About PIPEs PIPE Market PIPE positioning
Dimensioning the Market
PIPE investments appeal to a broad cross section of companies and enjoy a varied investor base.
Issuer Diversity
PIPEs are not restricted to companies in any one particular industry or market capitalization tier. A snapshot of the PIPE market for 2009, such as the one at left, provides a telling glimpse of the landscape. While large companies with market capitalizations greater than $5 billion accounted for about one-third of the market, no other segment dominated. Smaller players with less than $50 million in market cap accessed PIPEs almost as much as companies with market capitalization between $500 million and $1 billion.
PIPE transactions were recorded in every major sector of the economy, from media and telecommunications to consumer staples and financial services.
Robust Demand
Various types of investors gravitate towards PIPE deals. Large institutional investors such as sovereign wealth funds, venture capitalists, and hedge funds find themselves co-investing alongside mutual funds, high-net-worth investors, and family offices. Notably, of the top five most active PIPE investors in 2009, three were sovereign wealth funds and one was Berkshire Hathaway.1 These disparate investors were attracted by the potential for strong returns as well as the downside protection that was likely available, depending on the deal terms.
Prominent PIPEs
While investors may not realize it, PIPEs took center stage during the height of the financial crisis thanks to investor: Warren Buffett. In fact, two high-profile transactions undertaken by Berkshire Hathaway in the fall of 2008 were quintessential PIPE deals.
Buffett’s investments in Goldman Sachs and General Electric—both publicly traded companies—represented private, directly negotiated transactions in which the renowned investor received preferential terms in exchange for a much-needed equity infusion.
In the case of Goldman Sachs, Berkshire injected $5 billion in capital in exchange for preferred stock with a sizeable 10% dividend. Berkshire also received warrants to purchase $5 billion of common stock with a strike price of $115 per share—at a time when Goldman’s depressed stock was trading at roughly $125 per share. The General Electric terms were similarly structured and equally generous.
These major transactions demonstrate how a little known area of private finance can play a big role in our financial system.
1 Ranked by total dollars invested. Source: The PIPEs Report, DealFlow Media, 2010