Private Investments In Public Equity Research Articles

Private Investments in Public Equity (PIPEs) – A Closer Look at PIPE Transactions in Switzerland

PIPEs allow to raise equity in a quick, confidential, secure, flexible and cost-effective way. Companies that typically have recourse to PIPE financing are not in a position to proceed to a rights offering which would be likely to fail because of the difficult market environment, or they are not able to get new funds by way of a bank loan due to their revenue and profit situation. Such companies are especially active in capital-intensive and growth-oriented industry sectors such as the biotechnology, pharmaceutical, technology and telecommunications industry. However, in Switzerland PIPEs have not been discovered (yet) as a genuine fund raising alternative, mainly because they are considered to be difficult to structure, e.g. due to the statutory pre-emptive right of the existing shareholders. Evidence suggests that in Switzerland, too, PIPEs are not only suitable for recapitalization, but also for growth financing purposes. This article tries to set out, inter alia, the possibilities of withdrawing the pre-emptive right or the cases in which such a disapplication would be desirable in order to widen the scope of PIPEs in Switzerland – especially with mid- and small-cap companies –, as well as the legal consequences of such PIPE transactions.

Microstrategy, Incorporated (a)

This case examines the use of PIPEs (private investments in public equities) to finance a troubled business. See also the B case (UVA-F-1384).

Recent developments in hedge fund enforcement and regulation by the SEC under the leadership of Chairman Cox suggest that he may not be the free market advocate everyone once thought he was

PurposeThis paper aims to draw conclusions about the likelihood that Securities and Exchange Commission (“SEC”) Chairman Christopher Cox will take significant action to reduce regulation affecting hedge funds based on how the SEC has dealt with hedge fund regulation in both the rule making and enforcement arenas since Mr. Cox became Chairman.Design/methodology/approachAssesses actions taken by the SEC under Mr Cox's leadership with regard to PIPE (private investment in public equity) transactions by hedge funds, hedge fund registration rules, portfolio disclosure requirements, and alleged collusion among short‐selling hedge funds, research firms, and journalists.FindingsThe SEC's enforcement activities with respect to hedge funds that make short sales before the announcement of a PIPE transaction indicate that the SEC has no plans to lighten the regulatory or enforcement burden on hedge funds. The SEC's response to the DC Circuit Court's decision striking down the hedge fund registration rule likewise indicates that additional hedge fund regulation remains an SEC priority. While it remains to be seen how the SEC investigations and civil actions regarding the alleged collusion between short‐selling hedge funds, research firms and journalists will turn out, it appears unlikely that Chairman Cox will take any bold action to protect freedom of expression and the marketplace of ideas from attacks by disgruntled companies.Originality/valueProvides a timely and insightful view of the near‐term outlook for SEC regulatory and enforcement policy toward hedge funds.

Financing Under Extreme Risk: Contract Terms and Returns to Private Investments in Public Equity

We study financial contracting using transactions from the private investments in public equity (PIPEs) market. Our tests show that the use of terms that are contingent on an issuer’s future performance increases with issuer risk. Among issuers with poorer stock performance, higher cash burn rates, and more uncertain investment prospects, purchase discount-only contracts are uncommon and contracts with contingent terms are frequently used. Our evidence also supports arguments that issuer bargaining power with investors erodes as financing alternatives grow more limited. In particular, terms that can transfer control to investors are most commonly used by issuers in the weakest financial condition.

Does investor identity matter? An empirical examination of investments by venture capital funds and hedge funds in PIPEs

Abstract I examine the emerging phenomenon of PIPEs (private investments in public equity) invested by venture capital funds (VCs) and hedge funds (HFs) and analyze whether and how these investors add value to firms by comparing a sample of 113 VC-invested PIPEs to a sample of 397 PIPEs with HFs. I find that VCs gain substantial ownership, request board seats, and often keep their stake after the PIPEs. In contrast, HFs rarely join the board of directors and typically cash out their positions shortly after the PIPE. The stock performance of VC-invested firms is significantly better than HF-invested firms both in the short run and in the long run. The positive valuation effect of having VCs as PIPE investors appears to be a certification effect rather than a monitoring effect. A key implication from these findings is that investor identity matters.

Pipes: Private Equity Investments in Distressed Firms

This technical note describes the basic features of a new type of security called private investments in public equities (PIPEs). Increasingly, public companies in need of financing are raising capital through private-equity investors via PIPEs.

PIPEs

In the U.S., private investment in public equity (PIPE) is thriving. In Canada, the PIPE market also appears to be expanding rapidly, although evidence is scarce. The Canadian institutional context has generated a large pool of public stocks, with real but relatively minor financing requirements. The regulatory structure is also distinctive since private equity is viewed by policy makers and regulators as a way to obviate the financing gap affecting young growing companies. Consequently, the Canadian institutional and regulatory contexts differ from the U.S., owing to its rapid evolution and its tendency to strongly favor the emergence of vigorous PIPE activity. Our study shows that PIPEs have been more common in Canada than in the U.S. in the last decade. PIPE issuers belong predominantly to the primary sector, are small but not the smallest listed companies, and are growth-oriented companies, but not the more growth-oriented listed companies. PIPE may be a financing mode particularly well suited to the needs of small and medium-size companies, and thus deserves in-depth analysis.