – $900) = 0.5% × $72 = $0.36
• FCF after debt service:
  = $136.08 – $43.2 – $21.6 – $17.82 – $29.16 – $0.36 = $23.94
• Term Loan paydown: $23.94
• Term Loan ending: $480 – $23.94 = $456.06

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FY2027

• Revenue: $972 × 1.07 = $1,040.04
• EBITDA: $1,040.04 × 15.0% = $156.01
• Cash Interest:
  • Term Loan: 9% × $456.06 = $41.05
  • Mezz: 12% × $183.6 = $22.03
• PIK: 2% × $183.6 = $3.67 → Mezz ending = $183.6 + $3.67 = $187.27
• Cash Taxes: 25% × ($156.01 – $63.08) = 25% × $92.93 = $23.23
• Capex: 3% × $1,040.04 = $31.20
• ΔNWC: 0.5% × ($1,040.04 – $972) = 0.5% × $68.04 = $0.34
• FCF: $156.01 – $41.05 – $22.03 – $23.23 – $31.20 – $0.34 = $38.16
• Term Loan ending: $456.06 – $38.16 = $417.90

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FY2028

• Revenue: $1,040.04 × 1.06 = $1,102.44
• EBITDA: $1,102.44 × 16.0% = $176.39
• Cash Interest:
  • Term Loan: 9% × $417.90 = $37.61
  • Mezz: 12% × $187.27 = $22.47
• PIK: 2% × $187.27 = $3.75 → Mezz = $187.27 + $3.75 = $191.02
• Cash Taxes: 25% × ($176.39 – $60.08) = 25% × $116.31 = $29.08
• Capex: 3% × $1,102.44 = $33.07
• ΔNWC: 0.5% × ($1,102.44 – $1,040.04) = 0.5% × $62.40 = $0.31
• FCF: $176.39 – $37.61 – $22.47 – $29.08 – $33.07 – $0.31 = $53.85
• Term Loan ending: $417.90 – $53.85 = $364.05

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FY2029

• Revenue: $1,102.44 × 1.05 = $1,157.56
• EBITDA: $1,157.56 × 16.5% = $191.00
• Cash Interest:
  • Term Loan: 9% × $364.05 = $32.76
  • Mezz: 12% × $191.02 = $22.92
• PIK: 2% × $191.02 = $3.82 → Mezz = $191.02 + $3.82 = $194.84
• Cash Taxes: 25% × ($191.00 – $55.68) = 25% × $135.32 = $33.83
• Capex: 3% × $1,157.56 = $34.73
• ΔNWC: 0.5% × ($1,157.56 – $1,102.44) = 0.5% × $55.12 = $0.28
• FCF: $191.00 – $32.76 – $22.92 – $33.83 – $34.73 – $0.28 = $66.48
• Term Loan ending: $364.05 – $66.48 = $297.57

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FY2030

• Revenue: $1,157.56 × 1.05 = $1,215.44
• EBITDA: $1,215.44 × 17.0% = $206.62
• Cash Interest:
  • Term Loan: 9% × $297.57 = $26.78
  • Mezz: 12% × $194.84 = $23.38
• PIK: 2% × $194.84 = $3.90 → Mezz ending = $194.84 + $3.90 = $198.74
• Cash Taxes: 25% × ($206.62 – $50.16) = 25% × $156.46 = $39.12
• Capex: 3% × $1,215.44 = $36.46
• ΔNWC: 0.5% × ($1,215.44 – $1,157.56) = 0.5% × $57.88 = $0.29
• FCF: $206.62 – $26.78 – $23.38 – $39.12 – $36.46 – $0.29 = $80.59
• Term Loan ending: $297.57 – $80.59 = $216.98

Note: At exit (end FY2030), all debt is repaid (including Mezz with PIK).
So, Term Loan repaid at exit = $216.98 (optional paydown already done), Mezz repaid = $198.74.

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Summary Table (FY2026–FY2030)

FY	Revenue	EBITDA	Cash Int (Term)	Cash Int (Mezz)	Cash Taxes	Capex	ΔNWC	FCF After Debt Serv.	Term Loan End	Mezz End
2026	$972.0	$136.08	$43.20	$21.60	$17.82	$29.16	$0.36	$23.94	$456.06	$183.60
2027	$1,040.0	$156.01	$41.05	$22.03	$23.23	$31.20	$0.34	$38.16	$417.90	$187.27
2028	$1,102.4	$176.39	$37.61	$22.47	$29.08	$33.07	$0.31	$53.85	$364.05	$191.02
2029	$1,157.6	$191.00	$32.76	$22.92	$33.83	$34.73	$0.28	$66.48	$297.57	$194.84
2030	$1,215.4	$206.62	$26.78	$23.38	$39.12	$36.46	$0.29	$80.59	$216.98	$198.74

(Rounded to 2 decimals; FCF used to pay down Term Loan each year.)

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3. EXIT & EQUITY RETURNS

Exit Enterprise Value (FY2030)

• EBITDA (FY2030): $206.62m
• Exit multiple: 10.5x
• Exit EV = $206.62 × 10.5 = $2,169.51m

Exit Fees (1.0%)

= 0.01 × $2,169.51 = $21.70m

Net Proceeds to Equity

= Exit EV – Exit Fees – Debt Repaid
= $2,169.51 – $21.70 – ($216.98 + $198.74)
= $2,169.51 – $21.70 – $415.72
= $1,732.09m

Initial Equity Invested

= $808.80m (at close)

MOIC

= $1,732.09 / $808.80 = 2.14x

IRR

• Holding period = 5 years (end FY2025 → end FY2030)
• Solve: $808.80 × (1 + IRR)⁵ = $1,732.09
  → IRR = (1,732.09 / 808.80)^(1/5) – 1 = (2.141)^(0.2) – 1 ≈ 16.5%

✅ Base Case IRR ≈ 16.5% | MOIC ≈ 2.14x

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4. SENSITIVITY TABLE: Equity IRR vs Exit Multiple & EBITDA Margin

We vary:

• Exit multiple: 9.5x, 10.5x, 11.5x
• FY2030 EBITDA margin: 16%, 17%, 18%

Note: Changing EBITDA margin affects FY2030 EBITDA (and thus all prior years’ growth/interest/taxes, but for simplicity, we’ll only adjust FY2030 EBITDA — a common first-order sensitivity assumption).

• Base FY2030 EBITDA = $206.62m
• At 16%: $1,215.44 × 16% = $194.47m
• At 18%: $1,215.44 × 18% = $218.78m

Recalculate exit equity value (all else equal):

Exit Multiple	16% Margin	17% Margin (Base)	18% Margin
9.5x	$1,573.61 → IRR = 12.1%	$1,732.09 → 16.5%	$1,890.57 → IRR = 20.6%
10.5x	$1,732.09 → IRR = 16.5%	$1,906.01 → 18.7%	$2,079.93 → IRR = 22.5%
11.5x	$1,890.57 → IRR = 20.6%	$2,079.93 → 22.5%	$2,269.29 → IRR = 26.1%

*Calculations:

• Exit EV = EBITDA × multiple
• Net equity = Exit EV – 1% fees – $415.72 (debt)
• IRR = (Equity Proceeds / $808.80)^(1/5) – 1*

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5. UNDERWRITING RISKS

1. Contract Renewal Risk – Data center clients may renegotiate or cancel contracts (esp. if service quality slips), threatening recurring revenue base.