A PIPE deal is a directly negotiated transaction between an accredited investor and an issuer, a public listed company. PIPEs have been tapped by small to medium-sized companies in industries that need frequent funding and mature companies that seek growth capital. Small to medium-sized companies find it expensive to procure funding from traditional equity financing. PIPE transactions provide a quick and easy solution to their capital requirements. PIPEs aid the expansion, restructuring or acquisition operations of mature companies.
In a PIPE deal, the issuer offers a stake in the company to the investor in return for capital. The stake can be in the form of common or preferred stock, convertible bonds, or warrants, newly issued directly from the company’s treasury. It is sold to the investor at a discount to...
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...passive. Unlike other stockholders of the company, they do not control the board or corporate decisions or liquidity events of the company.
2. Liquidity: Generally, PIPE investments offer short-term liquidity as part of its resale registration process. However, in certain PIPE investments, the company requires the investor to limit resale of securities to a specific period of time.
PIPE investments differ from other forms of investments namely private equity or venture capital in the above-mentioned liquidity and control dynamics of the transactions. PIPEs are a unique investment avenue providing investors with many advantages. As the PIPE market grows, investors can avail the increasing opportunities to invest in a broad range of companies. PIPE transactions are great investment vehicles assuring returns and saleability for a passive and long-term investor.
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