Mini LBO Underwrite

1) Simplified LBO Cash Flow Table ($ millions, rounded to 1 decimal)

All FCF after mandatory payments applied to optional Term Loan paydown. Mezz PIK compounds annually. Starting cash = $0.

FY	Rev	EBITDA	TL Cash Int	Mezz Cash Int	Cash Taxes	Capex	ΔNWC	FCF After Debt Service*	Ending TL	Ending Mezz
2026	972.0	136.1	43.2	21.6	17.8	29.2	0.4	19.1	456.0	183.6
2027	1,040.0	156.0	41.0	22.0	23.2	31.2	0.3	33.4	417.9	187.3
2028	1,102.4	176.4	37.6	22.5	29.1	33.0	0.3	49.0	364.1	191.0
2029	1,157.4	191.0	32.8	22.9	33.8	34.7	0.3	61.7	297.6	194.8
2030	1,215.4	206.6	26.8	23.4	39.1	36.5	0.3	75.8	217.0	198.7

*FCF After Debt Service = UFCF (EBITDA – Taxes – Capex – ΔNWC) – (Total Cash Interest + $4.8M Mandatory Amortization). Represents optional Term Loan paydown capacity.

• ΔNWC = 0.5% × YoY ΔRev (outflow; e.g., FY26: 0.005 × ($972–$900) = $0.36M)
• Taxes = 25% × max(0, EBITDA – Total Cash Interest)
• Mezz PIK: +2% of Beg. Balance annual accrual (e.g., FY26: $180M × 2% = $3.6M added to debt)
• Term Loan Amort: $4.8M mandatory principal + optional paydowns above

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2) Equity Returns (Base Case)

• Initial Equity Invested (close FY2025):
  EV = 12.0× × $120M = $1,440M
  Fees = 2% × $1,440M = $28.8M
  Debt = 5.5× × $120M = $660M
  Equity = ($1,440M + $28.8M) – $660M = $808.8M
• Exit Proceeds (end FY2030):
  EV = 10.5× × $206.6M = $2,170.0M
  Fees = 1% × $2,170.0M = $21.7M → Net Proceeds = $2,148.3M
  Debt Repayment = $217.0M (TL) + $198.7M (Mezz w/ PIK) = $415.7M
  Equity Proceeds = $2,148.3M – $415.7M = $1,732.6M
• MOIC = $1,732.6M / $808.8M = 2.14×
• IRR = (2.14)^(1/5) – 1 = 16.5% (5-year hold; no interim distributions)

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3) Equity IRR Sensitivity Matrix

IRR calculated from MOIC = (Exit Equity Proceeds / $808.8M)^(1/5) – 1. FY2030 EBITDA = Revenue × Margin; all other assumptions unchanged.

Exit Multiple ↓ / FY2030 EBITDA Margin →	16%	17% (Base)	18%
9.5x	11.7%	13.6%	15.4%
10.5x	14.6%	16.5%	18.2%
11.5x	17.3%	19.1%	20.9%

Key insight: IRR is more elastic to exit multiple than margin (e.g., ±1.0x multiple swing ≈ ±2.9% IRR; ±1% margin swing ≈ ±1.8% IRR at 10.5x).

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4) Underwriting Risks & Downside Protection Levers

5 Critical Underwriting Risks

1. Growth shortfall – Data-center slowdown or contract churn reduces revenue below 5–8% CAGR, impairing deleveraging.
2. Margin compression – Wage/energy inflation or pricing wars stall margin expansion below 16.5%, reducing cash flow for debt paydown.
3. Exit multiple compression – Sector downturn or recession cuts exit multiple below 10.5x (e.g., 9.5x → IRR drops to 13.6% at base margin).
4. Mezzanine PIK compounding – Accrued PIK ($18.7M added over 5 years) increases debt burden; if cash flow weakens, equity recovery erodes faster.
5. Customer concentration – >30% revenue concentration (typical in data-center services) creates single-client churn/cancellation risk.

5 Concrete Downside Protection Levers

1. Cash sweep covenant – 100% of FCF after mandatory payments applied to Term Loan paydown → reduces balance 55% over 5 years (base case), lowering interest risk.
2. Fixed-rate capital structure – Term Loan (9% cash) + Mezz (12% + 2% PIK) eliminates floating-rate risk; interest coverage (EBITDA / Cash Interest) stays >3.0× in all years.
3. Mandatory amortization – $4.8M annual principal reduces Term Loan balance irrespective of cash flow volatility.
4. Equity cushion – $808.8M equity = 56% of total capitalization; absorbs ~$200M EBITDA shortfall before equity wipeout.
5. Mission-critical contract profile – 90%+ recurring revenue with multi-year SLAs; high switching cost for client → supports cash flow predictability and covenant compliance.

Note: Exit fee (1%) is intentionally low to preserve equity value; no dividend recap assumed (all FCF de-levers senior debt).