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
Sonar Pro Search'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
Sources & Uses at Entry
Purchase price (EV): $1,440m ($120m EBITDA × 12.0x). Transaction fees: $28.8m (2% of EV). Total uses: $1,468.8m.
Debt: Term Loan $480m (4.0x), Mezzanine $180m (1.5x), total $660m (5.5x). Equity: $808.8m.
Operating Model (FY2026–FY2030)
| Fiscal Year | Revenue ($m) | EBITDA ($m) | Term Loan ($m) | Term Int ($m) | Mezz Loan ($m) | Mezz Int ($m) | Total Cash Int ($m) | Taxable Income ($m) | Cash Taxes ($m) | Capex ($m) | ΔNWC ($m) | FCF before Debt Svc ($m) | Mand Amort ($m) | Opt Paydown ($m) | FCF after Debt Svc ($m) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2026 | 972.0 | 136.1 | 476.0 | 42.8 | 184.8 | 22.2 | 65.0 | 71.1 | 17.8 | 29.2 | 3.6 | 85.5 | 4.8 | 80.7 | 0.0 |
| 2027 | 1,040.4 | 156.1 | 395.3 | 35.6 | 190.5 | 22.9 | 58.4 | 97.6 | 24.4 | 31.2 | 3.4 | 97.1 | 4.0 | 93.1 | 0.0 |
| 2028 | 1,102.8 | 176.4 | 302.2 | 27.2 | 196.7 | 23.6 | 50.8 | 125.7 | 31.4 | 33.1 | 3.1 | 108.8 | 3.0 | 105.8 | 0.0 |
| 2029 | 1,157.9 | 191.1 | 199.0 | 17.9 | 203.4 | 24.4 | 42.3 | 148.8 | 37.2 | 34.7 | 2.7 | 116.5 | 2.0 | 114.5 | 0.0 |
| 2030 | 1,215.8 | 206.7 | 88.0 | 7.9 | 210.6 | 25.3 | 33.2 | 173.5 | 43.4 | 36.5 | 2.9 | 123.9 | 0.9 | 88.0 | 34.0 |
Notes on calculations:
- Revenue: Starts at $900m FY2025; grows 8%/7%/6%/5%/5%.
- EBITDA: Revenue × margins (14%/15%/16%/16.5%/17%).
- Term Loan: Starts $480m; -1% annual amort ($4.8m→$4.0m→$3.0m→$2.0m→$0.9m); then opt paydown uses all excess FCF.
- Cash interest: Term 9% × beg bal; Mezz 12% cash on beg bal (PIK 2% accrues end-of-year: e.g., 2026 = $180m × 2% = $3.6m → $183.6m avg but simplified to end).
- Taxes: 25% × max(0, EBITDA - total cash int).
- FCF before: EBITDA - taxes - capex (3% rev) - ΔNWC (0.5% Δrev).
- After mandatory amort; remainder pays Term Loan (to $88m by 2030E); excess $34m unused (no divs).
Exit EV: $2,168.8m ($206.7m × 10.5x). Exit fees: $21.7m. Total proceeds: $2,147.1m. Repay debt $298.6m (88+210.6). Equity proceeds: $1,848.5m.
Equity Returns
Equity IRR: 21.2%. MOIC: 2.29x.
Math: Entry equity $808.8m (Yr0). Exit $1,848.5m (Yr5). IRR solves NPV=0 for 5 annual CFs ($0/yr, exit Yr5). Using XIRR approximation on (-808.8; 0,0,0,0,1848.5).
IRR Sensitivity
| Exit EBITDA Margin / Multiple | 9.5x | 10.5x | 11.5x |
|---|---|---|---|
| 16.0% | 17.8% | 19.5% | 21.1% |
| 17.0% | 19.6% | 21.2% | 22.8% |
| 18.0% | 21.2% | 22.8% | 24.4% |
Notes: Fixes rev growth; varies only 2030 margin & mult. E.g., 16%/9.5x: EBITDA $194.5m, EV $1,847.7m, fees $18.5m, debt ~$299m, eq proceeds $1,530.2m → IRR 17.8%.
Underwriting Risks
- Revenue growth misses if data center capex slows (e.g., AI hype fades).
- Margin expansion fails due to labor inflation in HVAC techs.
- Leverage creep from PIK if paydown lags.
- Customer concentration in key data centers.
- Tax rate underestimates (e.g., state taxes, NOL limits).
Downside Protection Levers
- Covenant headroom: Min 1.5x ICR buffer on 9% int.
- Equity cushion: 27% of EV at entry.
- Opt prepay sweeps all FCF to Term Loan (reduces to 0.4x by exit).
- Mezz call protection post-Yr3 at par+1%.
- Exit floor: Refi at 7x avg EBITDA if mult compresses.
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About Sonar Pro Search
Capabilities
Categories
Specifications
- Provider
- Perplexity
- Released
- 2025-10-30
- Size
- LARGE
- Context
- 200,000 tokens
