LBO pro forma balance sheet adjustments - cash to seller

Hey guys, I'm hoping you can help me with a journal entry I'm working on in a pro forma balance sheet. I'm building an LBO model and the business started with $2mm of cash. I've already created my purchase accounting entry, funding entries, transaction expenses, and deferred financing fees. Now, I'm left with the same $2mm amount of cash on the balance sheet. Based on deals I've done in the past, the Seller typically takes this entire $2mm of cash with him after financing, leaving $0 on the BS (unless PE firm decides to fund a cash amount). My question is, what is the journal entry for "sweeping" all the cash to the Seller? It's a credit to cash and a debit to ____?

Also, in my sources/uses, the seller gets $x of cash, but after he sweeps the $2mm on the BS, is he actually receiving $x + $2mm?

Thanks!

Comments (2)

Jun 28, 2018

Not too sure of the mechanism you have in mind, but in an LBO situation, the management would pay out non-operating cash balances as shareholder dividends pre-transaction. My guess is that it would be a debit to retained earnings?

Yes the seller would technically receive $(x + 2)M, but I wouldn't include $2M in the returns calculation since $x was directly attributed to the buyout.

Jun 28, 2018
Comment