Excel cases / Run an LBO: Greyhaven buys Corella Equipment Rental
Run an LBO: Greyhaven buys Corella Equipment Rental
Model the buyout of a mining equipment rental company: sources and uses, three debt tranches with a cash sweep, the returns, and the case for the investment committee.
The brief
Corella Equipment Rental hires out heavy mining equipment, haul trucks, excavators, dozers and water carts, with operators and maintenance included, to mid-tier gold, iron ore and lithium miners in Western Australia. Contracts run two to four years. The founders want to sell.
You are an associate at Greyhaven Capital, a mid-market private equity fund. At an entry price of 6.5x 2025 EBITDA, lenders will provide 4.5x in three tranches: two term loans from banks and senior notes sold to bond investors. Build the sources and uses, the five-year model with its debt schedule and cash sweep, and the returns. Then answer the questions the investment committee will ask.
The assumptions
| 2025 revenue$m, the last full year before closing | 400.0 |
| 2025 EBITDA$m | 120.0 |
| Entry multiplex 2025 EBITDA, closing on 31 December 2025 | 6.5 |
| Exit multiplex 2030 EBITDA, exit on 31 December 2030 | 6.5 |
| Existing net debt, refinanced at closing$m | 180.0 |
| Advisory and transaction fees% of enterprise value, paid at closing | 2.0% |
| Financing fees% of the debt raised, paid at closing | 2.5% |
| Financing fees amortised overyears, straight line, the life of the loans | 7 |
| Minimum cash$m, left on the balance sheet at closing | 20.0 |
| Term loan Ax 2025 EBITDA | 1.5 |
| Term loan A interest rateon the balance at the start of the year | 7.0% |
| Term loan A mandatory repayment% of the original amount, each year | 10% |
| Term loan Bx 2025 EBITDA | 2.0 |
| Term loan B interest rateon the balance at the start of the year | 8.0% |
| Term loan B mandatory repayment% of the original amount, each year | 1% |
| Senior notesx 2025 EBITDA; repaid in full in 2032, no prepayment | 1.0 |
| Senior notes interest ratefixed | 9.5% |
| Revolver limit$m, undrawn at closing | 60.0 |
| Revolver interest rateon the balance at the start of the year | 7.5% |
| Interest earned on cashon the balance at the start of the year | 3.0% |
| Cash sweep% of cash above the minimum, to term loan A then B | 100% |
| Corporate tax rate% of profit before tax; all interest deductible | 30% |
| Depreciation% of revenue | 12.0% |
| Capex% of revenue: fleet replacement and growth | 12.0% |
| Working capital% of the increase in revenue | 10% |
| Target IRRthe fund’s hurdle for this deal | 20% |
Drivers by year
| 2026E | 2027E | 2028E | 2029E | 2030E | |
|---|---|---|---|---|---|
| Revenue growth | 8.0% | 7.0% | 6.0% | 5.0% | 5.0% |
| EBITDA margin | 31.0% | 32.0% | 32.5% | 33.0% | 33.0% |
- The deal closes on 31 December 2025 and Greyhaven sells on 31 December 2030, at the exit multiple times 2030 EBITDA.
- Interest is charged on balances at the start of each year, so the model has no circular reference.
- All cash above the $20m minimum repays term loan A, then term loan B. The notes cannot be prepaid.
- All interest is tax-deductible and tax is paid in the year. No dividends before exit, no management shares, no exit fees.
The steps
Enterprise value
What enterprise value does Greyhaven pay for Corella?
Hint
The price is set as a multiple of 2025 EBITDA.
Sponsor equity
How much equity does Greyhaven put in at closing?
Hint
Equity is the balancing item: total uses less the debt raised. Uses are the enterprise value, the fees and the cash left in the business.
Cash interest 2026
How much cash interest does Corella pay in 2026?
Hint
Interest runs on the balances at closing: each tranche times its rate. The revolver is undrawn. Amortisation of financing fees is not cash interest.
Free cash flow 2026
What is the free cash flow available to repay debt in 2026?
Hint
Net income, plus the two non-cash charges (depreciation and the amortisation of financing fees), less the increase in working capital and capex.
Term loan A at the end of 2026
What is the balance of term loan A at the end of 2026?
