Retained Earnings Pro Forma Buyout

Hi there,

I'm an analyst at a Hedge Fund working on a new issue and was hoping you guys could help elucidate something for me.

Essentially, PE is doing an LBO to acquire a company from another PE (say 400 in notes, 200 in cash injection). In the Capitalization table pre-acquisition equity is a few million GBP in the red (due to negative P&L account; say -200) but, pro forma the acquisition, is equal to the equity injection which is part of the acquisition (200). Now the 400 in debt was used to pay a shareholder loan (400) to previous PE, which leaves the 200 cash injection. However, Equity jumps from -200 to 200, a 400 change.

Is it possible that the historical retained earnings is just set to 0 as the firm changes hands?

Thanks