Model a complex deal with a seller note, co-investor sell-down, support investment, add-on acquisition, divestment, and dividend recapitalization – one transaction at a time – in the ValueBridge App.
Video walk-through
Guide highlights
Start with a portfolio company
Start with an existing company or create a new one using the Add a Portfolio Company guide. In the Gross Returns section, check Invested, Realized, Fair Value, and Total Value against deal returns in the fund’s latest quarterly report. If they do not match, one or more transaction records are probably missing.
This guide provides several illustrative transaction examples for a complex deal. Switch on “Show tips” to reveal instructions and examples for each transaction type. For more details about any inflow, outflow, or adjustment, visit related module pages.
Transaction adjustments in a complex deal
The complex deal’s value creation “starting point” should be $50M of equity and $50M of debt, with equity made up of $35M from the fund, $5M from an LP co-investor, and $10M of management rollover.
The March 2022 platform acquisition metrics only reflect capital flows at closing, and are missing subsequent, planned adjustments. Keep the platform acquisition record as is, but create additional, dated transaction records to build an accurate, well-documented investment history:
Seller note replacement: The acquisition closes with $10M of fund equity and a $30M seller note due to fundraising constraints. Three months later, the fund replaces the note with equity. Subtract $30M from net debt and add $30M to both fund equity and total equity.
Equity sell-down: Next, the fund sells $5M of fund equity to a co-investor at cost. Subtract $5M from fund equity. No change to total equity since no new capital is added to the company’s balance sheet.
These adjustments maintain:
- The dated equity inflows and outflows (+$10M, +$30M, -$5M) required for accurate IRRs
- The proper initial cost basis ($35M) required for accurate MOICs
Learn more about various acquisition adjustments in Module 23 and Module 24.
Follow-on equity investment
Next, the shareholders make a follow-on equity investment in the company to support growth initiatives, with $10M from the fund and $5M from others. Add $10M to fund equity and $15M to total equity. If cash is added to the balance sheet, there is no immediate impact on enterprise valuation, so subtract $15M from net debt.
Learn more about follow-on equity investments for support, growth initiatives, or asset purchases in Module 28.
Add-on acquisition
Next, the complex deal completes a $20M add-on acquisition. The transaction adds $10M of revenue, $5M of gross profit, and $3M of EBITDA to the platform company’s income statement. It is funded with $10M of new debt and $10M of new equity, with $5M from the fund and $5M from others. The inflow increases company enterprise valuation. Add $5M to fund equity, $10M to total equity, and $10M to net debt.
Learn more about add-on acquisitions in Module 30.
Divestment
Later in 2024, the company completes a $20M business unit divestment. The transaction removes $10M of revenue, $5M of gross profit, and $3M of EBITDA from the platform company’s income statement. All proceeds are used to pay down platform company debt, so add $20M to net debt for this outflow transaction.
Learn more about operating company divestments in Module 31.
Dividend recapitalization
By mid-2025, improving cashflows allow the company to complete a dividend recapitalization. The company borrows $40M of new debt and immediately distributes $40M of equity proceeds to all shareholders, with $30M to the fund.
As described in Module 33, debt-funded equity distributions have no immediate impact on enterprise valuation, so create an outflow transaction that subtracts $40M from net debt, adds $40M to total equity, and adds $30M to fund equity.
Transaction-driven model simplifies a complex deal
In Excel, it is difficult to keep track of every event and how each should be included in the model. The App lets you focus on one transaction at a time and incorporates them all into the complex deal automatically.
Each dated record with a description creates a clear history of transaction activity that is easier for future analysts to understand and defensible in limited partner due diligence or regulatory compliance reviews.
Inflow and outflow records are historically locked and rarely change once created. Only FMV records are updated, when rolled forward to the next quarter’s valuation or a platform company is sold.
Visit the Exit a Portfolio Company guide or Module 25 and Module 26 for more examples and considerations of portfolio company exits.