Wednesday, Might 18, 2022
Improvements In IPO Deal Construction: Do Up-C IPOs Hurt Public Shareholders?
Mary Brooke Billings (NYU), Kevin Hsueh (NYU), Melissa F. Lewis-Western (BYU; Google Scholar) & Gladriel Shobe (BYU; Google Scholar), Improvements in IPO Deal Construction: Do Up-C IPOs Hurt Public Shareholders? (extra write-up right here):
This paper examines an innovation in capital formation that has spurred contentious debate: the Umbrella Partnership Company (“Up-C”) IPO. Advisors and underwriters argue that the Up-C deal construction is a driver of post-IPO worth and, thus, is a value-enhancing technique of elevating capital which may be one resolution to issues concerning the drop within the variety of publicly traded corporations. In keeping with these claims, latest analysis means that organizing soon-to-be public companies as pass-through entities (as is the case for UpCs) results in superior future efficiency. But, broadening the evaluation to think about irregular inventory efficiency and post-IPO litigation of a bigger and more moderen pattern of completely Up-C IPOs, we conclude simply the alternative. Whereas the Up-C deal construction will increase IPO valuations and predicts optimistic post-IPO working efficiency, the return efficiency of Up-C IPOs signifies that Up-C offers hurt public shareholders.
Additional, regardless of their superior earnings efficiency, Up-C IPOs face a considerably greater charge of post-IPO litigation as in comparison with non-Up-C IPOs. As a result of IPO buyers seemingly don’t anticipate the myriad methods through which the Up-C deal construction would possibly facilitate opportunism by pre-IPO house owners, they ceaselessly flip to litigation as an ex-post settling-up mechanism. Consequently, our paper affords the primary empirical proof of downsides related to the Up-C deal construction for public shareholders and, in so doing, affords the rarity of getting educational proof lead (as opposed to answer) a controversial debate.
https://taxprof.typepad.com/taxprof_blog/2022/05/innovations-in-ipo-deal-structure-do-up-c-ipos-harm-public-shareholders.html
