Playing the PIPEs

Abstract

A popular new form of equity financing for new and existing companies is the PIPE, or private investment in public entities. Investors outside of the normal public arena–including venture capitalists, leveraged buyout firms, hedge and mutual funds–bargain directly with a public company to acquire a private equity position. Transactions, often denominated in convertible, preferred, and perhaps unregistered shares, may be priced at a discount or a premium to the current market value. While the benefits are many for both the investors and the company, the risks can be extreme.