PIPE Financing for Publicly Listed Companies

What is PIPE financing?

Private Investment In Public Equity – PIPE’s

A PIPE (private investment in public equity) is a private placement of shares or convertible securities by a listed company to a small group of institutional or accredited investors, usually at a discount to the market price. The investors buy restricted securities directly from the company, and the company agrees to register them for resale afterwards.

PIPEs suit small and mid-cap issuers that cannot easily access a marketed offering. Research on US PIPEs between 2001 and 2015 found a median deal size of around $10 million. Buyers are typically hedge funds, private equity and venture funds, asset managers and family offices. Retail investors are excluded.

Platinum Global Bridging Finance arranges PIPE financing for listed companies that need working capital, acquisition funding, a recapitalisation or a way to settle creditor debt without a marketed public offering. Start a PIPE enquiry.
PIPE finance is a private placement in public equity: a listed company sells new shares, or securities that convert into shares, to selected investors outside the public market. When the deal is structured as a convertible note or loan rather than a share issue, people often call it a PIPE loan or PIPE lending. An equity PIPE is a straight issue of shares, while a PIPE loan is debt that the investor can convert into shares at an agreed price. Both are forms of private investment in public equity, and the difference matters for dilution, repayment and accounting.

How PIPE financing works

1. Confidential sounding. Selected investors are approached under NDA.
2. Diligence and terms. Investors agree price, size, security type and any warrants.
3. Signing and disclosure. US issuers generally file a Form 8-K within four business days of signing.
4. Resale registration. The issuer registers the shares so investors can sell. In a traditional PIPE, closing is often conditional on this becoming effective. In others, funds arrive at closing and registration follows within an agreed deadline.
5. Closing and funding. The company receives the proceeds.

Timing is typically weeks, not the months a marketed offering takes. If closing depends on regulator review of the resale registration, allow a month or more.

PIPE financing structures

Traditional PIPE

New common or preferred shares are sold at a fixed, discounted price. Dilution is known at signing, which makes this the simplest structure for the issuer to model.

Structured PIPE

The investor receives convertible securities, often with warrants. Resets or floating conversion prices protect the investor but can compound dilution if the share price falls. Floors and ownership blockers (typically 4.99% or 9.99%) limit this.

Convertible preferred

We review the company, its management and its fundamentals, then agree a private placement of convertible preferred shares with warrants. Funding is released in instalments against agreed milestones. Alongside the capital we provide IR/PR support, legal guidance from our in-house counsel, capital markets and M&A consulting, operational development, cap table management, board placements and follow-on financing.

Distressed debt recapitalisation

This is our most requested structure. We work with the company’s creditors on a structured settlement, then purchase tranches of debt from them in exchange for shares of common stock.

The private placement discount

Most PIPE transactions are priced at a private placement discount to the market price. The discount compensates investors for holding restricted securities until the resale registration is effective, and for the risk that the share price moves before they can sell. There is no standard figure. The discount is negotiated and reflects trading volume, deal size, the security type, any warrants and the quality of the issuer. A deeper discount means more dilution for existing shareholders, so it is worth comparing offers on the effective price after warrants, not just the headline discount.

How PIPE dilution works: two worked examples of private investment in public equity

The figures below are hypothetical, to show the mechanics.

Example 1: fixed-price PIPE

A company has 20 million shares in issue at $1.00 each, a market value of $20 million. It raises $2 million through a traditional PIPE at a 15% discount, so $0.85 a share. That means about 2.35 million new shares.

• Existing shareholders fall from 100% to 89.5% of the company. The new investor holds 10.5%.
• The new shares are 11.8% of the pre-deal share count, below the 20% level that generally triggers shareholder approval in the US.
• The dilution is known and fixed on the day the deal is signed.

Example 2: floating conversion price

Now the same $2 million is raised as a convertible that converts at 20% below the market price on the day of conversion.

• If the shares trade at $1.00, the conversion price is $0.80 and the investor receives 2.5 million shares (12.5% of the pre-deal count).
• If the shares have fallen to $0.50, the conversion price is $0.40 and the investor receives 5 million shares. That is 25% of the pre-deal count, and existing holders are down to 80%.

Same $2 million, twice the shares. This is the reason issuers negotiate a price floor, an ownership blocker and a cap on total shares issued.

PIPE financing for public companies

Benefits: funding in weeks, no underwritten roadshow, confidentiality until terms are signed, negotiable terms and access to institutions that may hold the stock long term.

Costs and risks: a pricing discount and dilution for existing holders, the signal a deep discount can send, hedging or short selling around announcement, floating conversion risk, and cash penalties if a resale registration deadline is missed.

Listing rules. Approval and disclosure rules vary by exchange and country. In the US, for example, Nasdaq Rule 5635 and NYSE Rule 312.03 generally require shareholder approval before a company issues 20% or more of its pre-deal shares at a discount. Take advice from securities counsel in the issuer’s listing jurisdiction.

Who invests in PIPEs? PIPE investors and private equity

PIPE investors are institutions and accredited investors who buy restricted shares or convertible securities directly from the issuer. They include hedge funds, asset managers, family offices, venture funds and private equity firms.

A private equity PIPE is a minority investment: the fund buys a block of new shares, or convertibles with warrants, in a listed company and usually takes no control. This is different from private equity buying public companies outright. In a take-private, the buyer acquires the whole company and delists it, whereas a PIPE keeps the company listed and brings in a new institutional holder. Private equity investing in public companies through PIPEs gives the fund a discounted entry price and negotiated protections, and gives the issuer growth capital without a marketed offering.

