Private Investment in Public Equity (PIPE)

Private investment in public equity (PIPE) is the buying of shares of publicly traded stock at a price below the current market value (CMV) per share. This buying method is a practice of investment firms, mutual funds, and other large, accredited investors. A traditional PIPE is one in which common or preferred stock is issued at a set price to the investor, while a structured PIPE issues common or preferred shares of convertible debt.

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The purpose of a PIPE is for the issuer of the stock to raise capital for the public company. This financing technique is more efficient than secondary offerings due to fewer regulatory issues with the Securities and Exchange Commission (SEC).

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A publicly-traded company may utilize a PIPE when securing funds for working capital to fund day-to-day operations, expansion, or acquisitions. The company may create new stock shares or use some from its supply, but the equities never go on sale on a stock exchange.

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Instead, these large investors purchase the company's stock in a private placement, and the issuer files a resale registration statement with the SEC.

 

The issuing business typically obtains its funding—that is, the investors' money for the shares—within two to three weeks, rather than waiting several months or longer, as it would with a secondary stock offering. Registration of the new shares with the SEC typically becomes effective within a month of filing.