LBO Sources and Uses

How much sponsor equity funds this acquisition?

The question is how to fund the entire closing, not only its equity purchase price. The synthetic transaction uses the existing sources-and-uses engine in LBO Model. This page isolates acquisition funding; it does not design a full capital structure.

Set the entry-value bridge and required cash

All money is EUR thousands. Entry enterprise value is 5,000. Explicit acquisition-bridge overrides are cash 100 and gross existing debt 1,500; other bridge items are zero. Purchase equity is 5,000 + 100 − 1,500 = 3,600. These are supplied transaction bridge inputs, not default book-year balances. Enterprise Value vs Equity Value explains the bridge.

Refinancing is left blank, so the engine repays all 1,500 existing debt. Minimum post-close cash is 200. With acquisition cash 100 already available, new cash funding is only 200 − 100 = 100. The engine starts its deal cash ledger at 200; it does not add another 200 on top of the existing 100.

LBO transaction and financing fees: use the right base

Transaction fees are 2% of entry EV, so 5,000 × 2% = 100. New debt is 3,000 across Tranche A 2,500 and Tranche B 500. Financing fees are 3% of that new debt, 90. Both direct fee overrides stay blank, so the percentage inputs control the amounts. Other explicitly supplied closing uses are 50.

Total uses are equity purchase 3,600 + existing debt repayment 1,500 + transaction fees 100 + financing fees 90 + cash top-up 100 + other uses 50 = 5,440. Refinancing is a use of new funding; it is not an extra source alongside the new debt.

Sponsor equity calculation: reconcile the residual

Non-sponsor sources are new debt 3,000, rollover equity 400 and other funding 100. Sponsor equity is the native residual: 5,440 − 3,000 − 400 − 100 = 1,940. Total sources are 3,000 + 400 + 100 + 1,940 = 5,440, exactly equal to total uses.

The 400 rollover and sponsor equity participate in ownership under the product convention; management dilution is zero here. Other sources of 100 are explicitly non-participating. Sponsor share is 1,940 / (1,940 + 400) = 82.9060%. The funding total alone is not the sponsor investment or its ownership percentage.

Refinancing existing debt at acquisition without double counting

Reducing the purchase equity for existing debt in the EV bridge does not remove the repayment use when that debt is refinanced. The sellers receive 3,600, old lenders receive 1,500 and new lenders supply 3,000. Fees and cash funding account for the rest of the closing uses.

The implementation rejects refinancing above the bridge’s existing debt and requires positive sponsor equity. Debt retained rather than refinanced remains in the deal ledger; it does not become a second new-debt source. Use Debt Model and Assets & Financing Model to develop the wider financing schedules. After funding reconciles, MOIC vs IRR compares sponsor return measures.

Reproduce the funding reconciliation

1. Download the native acquisition-funding example, open the LBO model and explicitly use Manage models → Import. In Model, switch to Advanced before editing, then return to Value or Deals as appropriate. A blank workspace may first show Activate; the example file already has the relevant tool active. The CTA opens your workspace and never imports the example automatically.

2. In Deals → LBO, Entry uses 2026, EV method and 5,000. In EV → Equity bridge use 2026, cash override 100 and gross-debt override 1,500; other items zero. Under Transaction structure & ownership keep refinancing blank, transaction fees 2%, financing fees 3%, fee overrides blank, rollover 400, other uses 50, other sources 100 and management dilution 0%.

3. In Debt structure inspect two Amount tranches: A 2,500 with cash rate 6%, and B 500 with cash rate 8%; PIK and mandatory amortization are zero, maturity 2031, priorities 0 and 1, both eligible for sweep. Under Cash / debt paydown set minimum cash 200 and cash sweep 100%. Open Sources & Uses and compare every line and both totals.

4. The file includes one actual year 2026 and forecasts through 2031: annual revenue 4,000, COGS 2,000, depreciation and capex 400, tax rate 25%, other operating inputs zero. Opening PP&E and equity are 5,000 each. The separate deal ledger funds the modeled interest, cash floor and debt paydown without a shortfall. Exit 2031 and 5× EBITDA complete the required LBO configuration; returns are not the focus of this funding exercise.

Funding-model boundaries

Debt amounts, rates and other sources are supplied assumptions. They do not imply financing commitments, debt-market quotes, syndication, legal structuring or intercreditor analysis. Sponsor equity is an accounting funding residual, not an automatically recommended capital allocation. A schedule with later funding shortfalls withholds sponsor return outputs until funded.

Once total sources equal uses, compare the financing mix in LBO Capital Structure. If a seller reinvests part of the proceeds, Rollover Equity in an LBO separates the reduced sponsor cheque from its ownership and exit share.