Sources & Uses Table

In an LBO, sources typically include: senior secured debt (term loans, revolving credit facility), subordinated/mezzanine debt, high-yield bonds, and the PE sponsor's equity contribution. Rollover equity from existing management may also be a source. The debt raised must comply with debt covenants. In a strategic M&A deal, sources include the acquirer's cash on hand, new debt raised, and stock issued to the target's shareholders. The mix of sources depends on the buyer's financial capacity, market conditions, and the desired capital structure.

Uses include: the equity purchase price (paid to target shareholders), refinancing of the target's existing debt, transaction fees (advisory fees, legal fees, financing fees), and any cash to the balance sheet. In an LBO, the equity purchase price is the largest use, followed by debt refinancing. Transaction fees typically run 2–5% of enterprise value and include banker advisory fees (1–2% of EV), legal fees, accounting fees, and debt financing fees (2–3% of debt raised).

Step 1: Calculate enterprise value (offer price × diluted shares + net debt). Step 2: List all uses — equity consideration, debt payoff, and transaction fees. Step 3: List all sources — debt tranches and equity contribution. Step 4: The equity contribution is typically the 'plug' — it equals total uses minus total debt sources. Step 5: Verify total sources = total uses. In LBO models, the sources & uses is the starting point that drives the entire model because it determines the opening capital structure.

In a pitch book, the sources & uses table appears in the 'Transaction Summary' section and fits on a single page. It is one of the first things a client reviews because it shows the total cost and how it's financed. The table also drives key credit metrics: Debt/EBITDA at close (tells you how leveraged the deal is), interest coverage, and the equity contribution as a percentage of total capitalization. Banks presenting financing commitments will reference the sources & uses to show their proposed debt structure.