Capital Markets

PIPEs Flowing Freely

Despite ongoing SEC probes, the volume of private investments in public equity is likely to set another record this year.
Stephen TaubApril 26, 2007

The market for private investment in public equity — or PIPEs — remains very strong.

In the first quarter of 2007, there were 302 PIPE transactions totaling $10.92 billion in equity and equity-linked capital raised. This was up 48 percent from the total amount raised in the market during the first quarter of 2006, and puts the PIPE market on track for another record year, according to a new report from Sagient Research Systems, a publisher of independent research for the financial services and institutional investment communities.

PIPEs, used primarily by small companies in need of cash, involve a private-placement transaction in which investors buy securities directly from a publicly traded company, usually at a discount from the market price of the common stock. Hedge funds have been big investors in PIPEs.

In 2006, there were 1,326 PIPE transactions totaling $28.14 billion in equity and equity-linked capital raised, according to Sapient. This set all time single year record highs in both the number of transactions and the total dollar value invested.

The top investment banker in terms of number of transactions was Rodman & Renshaw, LLC, with 12. It was followed by Roth Capital Partners, LLC (7), and three firms that completed five transactions — UBS Investment Bank, Piper Jaffray and Oppenheimer & Co. UBS topped the list of total amount placed with more than $899 billion worth of transactions.

The top institutional investors were Iroquois Capital, L.P. (19 transactions), Heights Capital Management (17) and Enable Capital Management (16).

Not all is rosy for PIPE investors, however: The Securities and Exchange Commission has been probing possible insider trading violations among investors in PIPEs.