Accounting diligence pays off when investing in PIPEsp

Sales of PIPEs (private investments in public entities) have gained momentum in the last two years as corporations seek capital without adding leverage. While some PIPEs involve the private sale of new or existing common shares, private equity firms and other investors often prefer investments that can offer upside returns and downside protection. These instruments are typically in the form of debt or convertible preferred stock. Terms may include penalty payments if the issuer fails to register the underlying common shares by a specified date, beneficial provisions with respect to pricing and seniority, and sweeteners that allow investors to buy additional shares at a discount to market. While attractive to investors, such terms can create hurdles for issuers.