This article discusses how to record an equity to equity conversion as a result of a merger or acquisition. To record a conversion from an investment in one company into an investment in another, you will need to create a disposal for the original investment and on the same date create a new investment transaction for the new investment.
Recording the Disposal of the Original Investment
The first step in recording a conversion of equity from one portfolio company to another is to record a Disposal of the original investment. To ensure that the original Amount Invested does not get added into the Total Capital Deployed, you will need to record the disposal with a negative Amount Invested and Negative Shares Purchased, instead of entering a positive number in the Amount Sold field and Shares Sold fields. The amount invested will then net out and Total Capital Deployed will not double count the amount invested, and the original Cost (amount Invested) will net to zero and be rolled into the new portfolio company.
If there are any proceeds the proceeds will need to be broken into a separate disposal transaction on the same day.
Creating the New Investment
Using the same date used for the Disposal of the original Investment in the original portfolio company, record a new Investment transaction for the portfolio company the original investment is converting into. The Round Date for the new Round in the new company will be the round date for the converting round.