Mitch Hull has over a decade of experience, is founder of Hull Capital Management, LLC, and shares his insights on private investments in public equities (PIPEs)...
“In a PIPE offering there are less regulatory issues with the SEC” ... then why is investing in them perceived with such notoriety?
The “notoriety” in a PIPE transaction is really a function of historical biases created in the early days of
PIPE investing. In the mid to late 90’s PIPEs, known at the time as Reg. D Private Placements, were new
to the capital markets and the dominant transaction structure was the floorless floating convertible bond.
It was embraced by a vast majority (at present it constitutes 5% of the market). This structure is known more pejoratively as the “toxic convertible” or “death spiral” as a number of dot com companies that had used this structure experienced negative outcomes when the Internet “bubble burst”. Many of those issuers’business models proved to be failures – and some erroneously continue to blame the PIPE structure for the same.
Today, very few transactions are completed with floating conversion features.