Finding the Pearl in the Oyster: Supercharging IPOs Through Tax Receivable Agreements

Grady, Christopher B | February 1, 2017

A new, “supercharged” form of IPO has slowly developed over the last twenty years. This new form of IPO takes advantage of several seemingly unrelated provisions of the tax code to multiply pre-IPO owners’ proceeds from a public offering without reducing the amount public investors are willing to pay for the stock. Supercharged IPOs use a tax receivable agreement to transfer tax assets created by the IPO back to the pre-IPO ownership, “monetizing” the tax assets. As these structures have become more efficient, commentators have expressed concerns that these agreements deceive shareholders who either ignore or do not understand the agreements’ implications. This Note argues that tax receivable agreements are actually similar to other popular forms of monetizing tax assets. Further, this Note shows that tax receivable agreements permit parties to compensate each other for the value of tax assets, increase efficiency in the market, and encourage risk-taking.