Sources and Uses in an LBO: The Closing Table

A sources and uses table is the closing schedule for a leveraged buyout (LBO). Uses list every dollar that has to be funded on the day the deal closes: cash to selling shareholders, old debt that is refinanced, fees, and cash left on the company's balance sheet. Sources list every dollar that funds those uses: new loans, equity that managers or sellers roll, co-investment, and the cash the private equity fund writes. The two columns have to match. The fund's equity is usually the last number, the plug after every other source is sized. That plug is the denominator for internal rate of return (IRR) and multiple on invested capital (MOIC).

It is not the pro forma balance sheet, and it is not the purchase-price allocation. Those schedules take this table as an input. The premium of equity purchase over book equity is the starting point for goodwill, after any intangible write-up and the deferred tax that write-up creates. That math lives on the opening balance sheet. If sources and uses do not tie, the rest of the model will not.

Uses of funds

Build uses first. The amount that has to be funded does not depend on how the buyer hopes to finance it.

Equity purchase price. Cash and other consideration delivered to selling shareholders. On a cash-free, debt-free close, this line equals enterprise value. On an equity-purchase close, it equals equity value: enterprise value minus existing net debt, with existing debt then listed as its own use. Do not put enterprise value and a refinance of the same net debt on the uses side unless you are running the second presentation on purpose.

Existing debt refinanced. Revolvers, term loans, notes, and accrued interest that the purchase agreement requires to be paid off at close. Change-of-control covenants usually force a refinance even when the rate on the old paper looks cheap. Debt that is assumed, and stays on the company, is not a cash use. It is shown on both sides of the table and cancels.

Transaction fees. Advisory, legal, accounting, and diligence costs. They are cash at close. They are not financing fees.

Financing fees. Upfront fees, original issue discount, and lender counsel. They are also cash (or a reduction in proceeds) at close. They are capitalized and amortized. They are not the same line as transaction fees. A commitment fee can be charged on undrawn revolver availability, so the fee is not only a percentage of funded principal. Buyer advisory and financing fees sit in uses. Seller advisors are usually paid from seller proceeds unless the purchase price is grossed up to cover them.

Minimum cash. Cash placed on the company so it can operate on day one and meet any liquidity covenant. An undrawn revolver is not a substitute. Capacity is not cash.

Other uses appear when the documents create them: option and award cash-outs, indemnity escrows, transfer taxes, hedge break costs. Earnouts that are not pre-funded are not a closing use.

Sources of funds

Sources are everything that funds those uses.

Senior debt. A revolving credit facility and a term loan, usually secured. Only a drawn revolver is a source. Letters of credit consume capacity and produce no cash.

Junior capital. Second-lien, unsecured notes, mezzanine, or preferred equity. More expensive, later in line.

Seller note. Deferred consideration the seller leaves in as paper. It is a non-cash source. It reduces cash uses dollar for dollar.

Rollover equity. Selling shareholders or managers exchange old shares for new-company shares instead of taking cash. It is a source. It is not a wire.

Co-investor equity. Limited partners or other funds putting equity into the company beside the lead fund, usually outside that fund.

Target cash. Unrestricted cash that the agreement lets the buyer use. Only cash above the minimum is a source. Restricted cash, trapped cash, and cash needed to meet the minimum do not fund the close.

Sponsor equity. The residual. Total uses minus every other source. In an interview model this is almost always the plug. On a live deal the financing package and the check are negotiated together. The finished table still needs one balancing source, and it is usually the fund.

Build uses first, then the plug

Uses are known before the financing mix is. Size uses, then fill sources until the columns match, with sponsor equity last.

1. Set the purchase (earnings before interest, taxes, depreciation, and amortization, or EBITDA, times the entry multiple).
2. Decide the presentation: cash-free and debt-free, so the purchase line is enterprise value, or equity purchase plus a refinance of existing debt.
3. Add transaction fees, financing fees, and minimum cash.
4. Total uses.
5. Size committed debt, rollover, co-invest, seller paper, and any target cash that is actually available.
6. Sponsor equity = total uses − those sources.
7. Sum sources. The difference from total uses has to be zero.

Total sources should not be a second independent sum that you then hope matches. Once uses are known, sources are built to that total, and a check cell flags any residual.

