Private investment in public equity

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This article is about Private Investments in Public Equity or PIPEs. For investments in private equity through publicly traded vehicles, see Publicly traded private equity.

A private investment in public equity, often called a PIPE deal, involves the selling of publicly traded common shares or some form of preferred stock to private investors. In the U.S. a PIPE offering may be registered with the Securities and Exchange Commission or may be completed as an unregistered private placement.

PIPE transactions provide quick access to capital at a reasonable transaction cost for companies that might otherwise be unable to access the public equity markets. Some investors find PIPEs attractive because they can purchase shares at a discount to the public market price and because it provides an investor the opportunity to acquire a sizable position at a fixed price rather than pushing the price of a stock higher through its own open market purchases.

Existing investors tend to have mixed reactions to PIPE offerings as the PIPE is often dilutive to the existing shareholder base. Depending upon the terms of the transaction, a PIPE may dilute existing shareholders' equity, particularly if the seller has agreed to provide the investors with protection against market price declines, which can lead to issuance of more shares to the investors for no more money.

1 PIPE market
2 PIPEs and Mergers & Acquisitions
3 Regulation
4 See also
5 References
6 Further reading

PIPE market

The attractiveness of PIPE transactions has waxed and waned since the late 1990s. For private equity investors, PIPEs tend to become increasing attractive in markets where non-control investments are harder to execute. Generally, companies will pursue PIPEs when other capital markets are not open to the to raise debt or equity.

According to market research as of July 2007, during the first six months of 2007, 645 PIPE transactions were completed totaling $22.42 billion in equity and equity-linked capital raises.^[1] This compares with 1,106 such deals in 2000, raising $24.3 billion and 1,301 PIPE deals in the U.S. raising a total of $20 billion in 2005.^[1] In recent years, top Wall Street investment banks have become increasingly involved in the PIPE market as placement agents.

PIPEs and Mergers & Acquisitions

Many reverse mergers are accompanied by a simultaneous PIPE transaction, which is typically undertaken by smaller public companies. Shares are sold at a slight discount to the public market price, and the Company typically agrees to use its best efforts to register the resale of those same securities for the benefit of the purchaser.

Regulation

The regulatory environment in certain countries, including the U.S., Australia, Canada, and the United Kingdom are accommodating for PIPE transactions, however in certain areas there are stated preferences for rights issues, which allow existing shareholders an opportunity to invest before the company seeks outside capital. In these jurisdictions, once a company has completed a rights offering, it may pursue a PIPE transaction.

References

^ ^a ^b Research according to PlacementTracker, a source of data and research on the PIPE market.

Norris, Floyd. "A Troubling Finance Tool for Companies in Trouble." New York Times, March 15, 2006
Atlas, Riva D. "When Private Mixes With Public; A Financing Technique Grows More Popular and Also Raises Concerns." New York Times, June 5, 2004
GRETCHEN MORGENSON and JENNY ANDERSON "Secrets in the Pipeline." New York Times, August 13, 2006

Dresner, Steven; E. Kurt Kim (2003). PIPEs: A Guide to Private Investments in Public Equity. Princeton, NJ: Bloomberg Press. ISBN 1-576-60140-4.
Sjostrom, Jr., William K. (2007), "PIPEs", Entrepreneurial Business Law Journal 2, <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=992467>
Majoros, Jr., George L. (2001), "The Development of "PIPEs" in Today's Private Equity Market", Case W. Res. 493, <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=992467>
Lerner, Leib M. (February 2003), "Disclosing Toxic PIPEs: Why the SEC Can and Should Expand the Reporting Requirements Surrounding Private Investments in Public Equities", The Business Lawyer 655
Morgenson, Gretchen (2006-08-13), "Secrets in the Pipeline", New York Times, <http://www.nytimes.com/2006/08/13/business/yourmoney/13pipes.html?_r=1&ref=business&pagewanted=print>
The PIPEs Report News, Information and Analysis of Private Investments in Public Equity.

Topics on private equity and venture capital

Basic investment types

Buyout • Venture • Growth • Mezzanine • Secondaries • Equity co-investment

History

History of private equity and venture capital • Early history of private equity • Private equity in the 1980s • Private equity in the 1990s • Private equity in the 21st century

Terms and concepts

Buyout	Financial sponsor • Management buyout • Divisional buyout

Venture	Seed money • Startup company • Angel capital • Angel investor • Venture capital financing • Pre-money valuation • Post-money valuation • Venture round • Venture debt

Structure	Private equity firms and funds • Limited partnership • Limited liability company • Carried interest • Publicly traded private equity • Private Investment in Public Equity (PIPE)