Hint
First the mandatory repayments: 10% of $180m on term loan A and 1% of $240m on term loan B. All the cash left above the $20m minimum then sweeps into term loan A.
Term loan B at exit
What is the balance of term loan B at the end of 2030?
Hint
Term loan B pays 1% a year until term loan A is gone. Check the year term loan A is fully repaid: the rest of that year’s sweep goes to term loan B.
Net debt at exit
What is net debt at the end of 2030?
Hint
All the debt still outstanding, the senior notes included, less cash.
Exit equity value
What is Greyhaven’s equity worth at exit, at 6.5x 2030 EBITDA?
Hint
Exit enterprise value is the exit multiple times 2030 EBITDA. The debt holders are repaid first: take off net debt.
MOIC
What multiple of its money does Greyhaven make?
Hint
Equity at exit divided by equity invested. There are no dividends before exit.
IRR
What IRR does Greyhaven earn over the five years?
Hint
With one cash flow in and one out, IRR = MOIC^(1/5) − 1. Excel’s IRR on the row of sponsor cash flows gives the same.
Returns from debt paydown
What share of the equity gain comes from paying down debt?
Hint
Split the gain into EBITDA growth (at the entry multiple), multiple expansion (none here), debt paydown (net debt at closing less net debt at exit) and the fees paid at entry. The four add up to the gain.
Highest price for a 20% IRR
What is the highest entry multiple Greyhaven can pay and still earn a 20% IRR, with the same debt and a 6.5x exit?
Hint
Work backwards. The exit equity does not depend on the price paid, since debt is sized on EBITDA. Discount it at 20% for five years to get the most equity Greyhaven can put in; add the debt; take off the financing fees and the cash left in the business; what remains pays the enterprise value plus 2% of advisory fees.
Open questions
Would you invest at 6.5x? Make the case to the investment committee in three points.
Show the model answer
Yes, at this price. 1) Returns: 23.9% IRR and 2.9x in five years, above the 20% hurdle, with no multiple expansion assumed. 2) What drives them: EBITDA growth brings about 68% of the gain and debt paydown about 37%, so the case rests on contracts and margins more than on financial engineering. 3) Risks: 4.5x leverage on a cyclical business, heavy capex needs, and a $60m revolver as the only cushion. Price discipline: up to about 6.9x the deal still clears 20%.
Downside: revenue is flat in 2026 and 2027, then grows as planned, and the EBITDA margin stays at 30%. What happens to the IRR and to the debt?
Show the model answer
The IRR falls to 12.4% (1.80x), below the hurdle but the equity is not lost. Net debt still falls, to 2.8x EBITDA at exit, and the revolver is never needed: free cash flow covers the mandatory repayments every year. The weak point is the first two years, when leverage stays near 4.2x: that is where covenants would be set.
What would you check in due diligence?
Show the model answer
The contract book: length, customer concentration, termination clauses and how rates reset. Utilisation and rates through the last downturn. Fleet age, maintenance capex against depreciation, and the resale value of the trucks and excavators, which is the lenders’ real security. Labour costs and availability for operators. Interest-rate hedging on the term loans. And tax: many countries cap net interest deductions at 30% of tax EBITDA (the US, the EU, Australia); here that would bite in 2026 only, for about $1m of extra tax.
Why do the senior notes pay more than the term loans, and why does the cash sweep not touch them?
Show the model answer
The term loans are secured on the fleet and the shares; the notes here are unsecured, so in a default they are paid from what is left after the secured lenders. They are also repaid in one go in 2032, after the loans. More risk for longer means a higher coupon. High-yield notes usually carry call protection: no repayment in the first years, then only at a premium. The sweep therefore goes to the term loans, which can be prepaid at par and whose lenders require it.
The base case exits at the entry multiple. Why is that the right assumption, and what does one turn of multiple do to the IRR?
Show the model answer
A committee wants to see returns that do not depend on the market paying more later: buying at 6.5x and selling at 6.5x isolates what the fund controls. One turn matters a lot: at a 5.5x exit the IRR falls to 18.1%, at 7.5x it rises to 28.7%. The table also shows that paying one turn less at entry is worth more than selling one turn higher, because it cuts the equity cheque.