Debt is usually a multiple of EBITDA, not a share of uses you pick for aesthetics. The fund writes whatever is left. A tighter credit market does not change the uses. It changes the plug.

Enterprise value versus cash to sellers

Enterprise value is the value of the operating business to all capital providers. Sellers receive equity value. Mixing the two is the usual way the table comes up short by exactly net debt.

Cash-free, debt-free is the interview default. The buyer pays enterprise value. The seller keeps excess cash and retires existing debt from the proceeds. Uses start with enterprise value, then fees and minimum cash. Existing debt does not appear as a buyer use, because the seller is the one who pays it off.

Equity-purchase presentation starts with cash to shareholders (enterprise value − existing debt + cash delivered) and lists the refinance as a separate use. The two presentations are the same close if the bridge is done once.

Take enterprise value of $300 million, existing debt of $40 million, and cash of $10 million. Equity purchase price is $270 million. Uses then include $270 million to shareholders plus $40 million to refinance debt. Putting $300 million on uses together with the $40 million refinance double-counts the debt.

The purchase agreement, not the CIM cover, decides which cash is delivered, which cash is excess, and which items are debt-like. Unfunded pensions, preferred stock, and lease liabilities belong in the bridge when the documents put them there.

Rollover, co-investment, and seller notes

Rollover, co-invest, and seller paper all reduce the fund's cash. They do not reduce uses unless you choose the net-cash presentation.

Two rollover presentations are in use.

1. Show the full equity purchase as a use and rollover as a source.
2. Reduce cash paid to sellers by the rollover amount and show only the net cash.

They have to produce the same sponsor check and the same ownership. If rollover is defined as a percentage of post-close equity, calculate total equity first (uses minus debt and other non-equity sources), then split that pool between rollover and sponsor. Do not write a circular formula that needs the plug to size the rollover that sizes the plug.

Rollover is not cash hitting the vehicle. Modeling it as a wire understates the sponsor's ownership and overstates MOIC on the fund's cash, because the rolled shares still own part of exit equity.

Co-invest sits next to sponsor equity as a source. It is usually the same security. It is a different check, often with fees cut or waived. Split lead, co-invest, and rollover on the sources side so the cap table is visible on day one.

Assumed debt, and equity that is rolled rather than cashed, can appear on both sides when the item does not change cash. Both-sides treatment is a presentation. It is not extra money.

Transaction fees versus financing fees

Transaction fees (advisory, legal, diligence) are a cash use at close and are expensed. They reduce day-one equity. They do not sit on the balance sheet as an asset.

Financing fees (upfront, original issue discount, lender counsel) are a cash use, or a haircut to proceeds, at close. They are capitalized and amortized over the life of the debt as a non-cash interest-like charge.

Lumping both into "fees" and capitalizing the pile understates cash needed at close and overstates carrying value. A short LBO modeling test may give a single fee number. Follow the prompt. If it is silent, treat advisory as expensed and issuance costs as capitalized.

Original issue discount has the same cash economics as an upfront fee. Pick one view and keep it: gross debt as a source and discount as a use, or net proceeds as the source. For accounting, the discount nets against debt and amortizes. Flex that widens the discount reduces cash at close and raises the plug.

A worked close

Harbor Components is an invented company. The numbers are for arithmetic, not a live deal.

Last twelve months EBITDA is $40 million. The sponsor pays 9.0x on a cash-free, debt-free basis. Enterprise value is $360 million. That $360 million is the uses-side purchase line. Transaction fees are $7 million. Financing fees are $6 million. Minimum cash funded at close is $8 million. Total uses are $381 million.

Debt is $200 million, 5.0x EBITDA and 56 percent of enterprise value. Total equity is $181 million. The sponsor owns $138 million / $181 million, or 76.2 percent. Co-invest owns 13.8 percent. Rollover owns 9.9 percent.

A naive "enterprise value minus new debt" check gives $160 million of sponsor equity ($360 million − $200 million). That miss ignores $21 million of fees and minimum cash, which raise the check, and $43 million of rollover and co-invest, which lower it. The errors do not cancel in general. They happen to net to a $22 million overstatement here. The table is the only way to see both.

Same company, 2026 megafund shape. Bain's 17th Global Private Equity Report (23 February 2026) illustrates 2025 buyouts at about 14.0x entry and leverage of about 36 percent of enterprise value. On $40 million of EBITDA that is $560 million of enterprise value and $202 million of debt.

