Private investment in public equity
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A private investment in public equity, often called a PIPE deal, involves the selling of publicly traded shares to private investors. The shares are almost always offered through an offering registered with the Securities and Exchange Commission. 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. The benefit to these transactions for smaller issuers is that they provide quick access to capital at a reasonable transaction cost. Some investors find these attractive because they get shares at a discount to the public market price, and because it provides an opportunity to acquire a sizeable position without having to chase a rising stock price caused by their own purchases. See also "Capital Subscription Fund".
The use of PIPE transactions has only become more popular each and every year. PlacementTracker announced on July 23, 2007, that during the first six months, PlacementTracker recorded 645 PIPE transactions totaling $22.42 billion in equity and equity-linked capital raises. That puts 2007 on target to do about approximately $45 billion in equity placement through this method of company finance. The use of PIPE deals in the U.S. equalled, in 2000, 1,106 such deals raising $24.3 billion, according to PlacementTracker. Their use rose again: in 2005, there were 1,301 PIPE deals in the U.S. raising a total of $20 billion. In recent years, top Wall Street firms such as Lehman Brothers and Citigroup have gotten involved in the PIPE market as bankers/placement agents.
A PIPE can be done in some countries, such as the US, Australia, Canada, and the United Kingdom, but is illegal in some other countries where it must be preceded by a rights issue.
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.
[edit] Further reading
- 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>
[edit] See also
[edit] External links
- The PIPEs Report News, Information and Analysis of Private Investments in Public Equity.
- The PIPEs Directory This up-to-date resource includes an analysis of the state of the market and complete contact information and profiles of active participants in PIPE transactions.
- PlacementTracker. The leading source of data, research, and analytic tools for the active participants in the PIPE market.
- PrivateRaise.com PrivateRaise.com is the leading source for comprehensive market intelligence and analysis pertaining to private placements of equity and equity-linked securities executed by public corporations.
- Structured PIPE Transactions Take Hold as Convertibles Deemed Risky
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