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.

A PIPE, or private investment in public equity, is a private placement of securities of a public company. This investment opportunity is only available to accredited investors, deemed to meet certain qualification standards as defined by the Securities and Exchange Commission ( SEC). Historically, investors have used this type of financing in difficult credit environments. It was an alternative financing source when other sources had dried up. Today, PIPEs are used in a broader range of contexts. These contexts include in connection with blank-check companies, or SPACs (special purpose acquisition companies).

PIPE Transactions Laptop
PIPE Transactions Laptop
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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.

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