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UPDATED SEP 29 · 6 PIECES

Cases · Case file 001 · Private equity

Harbor Maintenance

Harbor Maintenance services commercial buildings under multi-year contracts: HVAC, electrical, and preventive repair for offices, clinics and warehouses across four metro areas. Revenue is 80% recurring. The founder wants to sell; a sponsor is underwriting the buyout.

LTM EBITDA
$25.0M
Price
8.0×
Term loan
$120M
Hurdle
20% IRR

Fictional company, original practice material. Tax rates and SOFR paths are labelled assumptions, not forecasts.

Downloads 4 files

The workbooks open in Excel, Google Sheets and Numbers. Blue cells are inputs; the completed file recalculates when you change them. The answer key is best opened after you've tried.

MODE 1 · 15 MINUTES · NO SPREADSHEET

The paper LBO

Returns, an exit sensitivity, and the most you could pay. Do it on paper first; the checks below name the mistake if one slips in. Try new numbers gives a fresh deal aimed at the same skills.

PRACTICE · LEVEL 2 · ABOUT 15 MIN

Not tried

Harbor Maintenance: the paper LBO

A maintenance company has entry EBITDA of 25 and is bought for 8× EBITDA on a cash-free, debt-free basis. New acquisition debt is 120. Sponsor equity also funds 4 of transaction fees. Hold for 5 years.

Exit EBITDA is 32 at 8×, and cumulative debt repayment is 10. Calculate sponsor returns.

Then change only the exit: EBITDA 28 at 7×, repayment unchanged. Finally: what is the most the sponsor could pay for a 20% IRR, holding the exit, debt, fees and timing fixed?

Assumptions
  • All values in $ millions.
  • The 10 of repayment is supplied after interest, taxes, capex and working capital. Don't subtract those again.
  • No excess cash, interim distributions, additional equity, management dilution or exit fees.
  • The downside changes the exit only. It is an isolated sensitivity, not a linked operating downside.
Set 1 of 5
Your answers

MODE 2 · ONE HOUR · IN THE WORKBOOK

The one-hour model

  1. Open the blank workbook. The Inputs tab is filled in; the Base tab is laid out and empty.
  2. Build revenue, EBITDA, D&A, interest, taxes, working capital and capex for five years.
  3. Run the debt schedule: 1% mandatory amortisation, then a full cash sweep, holding 5.0 of cash. Interest on beginning balances.
  4. Exit at 8.0× year 5 EBITDA; take off net debt; compute MOIC and IRR.
  5. Enter your outputs below.

PRACTICE · LEVEL 3 · ABOUT 60 MIN

Not tried

Harbor Maintenance: check your one-hour model

Build the base case in the blank workbook, then enter your outputs here. Every check uses the conventions on the Inputs tab: interest on beginning balances, SOFR assumption plus spread with a floor, a 100% sweep after 1% mandatory amortisation, and a 5.0 minimum cash balance.

Assumptions
  • All values in $ millions. Enter to one decimal unless asked otherwise.
Your answers

MODE 3 · THREE HOURS · DOWNSIDE AND MEMO

The linked downside

The largest customer, 18% of revenue, doesn't renew after year 1. Transition costs of 14.0 hit in year 2, SOFR rises to 5.00%, and the exit multiple falls to 7.0×. Run it through the whole model on the Downside tab, add the revolver, and see whether the business can pay its way.

PRACTICE · LEVEL 3 · ABOUT 180 MIN

Not tried

Harbor Maintenance: check your linked downside

Run the downside through the whole model: the largest customer leaves after year 1, transition costs of 14.0 land in year 2, SOFR rises to 5.00% from year 2, and the exit multiple falls to 7.0×. Add the revolver: 20.0 committed, 7.5% on drawn balances, drawn only when cash would fall below the 5.0 minimum, repaid before any sweep.

Assumptions
  • All values in $ millions.
Your answers

Then write one page for the investment committee. Use the IC memo template, and rehearse it out loud:

SAY IT · ABOUT 10 MIN

Not tried

Present Harbor to the investment committee

“You've built the Harbor Maintenance model. Present it to the IC in three minutes and make a recommendation.”

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