PIPE Transaction Attorney

In recent years, PIPE transactions (private investment in public equity) have become increasingly popular due to their speed and efficiency. However, these transactions can still carry significant risk to both the organization and investors. At Mangum & Associates PC, we can guide you through these complex offerings, insuring your compliance with federal securities and state blue sky laws.

PIPE Transaction Securities Attorney - Mangum & Associates PC

What Is a PIPE Transaction?

Many small and mid-sized companies have difficulties raising the funds they need to expand and develop their businesses, due to a lack of institutional investors, less visibility on the markets, and decreased analyst attention. A PIPE transaction may be able to help your business side-step these challenges and raise much-needed capital.

During a PIPE transaction, an accredited investor, such as a mutual fund or private equity firm, acquire stock in a public company at a discounted rate. All public companies may offer PIPE transactions.

What Are the Benefits of PIPE Transactions?

Compared to a traditional fundraising mechanisms, PIPEs offer significant benefits:

  • Raise capital in a matter of weeks
  • Streamlined processes and disclosures
  • Can increase shareholder base with the inclusion of institutional investors
  • Flexible transaction sizes
  • May be less expensive than a traditional public offering
  • The transactions are not disclosed until the company receives purchase agreements from investors

However, these transactions also have their downsides. For example, shares sold in a PIPE transaction are not offered at market value, and you cannot sell more than 20% of your available stock without shareholder approval — and blackout periods are limited.

What Is a Blackout Period?

Sometimes called a suspension period, investors cannot sell their PIPE-related stocks for a period of time. In a PIPE transaction, the blackout period may be as short as a few days, but may last up to 60 days. Typically, investors will try to negotiate an agreeable blackout period into their purchase agreement or private placement memorandum. Because PIPEs have relatively short blackout periods, there’s always a risk of an influx of short selling by investors.

While PIPE transactions are enticing to investors who short sell, there are also organizations that will buy and hold your securities. An experienced PIPE transaction lawyer can help you structure your offering in a way that attracts these more desirable long-term investors and minimizes your risk of a failed transaction. To learn more about how these challenges may impact your business’ capital acquisition strategies, consult with an experienced securities lawyer.

Common Forms of PIPE Transactions

At Mangum & Associates PC, we help our clients identify the correct PIPE format for their unique goals and needs. They might include:

  • Standard or traditional PIPE: a private placement that issues common or preferred stock of accredited investors
  • Structured PIPE: issues convertible stock or debt to accredited investors via a private placement

Companies may offer these investments at a fixed or variable price. Investors sign a private placement agreement which sets the terms of the transaction and its blackout periods.

While registered direct offerings resemble a PIPE, they are not the same. Unlike a PIPE transaction, a registered direct offering is public and securities are issued through the DTC (depository trust company) system, rather than receiving a physical stock certificate.

Who Are Accredited Investors and What Disclosures Will They Receive in a PIPE?

Accredited investors are more sophisticated than your average investor, and typically include a wide variety of institutional investors, such as mutual funds, pension funds, and other investment firms. An experienced law firm can help you identify your optimal accredited investors.

Because a PIPE is a private placement, you do not have to provide extensive disclosures to these investors. Instead, you must provide them with a private placement memorandum (PPM) which contains the necessary disclosures and details. However, because these are private placements, the issuing company must carefully preserve its exemptions under federal securities laws.

When Does a PIPE Transaction Require Approval?

Again, if a PIPE transaction involves 20% or more of your company’s outstanding shares, you must get shareholder approval. Certain PIPEs must also comply with New York Stock Exchange (NYSE) or NASDAQ rules. If you’re unsure whether your offering requires shareholder approval, it is best to consult with a securities lawyer who understands complex PIPE transactions.

Get Answers to Your PIPE Transaction Questions

At Mangum & Associates PC, our securities attorneys guide companies of all sizes through PIPE transactions and other private offerings. If you are ready to explore your fundraising options, we would love to hear from you. With offices nationwide, we can easily connect your organization with an experienced securities lawyer who can learn about your business’ goals and identify your best capital raising options. Contact us today to learn more.