Description
Since late 2019, when the special purpose acquisition corporation, or SPAC, returned to the public markets with a new twist, a circus of activity has breathed new life into the markets for privately-held emerging growth companies, forcing open a large window for public exits not seen in decades. In this “SPAC 2.0 boom,” sponsors of SPAC vehicles first raised large pools of blind capital in the public markets and then struck deals to buy emerging growth companies for ~10x the cash raised plus rollover equity and a second pile of cash in the form of a PIPE.
What is a PIPE, and why is it used for a de-SPAC merger?
“PIPE” stands for “private investment in a public entity,” often priced at a discount or containing a “sweetener” for the PIPE investor to make a more significant commitment than it would otherwise in the public market. The PIPE fundraising process happens after an LOI for a de-SPAC is signed, but before a definitive merger agreement, and is signed and announced concurrently with the latter. Then the SPAC and the target work together to prepare a joint registration statement and proxy filing on Form S-4 and seek SPAC stockholder approval, which requires the U.S. Securities and Exchange Commission to review and clear the de-SPAC transaction. Once the de-SPAC merger closes, the company files a resale registration statement to register the shares of common stock and warrants underlying the PIPE.
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