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A form of private placement, PIPES (Private Investments in
Public Equities) enable companies to raise
capital in appropriate amounts and with lower expenses, less
dilution, and greater flexibility than a traditional
secondary offering.
PIPE transactions provide greater
discretion and control in raising capital by allowing
companies to issue securities without revealing
deliberations to the market until after a transaction is
completed. PIPE securities, which may be comprised of debt
or equity or a combination of both, are typically sold at a
discount to a small group of accredited investors and
institutional buyers seeking to acquire positions in
desirable companies.
In 2001, over 1,000 PIPE transactions were completed raising
$15 billion (Source: PlacementTracker.com). PIPEs are structured in one of two different ways. In
what could be referred to as a "fundamental" deal,
a company
has better fundamentals, but the deal offers less
downside protection. In what could be referred to as a
"technical" deal, a company with weaker
fundamentals offers the investment banker the leverage
to negotiate more favorable terms for investors.
We conduct our due diligence, screening process and
corporate negotiations with the conviction and belief that
we will only invest in a deal in which both components
prevail. We first determine that a company has promising fundamentals
and, for a host of different reasons, we feel will improve as
a result of our infusion of investment capital. We then open the negotiating
process and if our downside protection requirements are not
met, we walk away from the deal. |
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"A PIPE investment in the United States typically provides certain benefits to the private equity investor."
"And while large, sophisticated investors like Warren Buffett, hedge funds, and Hicks, Muse & Tate have typically done PIPE deals, there's room for the smaller wealthy investor to get involved as well."
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