Speak Softly and Carry a Big PIPE

Raising capital in a recession is tough, but some established companies are turning to private-investment-in-public-entity transactions known as registered direct offerings. Here's why.

“Our preference would have been to make a rights issue,” says Orient-Express CFO Martin O’Grady, which is more common in the UK market. But the finance chief tells CFO.com that such a deal would have taken longer. “We saw a window of opportunity to raise cash in an accelerated timeframe in a discrete manner. In essence we did a ‘targeted rights issue’ and reached out to our key investors, including our more active, more vocal hedge fund investors,” notes O’Grady. Based on PlacementTracker data, the Orient-Express offering, which raised more than $55 million, was the tenth largest deal in terms of gross proceeds completed this year (see chart.)

O’Grady’s need for speed pointed him in the direction of a registered direct deal, as the transactions are closed lightening fast. Investors commit to the deal upon pricing, and within three days the transaction is closed and the stocks are tradable the next day, explains Richard Gormley, a managing director with investment bank Lazard, the placement agent on the H&R Block and Orient-Express deals. Because the shares are registered when they are sold, and therefore “fully liquid,” the stock tends to command a better price for the issuer than a PIPE deal done with unregistered shares.

Coming Direct to You
Ranked by gross proceeds, here are the largest registered direct transactions of 2008 — so far.
Company name Closing date Gross proceeds* Purchase price per share Shares issued* Discount at closing
St. Joe Company 3/3 $600m $35.00 17.1m 8.97%
Solutia Inc. 11/8 $290m $13.00 22.3m 15.80%
Regent Energy Partners 7/25 $200m $22.18 9m 7.58%
Solutia Inc. 8/21 $150m $14.00 11m 8.68%
H&R Block 10/22 $145m $17.50 8.3m 2.62%
Crosstex Energy 4/9 $100m $30.00 3.3m 8.28%
Omega Healthcare Investors 5/1 $100m $16.93 6m 3.26%
Vivus Inc. 8/6 $ 65m $ 7.77 8.4m 16.00%
Kinder Morgan Energy Partners 2/12 $ 60m $55.65 1m 3.37%
Orient-Express Hotels 11/14 $ 55m $ 6.50 8.5m 21.97%
*Rounded up.
Source: Sagient Research, PlacementTracker, December 2008.

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