Matt Levine’s Money Stuff: Tax Deals Can Cause Conflicts

TRAs

One strange piece of market inefficiency is that public markets supposedly undervalue tax assets. So a private equity firm will sometimes take a company private and then run it in a way that generates lots of tax deductions, lots of tax credits and net operating losses and depreciation and amortization that will offset future taxable income. And they will look at the company and see that it has, say, an operating business worth $100 and tax assets that will generate $5 per year of tax savings, and they will be happy.

But then they will want to take it public, ...