Drivers of PIPE Activity in the Next Year

Private Investment in Public Equity (PIPE), a new report published by mergermarket in conjunction with Kramer Levin Naftalis & Frankel LLP and Rodman & Renshaw LLC, highlights a broad range of drivers expected to stimulate PIPE investment activity in the next 12 to 18 months.

The survey, conducted in the third quarter of 2009, canvasses the opinions of experienced PIPE investors from the US, including private equity practitioners, venture capital investors, hedge fund managers and mutual fund investors.

Forty-nine percent of respondents expect to see an increase in their firm’s PIPE investment activity over the next 12 to 18 months, while an additional 43% expect their firm’s activity to remain at its current level over this time. The majority of respondents expect PIPE transactions to be fueled largely by liquidity concerns on the part of issuers as respondents cite companies’ need for liquidity to repay debt or to finance operations as a key driver of PIPE activity this year.

Eighty-two percent of respondents expect to see an increase in the volume of registered direct common stock offerings (RDs) due to their uniquely appealing features for issuers and investors, including non-public marketing and documentation processes.

Eighty-two percent of respondents expect the lower mid-market range to offer the highest volume of PIPE opportunities. In terms of sector-specific predictions, 54% of respondents expect to see the greatest demand for PIPEs in the Healthcare, Biotechnology and Life Sciences industry, while an additional 51% of respondents expect the Financial Services industry to see the greatest demand.

Other findings include:

  • 73% of respondents expect to see more single investor deals than syndicated deals over the
    next 12 to 18 months
  • 58% of respondents expect private equity firms to be the most active investors in PIPEs this
    year
  • 49% of respondents describe their PIPE investment strategy as long-term, or more than two
    years
  • 80% of respondents expect PIPE deals to exclude registration rights from deal terms going
    forward, largely in response to changes to holding period requirements under Rule 144 for
    non-affiliates.

Download the full report here.