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Private Investment in Public Equity (PIPE)

Candlefocus Editor
Private investment in public equity (PIPE) is a financial market transaction in which institutional or accredited investors purchase equity directly from a publically traded company and not through a public securities offering. These investments are typically made at a discounted price lower than the public market price. PIPE is a useful investment technique for companies to quickly raise money from institutional investors, and it is also a useful way for investors to enter a company at a discounted price.

Despite the fact that PIPEs involve unregulated transactions, many companies opt for PIPEs as opposed to public offerings due to the greatly reduced amount of documentation and filing requirements; a PIPE agreement is much shorter and simpler than a public offering. Typically, upon preliminary agreement of a purchase and sale, the investors and the company will agree to certain restrictions on the investors, such as lock-up provisions which prevent the investors from selling their newly acquired shares for a certain period of time.

When a company sells shares through a PIPE transaction, it is likely diluting current stockholder’s ownership stake. This dilution can be substantial, depending on the size of the PIPE and the number of shareholders the company has. However, the dilution involved in the transaction is both accepted and expected by the investing public. For example, investors understand that PIPEs generally involve financing the company's operations or positioning the company for near-term growth at the cost of current stockholders’ dilution.

Overall, PIPE transactions have become a popular way for companies to raise funds, allowing for the process to move more quickly without having to spend as much time and money completing complicated paperwork. These transactions can provide investors with a chance to enter a company at a discount, and involve far less stress and paperwork than a public offering.

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