HarborTech Services (HTS) – 5-Year LBO Underwriting Analysis

1. Investment Summary

• Initial Equity Check: $808.8m
  • Calculation: EV ($1,440m) + Fees ($28.8m) - Debt ($660m).
• Entry Leverage: 5.5x EBITDA ($660m Total Debt).
• Exit Leverage: ~2.0x EBITDA ($415.7m Total Debt).

2. Year-by-Year Financial Projections (FY2026–FY2030)

Note: All figures in $ millions (rounded).

Metric	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
Debt Service Cash Flow
Term Loan Interest (9%)	43.2	41.0	37.6	32.8	26.8
Mezz. Interest (12%)	21.6	22.0	22.5	22.9	23.4
Total Cash Interest	64.8	63.1	60.1	55.7	50.2
Taxes (25% of EBITDA - Int)	17.8	23.2	29.1	33.8	39.1
Capex (3% Revenue)	29.2	31.2	33.1	34.7	36.5
ΔNWC (0.5% Inc. Rev)	0.4	0.3	0.3	0.3	0.3
Free Cash Flow (Ops)	88.7	101.2	113.9	122.2	130.8
Debt Paydown
Required TL Amort (1% Orig)	4.8	4.8	4.8	4.8	4.8
Optional TL Paydown	19.1	33.4	49.1	61.7	75.8
Total TL Paydown	23.9	38.2	53.9	66.5	75.8
Mezz. PIK (2% Accrual)	3.6	3.7	3.8	3.8	3.9
Ending Debt Balances
Term Loan	456.1	417.9	364.1	297.6	217.0
Mezzanine	183.6	187.3	191.0	194.8	198.7
Total Debt	639.7	605.2	555.1	492.4	415.7

3. Returns Analysis (Base Case)

• Exit Enterprise Value (FY2030): $206.6m EBITDA × 10.5x = $2,169.5m
• Exit Fees (1%): $21.7m
• Net Proceeds (EV - Fees): $2,147.8m
• Debt Repaid at Exit: $415.7m
• Equity Proceeds: $2,147.8m - $415.7m = $1,732.1m
• Initial Equity: $808.8m
• Equity MOIC: 1,732.1 / 808.8 = 2.14x
• Equity IRR: (2.14)^(1/5) - 1 = 16.4%

4. Sensitivity Analysis: Equity IRR vs. Exit Multiple & Margin

Assumptions: FY2030 Revenue fixed at $1,215.4m. Debt balances fixed at Base Case ($415.7m).

Exit Multiple	EBITDA Margin 16%	EBITDA Margin 17%	EBITDA Margin 18%
9.5x	11.9%	13.7%	15.4%
10.5x	14.9%	16.4%	18.1%
11.5x	17.1%	18.9%	20.5%

5. Underwriting Risks & Downside Protection

Top 5 Underwriting Risks

1. Mezzanine Refinancing Risk: The mezzanine balance grows via PIK (2%), increasing leverage and interest burden over 5 years. If exit conditions are poor, refinancing may be difficult.
2. Customer Concentration: "Data center" clients often have significant leverage and may delay maintenance spend during downturns, impacting recurring revenue stability.
3. Interest Rate Sensitivity: While TL is fixed at 9% in this model, a refinancing at exit could expose the firm to higher floating rates if the loan converts.
4. Capex Creep: Mission-critical HVAC monitoring requires hardware upgrades. If Capex exceeds the 3% assumption, FCF available for debt paydown declines.
5. Margin Compression: Data center margins are competitive. A failure to achieve the 17% target in FY2030 significantly impacts the Exit EV.

Top 5 Downside Protection Levers

1. Covenant Protection: Negotiate minimum Fixed Charge Coverage Ratio (FCCR) to prevent dividend leakage or excessive leverage before exit.
2. Management Alignment: Implement a 4-year vesting schedule for management equity to ensure retention and operational execution.
3. Pricing Escalation: Embed CPI + 1% escalation clauses in service contracts to protect margins against inflation.
4. Mezz. Structure: Convert Mezzanine to senior debt (if possible) or demand a "cash sweep" covenant to force Mzz repayment prior to exit.
5. Liquidity Reserve: Retain $10m cash in the balance sheet (post-close) to cover unexpected Capex or working capital spikes without breaching covenants.