The Sources and Uses Schedule


The Sources and Uses Schedule

Sources & Uses

The Sources & Uses table is a comprehensive list and summation of:

  • All items being purchased in a transaction (the “Uses”); and

  • Each capital source used to fund the transaction (the “Sources”)

Total Sources must always equal Total Uses (i.e., you must arrange a source of funding for each dollar required to close a deal).

Typical components of transaction Uses include:

  • The purchase price (TEV) of the acquired business (or acquired security in the case of minority investments). This should be the largest component of the uses by far.

  • Transaction fees incurred to close the deal (e.g., legal, quality of earnings, consultants, etc.). We typically separate these out from financing-related fees (discussed below) for the purpose of calculating unlevered metrics.

  • Financing fees incurred to close a levered transaction (e.g., underwriter fees on new debt, make whole payments on existing debt that is refinanced as part of the transaction, etc.).

  • Cash funded to the balance sheet on transaction close.

Typical components of transaction Sources include (listed in descending order of seniority):

  • Debt.

    • Senior Debt.

    • Junior Debt.

    • Mezzanine Debt.

  • Preferred Equity. Junior to debt capital, but senior to common equity. Often includes an interest rate similar to debt that may be "payable in kind" ("PIK") instead of cash.

  • Common Equity. Because total sources must equal total uses, most models (including Mosaic’s) solve for the common equity requirement instead of entering it as an input. This is colloquially referred to as the “plug” and can be calculated as: (Total Uses – sum of total sources excluding common equity). Detailed, later-stage LBO models may break down common equity into tranches held by different shareholders or shareholder groups. Some examples of common groupings and subgroupings are:

    • Sponsor Equity. The tranche of equity controlled by the private equity sponsor. Can be split up amongst members of the sponsor group, including:

      • Fund equity – the amount placed in the fund of the sponsor.

      • Coinvest equity – equity provided by LPs of the sponsor outside of their fund.

      • Co-sponsor equity – an amount covered by a co-bidder in the case where two GPs are acquiring the same asset together.

    • Management Roll. Company management teams (e.g., CEO, CFO, CTO, etc.) may own significant equity in a target company and may decide to “roll” some of their ownership into the next deal.

    • Seller Roll. Selling private equity firms may choose to retain some portion of their equity in a transaction.

Helpful hints:

  • Always ensure that Total Sources = Total Uses, and that only one line item is the “solved” or “plugged” value to avoid circularity issues. Typically, common equity is the plug.

  • In Excel, best practice is to link Total Sources to Total Uses, Calculate Total Debt, and have Equity be a solved formula where Equity = Total Uses – Total Debt.

  • Always ensure that each “Source” of capital has a matching entry in the Exit & Returns schedule.

For an Excel sample Sources & Uses, email