LBO Underwriting: HarborTech Services (HTS)

1. Financial Model Summary (FY2026–FY2030)

Entry Assumptions (FY2025 Close):

• Revenue: $900m | EBITDA: $120m
• Purchase Price: $1,440m ($120m × 12.0x)
• Debt: $660m (TL $480m / Mezz $180m)
• Equity Check: $780m (Purchase) + $28.8m (Fees) = $808.8m

Debt Terms:

• Term Loan (TL): $480m @ 9% Cash Int, 1.0% Amort ($4.8m/yr).
• Mezzanine: $180m @ 12% Cash Int + 2% PIK (accrues to principal).

Operating Assumptions:

• Revenue Growth: 8%, 7%, 6%, 5%, 5%
• EBITDA Margin: 14.0%, 15.0%, 16.0%, 16.5%, 17.0%
• Capex: 3% Rev | NWC: 0.5% ΔRev | Tax: 25% (EBITDA - Cash Int)

($ in millions)	FY2026	FY2027	FY2028	FY2029	FY2030
Revenue	972.0	1,040.0	1,102.4	1,157.6	1,215.4
EBITDA Margin	14.0%	15.0%	16.0%	16.5%	17.0%
EBITDA	136.1	156.0	176.4	191.0	206.6
Cash Interest
Term Loan	43.2	41.0	37.9	33.3	27.6
Mezzanine	21.6	22.0	22.5	22.9	23.4
Mezz PIK	3.6	3.7	3.7	3.8	3.9
Cash Taxes	17.8	23.2	29.0	33.7	38.9
Capex	29.2	31.2	33.1	34.7	36.5
ΔNWC	0.4	3.4	3.1	2.8	2.9
FCF (Pre-Debt)	88.7	98.2	111.2	119.8	128.4
Mandatory Debt Service	69.6	67.9	65.2	61.0	55.8
Optional TL Paydown	19.1	30.3	46.0	58.8	72.6
Ending Debt Balances
Term Loan	456.1	421.0	370.1	306.5	229.2
Mezzanine	183.6	187.3	191.0	194.8	198.7
Total Net Debt	639.7	608.3	561.1	501.3	427.9

Exit Calculation (FY2030):

• Exit EV: $206.6m EBITDA × 10.5x = $2,169.6m
• Exit Fees: 1.0% × $2,169.6m = $21.7m
• Net Debt Repayment: $427.9m (TL $229.2m + Mezz $198.7m)
• Equity Proceeds: $2,169.6m - $21.7m - $427.9m = $1,719.9m

---

2. Returns Analysis

Metric	Calculation	Result
Initial Equity Check	Purchase ($780m) + Fees ($28.8m)	$808.8m
Final Equity Proceeds	Exit EV - Fees - Net Debt	$1,720.0m
Equity MOIC	$1,720.0 / $808.8	2.13x
Equity IRR	$(1,720.0 / 808.8)^{1/5} - 1$	16.3%

---

3. Sensitivity Analysis: Equity IRR

Assumption: Net Debt at Exit held constant at ~$428m for sensitivity isolation.

Exit Margin \ Multiple	9.5x	10.5x (Base)	11.5x
16.0% (FY30)	11.6%	14.1%	16.6%
17.0% (Base)	14.1%	16.3%	18.5%
18.0% (FY30)	16.8%	19.0%	21.1%

Sensitivity Math Example (16% Margin / 9.5x Multiple):

1. FY30 EBITDA: $1,215.4m × 16% = $194.5m
2. Exit EV: $194.5m × 9.5x = $1,847.5m
3. Equity Proceeds: $1,847.5m - $21.7m (Fees) - $427.9m (Debt) = $1,397.9m
4. IRR: $(1,397.9 / 808.8)^{1/5} - 1 = \mathbf{11.6%}$

---

4. Underwriting Risks & Protection Levers

Top 5 Risks

1. Data Center Capex Cyclicality: HTS growth depends on client CAPEX. A slowdown in hyperscaler build-outs could stall revenue growth (8% base case is aggressive).
2. Interest Rate Exposure: Term Loan is 9.0% cash interest (likely floating). Rate hikes increase debt service, reducing FCF available for paydown.
3. Margin Compression: Labor inflation in HVAC maintenance is high. Base case assumes margin expansion (13.3% → 17.0%), which is risky if wage costs spike.
4. Client Concentration: "Mission-critical" implies reliance on few large data center operators. Loss of a top 20% customer impacts revenue disproportionately.
5. Mezzanine PIK Risk: 2% PIK increases debt burden annually. If FCF is lower than modeled, the Mezz balance grows, reducing equity proceeds at exit.

Top 5 Downside Protection Levers

1. Mandatory Amortization: 1.0% TL amortization ensures principal reduction even if cash flow is tight.
2. Contract Escalators: Embed CPI-linked or fixed annual price increases in service contracts to protect margins against inflation.
3. Covenant Structure: Negotiate minimum DSCR (Debt Service Coverage Ratio) covenants that force optional paydown if EBITDA exceeds thresholds.
4. Mezz Conversion Option: Include a provision to convert Mezzanine to Senior Debt or Equity if interest coverage falls below 1.5x.
5. Diversified Verticals: Use 15% of annual Capex to fund R&D for non-data-center HVAC markets (e.g., Commercial, Industrial) to reduce client concentration risk.