How to Record a Follow-On Add-On Acquisition Investment into a Portfolio Company
Recording a follow-on capital contribution to a portfolio company to fund its acquisition of a smaller add-on company as part of a buy-and-build strategy.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Investments at Fair Value - Portfolio Co. V (Add-On Capital) | Asset (+) | 4,500,000.00 | - |
| Cash & Cash Equivalents | Asset (-) | - | 4,500,000.00 |
💡 Accountant's Note
In a buy-and-build strategy, the fund makes follow-on equity investments into an existing portfolio company to fund add-on acquisitions. Each follow-on is recorded as a separate cost lot (tranche), increasing the total invested capital. The blended cost basis per share changes with each tranche. Fair value is assessed on the combined platform company including the add-on.
Practitioner & Systems Framework
💻 ERP Architecture
Maintain separate cost lots for each equity tranche (initial investment + each add-on). The fair value is assessed on the fully combined platform. Track the multiple on invested capital (MOIC) using the total invested cost across all tranches.
⚠️ Audit Flags
Auditors verify the follow-on investment is authorized by the fund's IC and is within the fund's follow-on investment budget. Valuation of the combined platform post-add-on requires integration synergy assumptions to be documented.
📄 Required Documentation
Investment committee approval memo for add-on, add-on acquisition closing documents, updated portfolio company cap table, combined platform valuation memo.
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