What would your Sources and Uses be in a Cash Free / Debt Free Deal?

Hi guys,

Can you please help me with regards to what S&U table would be for the below scenario in a Cash Free Debt Free Transaction? I think I am getting caught up on whether or not you can include pre-existing cash on B/S as a source in your S&U table if the deal is on a cash free debt free basis. From my understanding, excess cash on the B/S gets paid out in the form of a dividend pre-transaction but other times I see S&Us that do include cash so which is correct?

Assume:

  • 100M EBITDA biz at 10x multiple

  • OldCo Debt on B/S of 200M

  • Cash on B/S of 25M

  • Committed debt financing of 1x EBITDA

  • 5M of min cash balance required post-closing  

Is my S&U table correct?

Sources

Committed Debt Financing = 100

Cash on B/S = 25

Sponsor Equity = 905

Total Sources = 1030

Uses

Seller Proceeds = 825 (TEV of 1000-200 debt +25 cash)

OldCo Debt = 200

Min B/S Cash Funding = 5

Total Uses = 1030

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Comments (7)

Most Helpful
Aug 9, 2021 - 2:29am

For your sources, it will be just your equity and the debt financing (cash free and debt free means cash is swept out and minimum cash is left for which sellers are not paid)

So at 10x it would be as such (no fees assumed)

Debt = 100

Equity = 900

Total Sources = 1,000

Seller's proceeds = 800 (cash is paid out before the transaction so you do not see it here)

Old Debt = 200

Total Uses = 1,000

  • Analyst 1 in IB - Gen
Aug 9, 2021 - 10:48am

Not OP but would the 25 min cash balance on BS be recorded as a use?

Would the seller have to keep 25 cash in company to fund this or would it up sponsor equity by 25 to fund this?

  • Analyst 1 in IB - Gen
Aug 9, 2021 - 9:56pm

Thats not right -> if anything the 25M increase from sponsor equity would be on sources side. The above poster seems to not show the 25 min cash balance as a use however. Which is correct? Do you show or exclude and reflect on b/s instead?

  • Associate 1 in PE - LBOs
Aug 9, 2021 - 10:55pm

Sorry, was typing and didn't proof-read my comment.

On a cash free-debt free basis and using OP's example above (and assuming total uses is correct) your sources would look like the below

Sources

Committed Debt Financing: 100

Sponsor Equity: 930

Your PF B/S will show $5mm of cash 

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  • Analyst 2 in IB-M&A
Aug 17, 2021 - 9:43pm

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