The pricing and performance of supercharged IPOs

Alexander Edwards, Michelle Hutchens, Sonja Olhoft Rego

Research output: Contribution to journalReview articlepeer-review

Abstract

This study examines a new form of initial public offerings, "supercharged" IPOs, where a firmorganized pre-IPO as a pass-through entity undergoes a series of transactions that steps-up the adjusted tax basis of the IPO firm's assets. This step-up imposes tax liabilities on pre-IPO owners, but also creates significant future tax benefits for the firm; the average anticipated deferred tax asset is $486 million ($13 per share) for our sample of supercharged IPO firms. Pursuant to tax receivable agreements, supercharged IPO firms pay a large portion of these tax benefits to pre-IPO owners as they are realized in the future. Future firm performance must be sufficiently strong for the IPO firm and the pre-IPO owners to realize the future tax benefits created by the supercharged transaction structure. We hypothesize and provide evidence of higher IPO offer prices and stronger future performance for supercharged IPO firms relative to traditional IPO firms.

Original languageEnglish (US)
Pages (from-to)245-273
Number of pages29
JournalAccounting Review
Volume94
Issue number4
DOIs
StatePublished - 2019

Keywords

  • Deferred tax assets
  • Supercharged IPO
  • Tax receivable agreement
  • Up-C

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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