The TRA market opportunity grew from $7B in 2017 to $30B
Andy Lee · Andy Lee – Empty Rooms: Investing in Tax Assets at Parallaxes Capital (Capital Allocators, EP.305) · Mar 30, 2023 · at 11:22
Andy Lee, founder and CIO of Parallaxes Capital, discusses the growth in market size for tax receivable agreements (TRAs) with host Ted Seides.
0:00 / 0:12exact quote · 12.4s
720p mp4 · rendered on demand · StarZero watermark
“In 2017, the market opportunity was, call it, seven billion dollars on the back of euphoric equity markets, and more importantly, adoption by private equity sponsors. That number is now closer to thirty billion dollars.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Andy Lee
TRA issuers average $400M+ in EBITDA with under 2x leverage
“I think the item across the industry that is not well understood is that they are oftentimes IG or near IG names, and they oftentimes are large scale and with access to public markets. And so on average, we see the industry being approximately 400 plus of EBIT…”
Step-up TRAs can absorb 80% earnings drops without payment cuts
“Where we are more focused on is the step-up TRA, primarily because for many of the names that we are underwriting, they can see almost a 60 to 80% drop in their earnings metrics, might that be an EBITDA-oriented metric, and see no changes to their overall paym…”
Public equity investors fail to properly value corporate tax assets
“It's primarily a function of the fact that public equity investors oftentimes don't ascribe much, if any, value to tax assets. If you think about a business, they might look at it on a revenue growth basis or an EBITDA multiple, both of which don't capture the…”
Creating TRAs obstructs valuation realization for Master Limited Partnerships
“MLPs trade at such a premium because of the valuation Metric that they are oriented towards, that the creation of a TRA would actually be an obstruction to the realization of that overall value.”
VCs underappreciate tax assets by prioritizing growth over profitability
“Venture capitalists who back these companies oftentimes don't fully appreciate the value of tax assets because many of the corporations are not oriented to being profitable. They're more oriented towards growth. And as such, the adoption in the venture capital…”