Private Investment in Public Equity - Definition
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Private Investment in Public Equity (PIPE) Definition
A private investment in public equity (PIPE deal) is when a public company sells some of its shares (either common shares or preferred shares) directly to private investors - rather than selling the shares to the general public through a securities exchange.
A Little More on What is a Private Investment in Public Equity
Because a PIPE deal is a direct offering of securities, it must be registered separately with the Securities and exchange commission or quality for a registration exemption as a private placement. A firm that trades publicly is able to use PIPE deals to secure financing for acquisitions, working capital, and expansion. The process generally allows the company to secure capital more rapidly than pursuing sale of shares to the public.
References for PIPE Transaction
Academic Research on Private Investment in Public Equity Deals
A study of Public Private Partnership models, Satish, D., & Shah, P. (2009). IUP Journal of Infrastructure, 7(1), 22. A basic industry that each country requires to establish for overall progress is the infrastructure. But, India and other developing countries have fewer resources. Its government is striving to make its GDP double through investments in this sector. This paper stresses on the projects related to this industry in India and evaluates the progress of these projects.PIPEs: A Canadian Perspective, Carpentier, C., L'Her, J. F., & Suret, J. M. (2005). The Journal of Private Equity, 41-49. This paper analyses the Private Investment in Public Equity from the prospects of the Canadian economy.The investment strategies of sovereign wealth funds, Bernstein, S., Lerner, J., & Schoar, A. (2013). Journal of Economic Perspectives, 27(2), 219-38. SWFs (Sovereign Wealth Funds) are the main investors on an international level. The authors stress on the agency issues related to these funds, such as how to deal with the transparency demands, how to resolve sheer size issue, etc. They highlight how several methods give clues to solve these problems using DWFs. Structuring PIPE transactions in key European jurisdictions, Jones, B. A., Hurlock, M. H., & Henry, P. R. (2003). In Int'l L. (Vol. 37, p. 23). This research explains how to structure the transactions of PIPE in the main jurisdictions of Europe.The illiquidity puzzle: theory and evidence from private equity, Lerner, J., & Schoar, A. (2004). Journal of Financial Economics, 72(1), 3-40. This paper proposes a model of liquidity in which one can model the securitys liquidity clearly being an option variable. The authors examine its predictions with respect to the private capital sector. Whether the stockholders can invest in this sector or not. If there are limited partners of funds for private capital, the limitations of transferability will less likely to prevail.Infrastructure and development, PrudHomme, R. (2005). In Annual World Bank Conference on Development Economics(pp. 153-80). This study provides information about the infrastructure and its role in the development of a country. If a country lacks the investment resources for the infrastructure industry, what it can do to increase it?Brazilian health biotechfostering crosstalk between public and private sectors, Rezaie, R., Frew, S. E., Sammut, S. M., Maliakkal, M. R., Daar, A. S., & Singer, P. A. (2008). Nature biotechnology, 26(6), 627. Brazil is a leading country in the field of biomedical science. But there remains a tension in the private and public industries of this country, which is definitely a hurdle in the development of its health sector specifically in the biotech innovation.A comparison of penny stock initial public offerings and reverse mergers as alternative mechanisms to going public, Floros, I. V., & Shastri, K. (2009). This paper entails a comparison in companies that become public with the help of PSIPOs (Penny Stock Initial Public Offerings and the ones which use RMs (Reverse Mergers). The latter are small, less profitable, expensive plans and restricted operational history. The stockholders of PIPE keep possession stake tracking Reverse Mergers. There are more possibilities that PSIPOs company managers cash out. Monitoring via staging: Evidence from Private investments in public equity, Dai, N. (2011). Journal of Banking & Finance, 35(12), 3417-3431. The author mentions the reasons for and results of staging in PIPEs. Just like venture equity staging, the shareholders use the staging policy being a monitoring method to lessen data asymmetry and issues of agency. Staging minimises the financing cost having a +ve relationship with the issuers of PIPE.PIPEs, Sjostrom Jr, W. K. (2007). Entrepreneurial Bus. LJ, 2, 381. This paper elaborates the Private Investment in Public Equity (PIPE) and its uses and abuses.Examining the Pipeline: A Contemporary Assessment of Private Investments in Public Equity (PIPEs), Steinberg, M. I., & Obi, E. U. (2008). U. Pa. J. Bus. L., 11, 1. The writers evaluate the substitutes of traditional equity financing, i.e. Private Placement and Registered Offers. PIPE are comparatively emerging substitutes. PIPE can be useful to its stockholders as well as the issuers. In the end, the authors also cover the criticism of PIPEs and their negative consequences.The rise of private equity media ownership in the United States: A public interest perspective, Crain, M. (2009). International Journal of Communication, 3, 32. This paper investigates the scope, implementation and logic of the private capital takeovers in the media industry of the US in the past ten years. The financial landscape enables them to make progress. The private capital challenges efficient media rules and its comparison with the corporate media.Why do firms issue private equity repeatedly? On the motives and information content of multiple PIPE offerings, Floros, I. V., & Sapp, T. R. (2012). Journal of Banking & Finance, 36(12), 3469-3481. This article checks the reasons for private capital problems propensity to become a source of debt again and again for public companies. The authors draw a conclusion that these are an acute requirement for cash for small scale businesses.