Hope someone here can help me out.
I’m currently starting with some Financial Modelling and was wondering if someone can give me a satisfactory explanation to my question.
When preparing the pro forma balance sheet for an LBO transaction, Retained Earnings are typically swept to ZERO before adjustments for transaction expenses. Why do you have to do this? Existing debt is paid down (adjusted to zero) with sale proceeds and replaced by new debt for the LBO. But why is this done for RE as well?
Thanks in advance to those who can advise.