Debt is almost the same $200 million in both rows. Enterprise value rises by $200 million, and the sponsor check more than doubles, from $138 million to $340 million, because the company got more expensive and leverage as a share of enterprise value fell. The uses column is where that shows up.

How the plug becomes the return

IRR and MOIC are measured on sponsor cash, not on total equity, unless the prompt says otherwise. Rolled shares and co-invest own part of the exit. They do not belong in the fund's denominator.

A smaller plug raises the multiple on the same exit equity. It also raises the interest bill and shrinks the cushion if EBITDA misses. The table does not decide whether that trade is a good one. It only makes the cash at risk visible.

Documented closes show how far the mix can move.

On 24 October 2007, Hilton Hotels and Blackstone published the close: about $20.6 billion of mortgage and mezzanine debt on Hilton subsidiaries, and about $5.7 billion of Blackstone equity, against a roughly $26 billion purchase. Debt was most of the stack.

On 29 September 2025, Electronic Arts announced an agreement to be acquired by a consortium of the Public Investment Fund, Silver Lake, and Affinity Partners at about $55 billion of enterprise value. Funding is about $36 billion of equity, including PIF rolling its 9.9 percent stake, and $20 billion of debt committed by JPMorgan, $18 billion of which is expected at close. Equity is most of the stack.

Bain's 2025 illustration sits with EA, not with Hilton: about 50 percent of the price borrowed in a typical 2015 buyout, about 36 percent of enterprise value in 2025, with entry multiples at 14.0x rather than 10.0x. The old "60 to 90 percent debt" line is a share of a cheaper company. On a 14.0x deal, 60 percent would be 8.4x EBITDA. Credit does not write that ticket in this rate world. The plug is the remainder.

A private equity associate owns this schedule on a live file because the investment committee reads the check before it reads the operating case. Firms that still run buyouts are in the companies directory. Open associate roles on Private Equity Jobs when the job is a seat that will build the table.

Errors that unbalance the table

Enterprise value in uses, and the refinance of the same net debt. The table comes up short, or long, by exactly that net debt.

One "fees" line, all capitalized. Cash at close is short. Day-one equity is overstated.

Rollover treated as a wire, then 100 percent sponsor ownership at exit. The fund's MOIC is too high.

Undrawn revolver as a source. Capacity is not proceeds. If covenants want the revolver undrawn on day one, it does not fund uses.

Minimum cash omitted. The company cannot operate, or a liquidity covenant is missed, and the plug was too small.

OID on gross debt in sources and again as a use, or on neither. Pick gross-plus-use or net proceeds.

Target cash that cannot move. Restricted cash, collateral accounts, and trapped offshore cash are not sources.

Sources summed independently of uses. Link total sources to total uses and keep a check. A rounding tolerance of $0.1 million is a check. A $5 million hole is a missing line.

A table that ties can still be a bad close. Coverage that only works if EBITDA never falls is a credit judgment, not a balancing error. That judgment belongs in the underwrite, not as a fourth mechanical test.

Common questions

Is the purchase line enterprise value or equity value?

Cash to shareholders is equity purchase price. If the model starts from enterprise value on a cash-free, debt-free close, that line is the purchase. If the model starts from enterprise value and the company has debt that the buyer will refinance, bridge to equity value and show the refinance separately.

Is sponsor equity always the plug?

In an interview model, yes. On a live deal the commitment papers and the equity check move together. The finished table still needs a balancing source.

Does a paper LBO have sources and uses?

Yes, compressed. Purchase price, debt from a stated leverage ratio, and the sponsor check. Fees and rollover are usually skipped. The identity is the same.

Why does rollover show up on both sides?

Gross presentation: full purchase as a use, rollover as a source. Net presentation: cash paid is already net of rollover. Both are fine if the check and the cap table match. Assumed debt that stays on the company is the other both-sides item. It does not change cash.

Does an undrawn revolver fund the close?

No. Only a draw is a source.

Sources

Bain & Company, Welcome to a New Era in Private Equity, 17th Global Private Equity Report, 23 February 2026. Hilton Hotels and The Blackstone Group, close release, 24 October 2007. Electronic Arts, agreement to be acquired by PIF, Silver Lake, and Affinity Partners, 29 September 2025.