Mega-Funds Are Using Their PIPEs
PIPE activity more than doubled from 2007 to 2008 (according to a PWC study) for a total of $177B in the US alone. This made sense due to falling share prices and a need to raise cash during the financial market crash. Additionally, 2007 was still a boom year so PE firms could execute buyout strategies to achieve outsized returns using cheap credit instead of using PIPE options. While 2009 has seen a return of financial stability, global M&A is still down due to tighter credit along with still overpriced assets. This situation has created a significant of unallocated capital that needs to be put to work as LPs begin start to reconsider new funding rounds on top of idle money.
This trend was validated by PrivateRaise LLC which noted in a report that venture and private equity has raised its contribution from 11% to 18% of all PIPE transactions in 2009. Some of the most recent transactions have been from TPG Capital taking an 11% stake in the Chinese retailer Wumart and 12% stake in Armstrong World Industries. TPG Capital may be a buyout fund PIPE leader having executed 10 such deals since 2007, a practice typically done by the banking investment funds such as Goldman Sachs or Warburg Pincus that utilize a hands off management style with investments anyway. Not all of the mega-funds will be adopting PIPE investing, but we may soon see more of them jump in unless this market turns a corner.
