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Private equity begin snapping up public companies at a record pace

Yahoo Finance markets reporter Alexandra Semenova outlines the rate at which private equity firms are acquiring public companies with lowered market values in 2022, and how Senate Democrats are approaching the carried interest loophole.

Video Transcript

SEANA SMITH: All right. Well, it certainly has been a tough start to the year, first half of the year, for the market. S&P year-to-date, look at that, off just over 13%. Well, as this year's bear market washout sent valuations tumbling, private equity is buying up public companies at a frenzied pace. We want to bring in Yahoo Finance's Alexandra Semenova has the story for us. And Alexandra, when you take a look at what P is doing, obviously, some of these valuations of the companies are very attractive and they're not wasting any time.

ALEXANDRA SEMENOVA: Yeah, Seana, private equity firms are just pouncing at opportunities in public markets as they trade at lower prices following the stock market route that we experienced this year. In the first six months of 2022, private equity buyout firms announced or closed roughly $110 billion in take private deals of public companies. By comparison, that figure reached a record $181 billion last year. So already on pace to well exceed that record. And this comes, of course, amid a historic sell-off in equity markets, particularly in technology, which saw the lion's share of these deals.

Private equity firms also have a ton of dry powder to deploy. This is the money that has been allocated by investors but not yet put out. And what better time than now than to spend it on companies that are trading at a discount.

RACHELLE AKUFFO: Alexandra, I want to ask you about this carried interest loophole. We saw a lot of discussion in this new inflation deal that came out. But what do we need to know about this carried interest loophole?

ALEXANDRA SEMENOVA: Well, Senate Majority Leader Chuck Schumer and Senator Joe Manchin agreed on fiscal legislation last week that, among other things, targets carried interest, which Democrats have been trying to target for 15 years now. So current tax rules allow a share of investment managers incomes, if held more than three years, to be classified as a capital gain, which is taxed at 20% rather than the top 37% rate on ordinary salary. So obviously, critics of this rule have argued that it allows wealthy Americans to defer their tax payments or pay lower taxes while proponents of the rule, obviously, the private equity industry, have said that it encourages investment and it kind of serves as an investment incentive.

DAVE BRIGGS: And in this legislation, they're not doing away with the carried interest loophole, they are tweaking it a little bit. It will still exist, although, even what they have in there is infuriating both private equity managers and hedge fund managers, with one very notable exception, right?

ALEXANDRA SEMENOVA: Yeah. I mean, Senate Democrats may have found an unlikely ally in hedge fund billionaire Bill Ackman, which is a sentence I never thought that I would say. But you know, he's someone who has obviously greatly benefited from this rule. And he actually took to Twitter last week to say that it is a stain on the tax code, it's an embarrassment, and must end now. So very sharp language there from Bill Ackman looking to see that rule do away with.

DAVE BRIGGS: We've discussed this for years and years, and every time there's tax reform, it doesn't get done. And I can't imagine it ever will. A lot more discussion here to be had. Alexandra Semenova, great stuff.

ALEXANDRA SEMENOVA: Thanks, guys.

DAVE BRIGGS: Thank you.