Module IV· Sources & UsesIntermediate
Question
What is the difference between financing fees and transaction costs in the S&U table?
Answer
What
Both items appear on the Uses side of the S&U table, but they have different recipients and are treated differently for tax.
- Transaction costs: M&A advisors, lawyers, DD providers. Order of magnitude 2–3% of EV. Triggered by deal execution itself.
- Financing fees — banks (underwriters), bondholders. Order of magnitude 2–3% of debt volume. Triggered by setting up the debt structure. Under IFRS 9 they are spread over the debt's life as effective interest expense.
Deep diveShow more details
Detailed comparison
| Aspect | Transaction costs | Financing fees |
|---|---|---|
| Recipient | M&A advisors, lawyers, DD | Banks, bondholders |
| Trigger | Deal execution | Setting up the debt structure |
| Order of magnitude | 2–3% of EV | 2–3% of debt volume |
| Tax treatment (varies by jurisdiction) | inconsistent (expensed immediately or capitalized) | spread over the term (IFRS 9, effective-interest method) |
| Model effect | one-off cash out | reduces net proceeds, runs as interest expense over the debt's life |
Impact on the cash flow statement
Transaction fees go through once via investing or operating in Year 1, depending on the capitalization decision. Financing fees do not show as a separate line but as a higher effective interest rate over the entire debt life.
Pitch tip
Question: "Where do you see the difference in the cash flow statement?"
Answer: "Transaction fees go through once — Year 1 investing or operating, depending on the capitalization decision. Financing fees don't show as a separate line but as a higher effective interest rate over the whole debt life under the effective-interest method (IFRS 9)"
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