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While PIPEs have been issued for over 10 years, the transaction category truly emerged as a source of financing for companies in the mid-1990s. During this period, PIPE deals were primarily opportunistic financings for small and/or distressed high-growth companies, typically structured with floating conversion prices known as “death spiral” transactions. This negative taint was soon vetted in the press and in the legal arena, providing insight and education to issuers and advisors. This attention impacted the investors in PIPE securities to structure transactions with more issuer-friendly terms, which in turn attracted more companies to entertain and issue PIPE securities, resulting in the higher volumes of issuers accessing the market in recent years.
As a result of increased size and diversification, the PIPE market has been institutionalized over the past three years. Industry newsletters, conferences and databases track the market closely, providing a level of visibility into market participants, structures and process. Several legal and financial advisors have entered the business. Application of proceeds has also broadened from strictly smaller amounts of growth capital to acquisition financing, de-leveraging, working capital and secondary sales.
The relevance of the public equity add-on market is often discussed in the context of the growth potential of the PIPE market. While public equity add-ons have had mixed performance in recent years,
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