Private equity and public equity: where PIPEs fit

Private and public equity are usually treated as separate worlds. Private markets involve unlisted companies with limited liquidity, and public markets involve listed shares that trade every day. A PIPE sits between the two: it is a private transaction in a public company, so the investor gets negotiated terms while the company still has a listing.

Three related terms are worth separating:

• Public market equivalent (PME). A method for comparing private equity fund returns with a public index, by testing what the same cash flows would have returned if invested in the index. Investors sometimes use the same logic to judge whether a PIPE discount is enough to compensate for illiquidity.
• Publicly listed private equity firms. These are asset managers whose own shares trade on an exchange. They are a different thing from a PIPE issuer, although some private equity managers are also active PIPE investors.
• Private equity going public. This describes a private equity firm, or a private equity-backed company, listing on an exchange. Once listed, a company can use PIPEs for follow-on funding like any other issuer.

What can PIPE capital be used for?

Working capital

Funds payroll, suppliers and day-to-day running costs, and bridges the gap until revenue or other financing arrives. Investors will want to see a credible route to revenue or a clear milestone the cash supports.

Acquisitions

Funds a purchase without a lengthy public raise. PIPEs are common in reverse mergers and de-SPAC deals, where the capital is committed before the deal is announced. In a de-SPAC merger, the PIPE is usually raised alongside the deal to provide committed capital and to cover shareholder redemptions, which is why PIPE financing and SPAC transactions are so closely linked.

Expansion

Funds new products, markets, capacity or hires. Milestone-based tranches suit this well, because each release of funds is tied to progress and the company does not take on dilution for money it does not yet need.

Debt restructuring

Settles or converts creditor debt into equity, which is the basis of our distressed debt structure. Creditors accept shares or a negotiated settlement instead of waiting for repayment, and the company’s balance sheet improves.

Recapitalisation

Resets the balance sheet by replacing debt with equity and bringing in new institutional holders. It is often combined with debt restructuring and a new management or board structure.

Other public company financing solutions

If the company is not yet listed, see our pre-IPO loans.

Who can qualify for PIPE financing?

We work with companies listed on a recognised exchange. Our minimum is an average daily trading volume of $100,000. Beyond that, investors look at the company’s fundamentals, management, how the funds will be used and how much dilution the existing shareholders can accept.

PIPE transaction process

PIPE transactions follow the same broad sequence whatever the structure, but the timetable depends on whether closing is tied to resale registration.

Initial assessment

We review your exchange, trading volume, size of raise and purpose to confirm a PIPE fits, and tell you early if another structure suits better.

Due diligence

We review the business, management, financials and capital structure, including existing debt, convertibles and warrants.

Investor review

We take the opportunity to suitable institutional investors under NDA and collect their feedback on size, price and structure.

Term sheet

Price, size, security type, warrants and milestones are agreed in principle.

Documentation

Counsel prepare the purchase agreement, registration rights and disclosure.

Closing

Securities are issued and funds released, in full or in milestone tranches.

Information required

• Exchange, ticker and average daily trading volume
• Amount to raise and the intended use of funds
• Latest financial statements and current cap table
• Existing debt, convertibles and warrants outstanding
• Management and board details
• For distressed cases, a schedule of creditors and balances owed

PIPE financing FAQs

How long does a PIPE take?

Usually weeks. Closing on signing is fastest. If closing depends on a resale registration becoming effective, regulator review can add a month or more.

How big is the discount?

There is no fixed figure. It is negotiated and reflects trading volume, deal size, how soon investors can sell and the quality of the issuer.

Do shareholders have to approve a PIPE?

Not always. In the US, approval is generally needed if the company issues 20% or more of its pre-deal shares at a discount. Other markets apply different tests.

Can a company listed outside the US raise a PIPE?

Yes, but the structure depends on the exchange and local rules. Non-US issuers often use convertible bonds, ELOCs or SEPAs alongside or instead of a traditional PIPE, and you need securities counsel in the listing jurisdiction.

What is the difference between a PIPE and an ELOC?

A PIPE is a negotiated placement, paid at closing or in milestone tranches. An ELOC is a facility the company draws down over time against trading volume.

What does PIPE financing cost?

The pricing discount, any warrants, fees and legal costs, and the dilution to existing shareholders.

What is an ownership blocker?

A clause that stops an investor holding more than a set percentage of the company, typically 4.99% or 9.99%, at any one time. It limits conversion of convertibles and warrants.

Can a company with low trading volume raise a PIPE?

It is harder. Investors need to be able to sell, so thin trading limits the size and widens the discount. Our minimum is an average daily trading volume of $100,000.

What is PIPE finance and what does it mean?

PIPE finance means raising money through a private investment in public equity. A listed company sells shares or convertible securities privately to institutional or accredited investors, usually at a discount, and then registers those shares for resale.

What is a PIPE loan?

A PIPE loan is a convertible loan or note issued by a listed company in a private placement. The investor can convert it into shares at an agreed or floating price. It is treated as debt until conversion, so repayment terms, interest and conversion limits all need negotiating.

What is a private placement discount?

It is the discount to market price at which shares are sold in a private placement. It compensates investors for holding restricted securities and for price risk before they can resell.

Do private equity firms invest in PIPEs?

Yes. Private equity firms are among the typical PIPE investors. They usually take a minority stake in a listed company, unlike a take-private, where a buyer acquires and delists the whole company.

How is a PIPE different from a secondary offering?

A PIPE is a negotiated private placement with a small group of investors. A secondary offering is a public follow-on sale to the wider market with fuller disclosure and a longer timetable.

Speak to Platinum Global Bridging Finance

Tell us your exchange and ticker, average daily trading volume, the amount you want to raise and what it is for. We will tell you whether a PIPE, or another structure, fits. Contact us.

This page is general information, not an offer of securities or investment advice.