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JV IPO

Overview

  • A JV IPO transaction is a structure whereby two companies for a joint venture, which can be subsequently monetized via an IPO
  • The joint venture is structured as a tax-free contribution of assets
  • If control is shared 50/50, both contributing parents qualify for JV accounting treatment
  • The parents are allowed to transfer debt to the JV (typically in proportion to the respective ownership percentages)
    • Tax-free status is maintained if debt is transferred proportionately
  • Precedent analogous transactions: Fortress Investments, National Cinemedia, Calamos Asset Management, Barnes&Noble.com, Travelocity, Charter Communications, Cingular Wireless (BellSouth and SBC), Verizon Wireless (Verizon and Vodafone)

Transaction Structure

Pre-IPO Structure Description
JV IPO structure
  • Company A contributes all of Sub A assets to the joint venture in exchange for a 50% economic interest
  • Company B contributes all of Sub B assets to the joint venture in exchange for a 50% economic interest
  • Companies A and B have equal 50% voting interests in the JV (joint control)
  • Sub A and Sub B are equal partners in the management company ("ManagementCo") which controls the JV
  • An IPO would occur through ManagementCo
Advantages Disadvantages
  • Create synergies and scale through JV formation which enhances overall valuation
  • Tax-efficient: deferral until monetization, basis step-up to public company
  • No double tax issues for GAAP or tax purposes due to LLC structure
  • Potential to share in benefits of tax step-up through tax receivable agreements
  • Ultimately a fully taxable exit
  • Complexity of JV governance, exit rights, etc.
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