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Private investment in public equity (PIPE)
Also called: private placement, PIPE deal, PIPE financing
A sale of unregistered stock, convertibles or warrants by a public company directly to selected investors, who usually get the shares registered for resale afterwards.
Explanation
A public company sells securities privately, under the Section 4(a)(2) exemption or Regulation D, to accredited and institutional investors. The securities can be common stock, convertible preferred, convertible notes or warrants, and are usually priced at a discount to the market.
The shares are restricted at first. Investors can resell once a resale registration (often an S-1 or S-3) is effective, or after the Rule 144 holding period (six months for a company current in its SEC reports), and the company typically agrees to file that registration within weeks. Unregistered sales of 1% or more of the outstanding shares (5% for smaller reporting companies) must be reported on Form 8-K Item 3.02.
Exchange rules limit discounted private deals. Nasdaq Rule 5635(d) requires shareholder approval before a company issues 20% or more of its shares or voting power below the “Minimum Price”: the lower of the last close and the five-day average close before signing. That is why many PIPEs are sized just under 20%, or hold back the excess until shareholders approve it.
Why it matters
PIPEs let companies raise money outside the shelf and the baby-shelf cap, but the pricing, the warrants and any reset terms decide who wins. When the resale registration becomes effective, a wave of new shares can reach the market at once.
How Equity Dictionary measures it
Private placements are recognized from 8-K Item 3.02 and Form D filings and, where the document can be parsed, from its terms. A resale prospectus registering PIPE shares is classified as a resale, not a new raise, so the deal is counted once, when it closed.
Related terms
- Regulation D and Form D: The SEC rules that let companies sell securities privately without registering them, and the short notice (Form D) they file after the first sale.
- Registered direct offering (RDO): A sale of registered shares negotiated directly with a few institutional investors through a placement agent, usually at a discount and closed within a day or two.
- Warrants: Contracts issued by a company that let the holder buy new shares at a fixed exercise price until an expiry date, often five years out.
- Convertible notes: Debt that the holder can exchange for shares at a set conversion price, so a loan today can become dilution later.
- Toxic financing: Convertible securities whose conversion price floats with the market, so the lower the stock falls, the more shares the holder receives.
- Form 8-K: The current report a company must file within four business days of a major event, organized into numbered items.
Plain-English summary for research; not legal or investment advice.