They can also support PE firms looking to fulfil certain fund mandates. Through PIPEs, PE firms can also deploy capital quickly when activity in private markets slows or when deal pipelines are running dry. PIPE transactions offer them the opportunity to take a significant stake in a public company at a negotiated, discounted price, and in some cases even secure a seat on the target’s board. “There may be private equity (PE) and venture funds, and there may be financial or opportunistic investors, such as hedge funds.”ĭuring periods of crisis or difficulty, PE funds may find that uncertainty around private company valuations makes such investments more difficult to execute. “Generally, there will be investors that are committed sector investors, and these include mutual funds and other asset managers,” notes Anna T. Historically, the types of investor most willing to participate in PIPE transactions have been institutional, though investors differ depending on the particular situation, such as whether the company is distressed or healthy. Given the ongoing economic crisis, listed companies will continue to look at capital-raising options throughout 2021, and PIPE transactions are likely to remain popular. Furthermore, as any publicly-traded company can initiate a PIPE deal with an accredited investor, PIPEs undoubtedly make it easier for smaller and lesser-known companies to raise capital, which has been vital in the challenging economic climate brought about by COVID-19. PIPE deals are particularly attractive during a relatively short-term crisis, such as the COVID-19 pandemic, as they provide companies with an alternative to taking on more debt or selling the company while the market is at a low. “PIPEs offer issuers a potentially faster path to fundraising, especially where they involve only a bilateral negotiation with a single investor.” Tiger, a partner at Freshfields Bruckhaus Deringer US LLP. “PIPEs have allowed difficult credits to find liquidity in urgent and creative ways, particularly in light of the unanticipated need for capital and limited availability of credit at key times during 2020,” says Paul M. ![]() While some turned to existing shareholders for support, others utilised the equity markets. ![]() Many watched their cash flow dwindle and scrambled to access capital – even as traditional sources of financing dried up. Companies endured a drop in demand, disrupted supply chains, location closures, a switch to remote working, and a rise in furloughed or laid-off workers. In 2020, the effects of the coronavirus (COVID-19) pandemic were sudden and devastating for many businesses. During the last economic crisis, for example, public companies used PIPE transactions to raise more than $123bn in 2008, an 86 percent increase over 2007’s then-record $66bn, according to PrivateRaise. PIPE deals are a faster, more bespoke source of financing which have proved popular in periods of economic turbulence. Healthcare and life sciences companies accounted for $15.2bn across 254 PIPEs, while industrials – such as chemicals, metals, mining and paper companies – led the market by number of deals with 323, but raised much less in aggregate, with $2.8bn. ![]() Last year, 1055 PIPE transactions were completed, raising over $53bn – the largest total since 2008, according to PrivateRaise. 2020 saw a resurgence of private investment in public equities (PIPEs), which offer companies a way to raise a large amount of capital relatively quickly and easily.
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