1,200. The registration rights agreement negotiated between the parties often provides the investors with (i) demand registration rights requiring the company to register the sale of acquired shares pursuant to a resale registration statement and (ii) piggy back registration rights that allow investors to join in a registered primary offering of the company or a secondary offering of other company shareholders. Although Nasdaq does not have a related party rule comparable to the NYSE’s rule, it views issuances to directors and officers at below market value, similar to the NYSE, as equity compensation, which requires shareholder approval.
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1,600. A shareholder approval requirement could delay a company’s plans to raise capital, but listed companies may face delisting by the applicable exchange for noncompliance with the shareholder approval rules discussed below. See our prior posts discussing the Nasdaq rules here and NYSE rules here. Through July 31, 2020, companies have raised over $47.2 billion in 779 PIPE transactions. PIPE transactions may therefore provide a much-needed lifeline. Neither of these exemptions is typically available for PIPE transactions, which usually are marketed to a small number of investors and at a below market price. A company should confirm it has sufficient unissued but authorized stock under its charter or, if the company is considering issuing a new type of equity security, such as preferred stock, that its charter authorizes such security. The Mayer Brown Practices and Mayer Brown Consultancies are established in various jurisdictions and may be a legal person or a partnership. PIPE transactions remain an important capital-raising alternative, especially during periods of market volatility. While PIPEs offer potential benefits to both issuers and investors, particularly during volatile market conditions, these transactions include unique challenges and issues on both sides of a deal. “Mayer Brown” and the Mayer Brown logo are trademarks of Mayer Brown. All information these cookies collect is aggregated and therefore anonymous. PIPE Transactions: Basics and Current Developments. Alternative ways to access the capital markets and increase liquidity through equity financing include, among others, “at-the-market” (ATM) offerings, registered direct offerings, and private investments in public equity (PIPEs).

$100,000. If sufficient shares are not available or the type of security being considered is not already authorized, then a company may have to seek shareholder approval to amend its charter. In fact, Nasdaq guidance provides that if the terms of a transaction can change based upon the outcome of the shareholder vote, no shares may be issued prior to shareholder approval. This “share cap” allows the issuer to either avoid or delay shareholder approval. Additionally, deal terms for convertible securities may include “sweeteners” (or penalties) triggered upon the outcome of a shareholder vote, to encourage shareholder approval. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. PIPE documentation and the principal negotiating issues; The securities exchange shareholder approval rules, recent changes to such rules, and the financial viability rule; Using warrants and structuring approaches for at-market deals; Venture capital and private equity PIPE transactions; and.

Below is a comparison of the number of PIPE transactions and offering proceeds raised in PIPE transactions from March-July, 2020, 2019 and 2018, which demonstrate increased reliance on PIPE transactions month-over-month. Given the current volatility of the capital markets and uncertain outlook for stability, one attractive option for public companies seeking to raise capital quickly is a “PIPE” transaction – or private investment in public equity. By Anna T. Pinedo & Gonzalo Go on April 2, 2020 Posted in PIPEs , Resources As a consequence of increased market volatility, a variety of offering alternatives to traditional underwritten public offerings may be more useful, such as PIPE (private investment in public equity) transactions. But opting out of some of these cookies may have an effect on your browsing experience. – Special Purpose Acquisition Companies, PIPEline: Sponsor-Led PIPE Transactions in Volatile Markets. guide, we provide an overview of the PIPE transaction format. The attractiveness of PIPE transactions has waxed and waned since the late 1990s. 2003. By continuing to use this website, you are demonstrating your consent to the placement and use of cookies as described in our Cookie Policy.​, PIPE Transactions: Key Considerations for Issuers and Investors, We use cookies on this website to enhance your user experience and to improve the quality of our site. Comparing timeframes (January 1 through June 9) year-over-year since 2015, there is a notable increase in the number of deals for 2020, with 533 PIPEs completed already. Note that the recent NYSE rule waivers do not apply to the change of control requirements. PIPEs: Transactions in which public companies issue securities in a private placement, or PIPEs, have been steadily rising in recent years and are trending to increase significantly for 2020, both in number of transactions and total dollar volume, based on data and estimates from PlacementTracker. The NYSE and Nasdaq each use a facts-and-circumstances analysis to determine whether an issuance qualifies as a public offering.
In some instances, directors may experience tension from the competing interests of and duties owed to preferred and common shareholders, particularly if a PIPE investor receives shares of a newly created preferred class.

PIPEs are popping up everywhere in the current COVID M&A environment. Each company should carefully consider what rights it is willing to provide to investors in light of these considerations.