Yearly Archives: 2016

A new structure for initial public offerings (IPOs), colloquially referred to as “supercharged IPOs,” has become increasingly popular in recent years. In our paper, Supercharged IPOs: Rent Extraction or Signal of Future Performance, which was recently made publicly available on SSRN, we examine the motivations and implications of this new IPO structure. In a traditional IPO, a private corporation “goes public” by issuing new shares of capital stock in exchange for cash from new investors on the open market. In a supercharged IPO, a series of transactions are typically performed as part of the IPO process, which generates new tax assets (e.g., larger future tax deductions) for the corporation but also creates a tax liability for the pre-IPO owners. The future tax benefits generated by the new tax assets are then split between the new IPO investors and the pre-IPO owners based on a contract, typically referred to as a “tax receivable agreement” (TRA). These arrangements allow pre-IPO owners to retain some portion of difficult-to-value assets (i.e., future tax benefits), which were created under their ownership and may otherwise be discounted by potential IPO investors.

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