In an LBO or M&A transaction, the Sources of Funds refers to where the capital comes from to finance the acquisition. It outlines the various funding components that collectively provide the cash required to cover the total uses of funds.The sources can include a mix of:Debt financing – such as term loans, revolving credit facilities, mezzanine debt, or high-yield bonds.Equity contributions – typically from a private equity sponsor or strategic buyer.Seller rollover equity – when existing owners retain a portion of their ownership.Target company’s excess cash – occasionally used to partially fund the deal.The total cost of the transaction (uses) must be fully financed (sources) at closing. This is a foundational rule of deal financing.
Learn Sources of Funds with interactive examples and practice exercises in our Mergers and Acquisitions module.
This interactive learning module helps you understand Sources of Funds through hands-on practice and real-world examples.