Following up on this post, the October issue of Institutional Investor has an article entitled Pipe dreaming (no link available). The article acknowledges the bad reputation of PIPE deals (a reputation enforced by recent articles in the W$J (see here) and NYT (see here)) and then notes:
Pipes are becoming a reliable capital-raising tool for the most respectable companies. Through August of this year, U.S. issuers raised $19.3 billion in 866 Pipes deals . . . . Indeed, money raised through Pipes in the first half of 2006 equaled 28 percent of the proceeds of public secondary offerings, up from 15.3 percent in 2004.
The article gives an example of a $138 million PIPE deal completed in May by Pacific Ethanol:
The Fresno, California-based company completed the transaction in two weeks, a big improvement over the six to 12 weeks that a follow-on offering would have taken, says CEO Neil Koehler. “There’s real value to being first to market with new ethanol plants,†he explains. Consequently, Pacific was happy to do the deal at a 10 percent discount to its public valuation.
So not all PIPEs are “toxic converts†or “death-spiral financings.” Many are efficient and flexible ways for companies to raise capital. According to the article, today only about 2% of PIPE deals can be classified as death-spirals.