Most people are afraid of knowing more and learning more about some of the common banking and investment terms used. They leave them to banking experts, but this should not be the case, for some basic knowledge of the banking sector can help a great deal. It makes one understand what takes place, and how one can benefit from it.
A private investment in private equity is also known as a PIPE. This is where by there is a financial l agreement in which a certain company issues public securities privately to an investor at a lower market value. This is done with intent to help the company raise extra capital. PIPE deals are arranged between the investor buying, and the issuer, which is the company. Although this is done privately, the company's securities are traded publicly. These securities may include stock, or any other equity. A PIPE arrangement may also see the company selling not only the public stock, but also trade convertible debt like the company's bonds. In instances where the preferred stock is traded, this is known as traditional private investment in public equity deals. On the other hand, where bonds and other convertible debts are sold, this is known as structured private investment in public equity deals.
A PIPE deal can also take place when a private company merges with a public company in a process called alternative public offering. This means that the public company will sell its stock to the private company at rates that are discounted. By so doing, the private company is saved the time consuming work involved in registering for IPOs. PIPE deals can help companies that are facing difficulties in finding new financing. These deals are in fact more ideal for smaller companies which may find it harder to secure new capital.
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