International Capital Access Group

Loans and Public Subscriptions vs PIPEs

Loans are simple cash transactions to be paid back with interest. They're generally non-dilutive and can provide a business with capital in a fairly straightforward way. They're also accessible and are usually expensive funding options. Many quoted equity companies struggle to secure funding from public subscriptions or rights issues for various reasons including balance sheet constraints and lack of appetite in particular stocks. These can also be expensive funding options.

Private Investments in Public Equities (PIPEs) represent a relatively inexpensive and efficient means for a publicly-traded company to obtain additional capital funding. PIPEs in the form of a ‘convertible’ instrument provide an efficient means for public companies to raise capital usually in amounts of less than $100 million and often we provide our funding through a structured drawdown approach. In lieu of funds advanced to the client company; the lender will receive repayment (by exercising the ‘convertible’) by way of a discount offered on the price of new shares issued to the lender (usually 10 percent of the market price of the shares). This is generally less than the discount to an underwriter (often 20 percent to 30 percent) in a typical follow-on public subscription offering.

Taking on a PIPE is a positive signal to the market because it shows there is confidence and underlying liquidity and volume in a company stock and focused on pursuing growth opportunities. Our structure and efficient process gives us the ability to quickly implement our tailored PIPE solutions, aligned to driving growth in the client company.

PIPEs usually involve the sale of either common shares or convertible securities (which convert into shares of common equity at a fixed rate). Our PIPE issuances typically represent 10 percent to 15 percent of the issuer’s outstanding share capital. These securities are sold at a specified discount to the current market price of the issuer’s listed shares, usually 5 percent to 15 percent. In addition, the investor usually receives warrants to purchase additional shares typically at a discounted price. As part of the arrangement, a company will generally undertake to ensure that the privately-placed securities will become freely tradable within a relatively short time - perhaps ninety days or less after the closing of the transaction.

The factors that determine the speed with which an issuer can complete a PIPE with ICAG are similar in each jurisdiction, namely whether:-

1. a client has sufficient authorised but unissued share capital
2. the board of directors (or its equivalent) has been granted the authority to issue shares without pre-emptive rights, and
3. the PIPE structure is within the authority granted to the board of directors. In general, if each of the above conditions have been met, the parties will be able to structure a transaction that capitalises on two of the main benefits of PIPEs - speed and confidentiality

Whatever the challenge, ICAG is committed to delivering a quick implementation process aligned to growth.