PIPE (Private Investment in Public Equity) is a term commonly heard in the finance world, yet few understand what it really means. This article will give a comprehensive overview of what a PIPE is, reasons for doing a PIPE, advantages, and disadvantages of PIPE along with few transactions as examples.
PIPE refers to any private placement of securities of an already-public company that is made to selected accredited investors (usually to selected institutional accredited investors). In layman’s term, private investors buy shares via a private placement in return for ownership of the company, while the company receives financing from it. This financing technique often allows private investors to acquire publicly traded securities at a price typically below market value.
PIPE enables companies to receive and access to funding at a faster pace compared to traditional public offerings which involve extensive regulatory requirements. This type of funding can resolve the company’s immediate liquidity issue and improve its financial position. Additionally, PIPE’s terms are more flexible as they can be tailored according to investors’ preferences, often allowing more favorable conditions for investors which increases the likelihood of securing financing.
ORIC Pharmaceutical (ORIC), secured a PIPE funding of a total of $125million on 23rd January 2024 led by several investment firms including Viking Global Investors and Frazier Life Sciences to fund research and development of their product. ORIC’s Stock price did not tank but pumped after the announcement because the transaction was backed by strong accredited investors that aligned with their long-term goals. The transaction not only strengthened their cashflow position to fund operations into late 2026 but also provided a positive signaling effect towards the market.
In March 2023, Apollomics, a clinical-stage biopharmaceutical company completed a business combination with Maxpro Capital Acquisition Corp (JMAC) to list on Nasdaq Capital Markets under the symbol “APLM”. This successful business combination came through with a successful PIPE of $23.65 million from a Taiwanese family office and this transaction was advised by ARC Group.
The PIPE not only provided additional capital for APLM to advance its pipeline of drug candidates, but it also helped APLM to get listed on the public market. This enabled APLM to get access to the secondary market for liquidity and further financing opportunities, fostering future growth and development of the firm.
In summary, public companies can benefit from PIPE financing as a substitute for traditional public offerings. It offers flexibility, quick access to finance, and the possibility of strategic alliances. Despite the underlying disadvantages, which include dilution of shareholders and issues with market perception, PIPEs are nonetheless an essential tool for businesses that want quick finance or want to fortify their capital structure. The benefit of aligning with reputable institutional investors to reduce potential drawbacks and boost market trust is highlighted by the successful PIPE transactions. Through a constantly changing financial environment, PIPE finance continues to be a flexible and crucial tool for businesses across a range of industries to meet their operating and expansion objectives. Read more about the successful PIPE transaction advised by ARC Group here.
At ARC Group, we understand the value that PIPE can bring to the company, be it to support growth or to improve capital structure, we stand by here to help you achieve your goal seamlessly. If you ever think of doing a PIPE transaction, with proven track records in executing and securing PIPEs for multiple companies across the globe, ARC Group’s seasoned advisory team is here to support you along the way.
Author:
Yap Juantao
Analyst
Read more about our capital markets expertise
References
Receive our latest market insights, news and reports, and business bulletins.
