Do Public Shareholders Account for Tax Assets and TRAs in IPOs? Sample Clauses

Do Public Shareholders Account for Tax Assets and TRAs in IPOs?. Do TRAs fairly compensate pre-IPO owners for valuable tax assets that increase the profitability of public companies, or do TRAs rip off public shareholders? Answering that question requires separately analyzing the effect of (1) tax assets and (2) TRAs on the value of public companies. First, in theory, public shareholders should be willing to pay more for a company with tax assets than they would for an identical capture most of Newco’s [tax assets] that [are] not fully valued by the public markets.”); Xxxxx & Xxxxx, supra note 31, at 9 (“[P]ublic markets systematically undervalue tax assets of various sorts ”); Xxxxxx & Xxxxxxxxxx, supra note 9, at 21–22 (“[T]he market appears to ignore, or at least significantly undervalue, tax assets ”); Xxxx, supra note 42, at 50 (noting that TRAs “are premised on the assumption that the public does not value such tax benefits and therefore would pay the same amount for shares of a company that did not own these attributes”); Xxxxx & Alter, supra note 7 (“TRAs are premised on the theory—generally accepted by underwriters—that the public markets do not properly value tax attributes.”). But see Xxx Xxxxxx Xxxxxx, Tax Receivable Agreements in Initial Public Offerings: An Analysis of the Innovation Incorporated in IPO Agreements 54 (Aug. 2014) (unpublished Ph.D. dissertation, University of Texas at Arlington) (on file with the central library, University of Texas at Arlington) (testing the effect of TRAs on IPO prices and showing a slightly negative association). 124. See generally sources cited supra note 123. 125. See supra note 8 and accompanying text. 126. See Section I.B (discussing the origin and evolution of TRAs). 916 VANDERBILT LAW REVIEW [Vol. 71:3:889 company without such tax assets.127 However, practitioners argue that in practice public shareholders do not pay, or at least do not pay full value, for tax assets of a company going public in an IPO.128 One reason experts believe tax assets are not priced into IPOs is that investment bankers, who help public companies price their shares in an IPO,129 typically base the offering price on “earnings before interest, taxes, depreciation, and amortization,” commonly referred to as “EBITDA.”130 EBITDA specifically excludes taxes, including tax assets, from its calculation, so an offering price based on EBITDA would be the same for a company with tax assets as it would be for an identical company with zero tax assets.131 Although the valuations are “based” on EBITDA, b...