The amount of cash required to complete the purchase of a business is determined by the company’s valuation and when payment or payments are required to be made. For small transactions the purchaser may choose to pay for the purchase at completion without any sort of financing, in which case the purchaser will need to contribute the whole of the cost. For larger deals financing will normally be used to enable the purchaser to make the purchase without having to pay the whole purchase price with own funds.
Deal financing from the vendor and external lenders may reduce the proportion of the deal value that the purchaser needs to find to as little as 10% of the purchase price. Using ‘leverage’ is a term used to describe this tactic.