PIPA Transactions
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PIPE Transactions: A Growing Source of Private Financing

Lower transaction costs and obtaining securities at less than market prices make PIPEs attractive investments.

PIPE Transactions Laptop
Image credit: Austin Distel on Unsplash

Pros and Cons of PIPE Transactions

From the perspective of both issuers and investors, there are a number of distinct advantages that make private financing a sound choice.

Traditional PIPEs

A traditional PIPE involves investors acquiring securities from a public company issuer at a fixed price. In order to effectuate this, the investors enter into private purchase agreements with the issuer. In a traditional PIPE, a placement agent is usually guides the process.

Non-Traditional (Structured) PIPEs

In a non-traditional PIPE, there is usually no placement agent. Instead, a lead investor typically controls the investment process. Non-traditional PIPEs became more popular following the 2008 global financial crisis.

Elements of a PIPE

The transactions typically involve common stock. Although investors often prefer convertible preferred stock or convertible debt because of the downside protection it affords, most PIPEs are not convertible PIPEs.

Requirements to be an Investor

In order to participate in a PIPE transaction, an investor must be an accredited investor. Accredited investors are often institutional investors, such as mutual funds and hedge funds. Individuals can also qualify as accredited investors if they exceed certain net worth and income thresholds.

PIPEs Used in SPACs

PIPE investors play a critical role in validating SPACs. Prior to the SPAC IPO, the blank-check company will enter into separate subscription agreements with each investor. The subscription agreement sets forth the commitment amount and other terms of the PIPE transaction.

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Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.

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Carpenter Wellington PLLC

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.