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PIPE transactions

PIPE or registered direct offering: how to choose

One difference drives every other. The decision table, the eligibility test that usually settles it, and five questions in order.
By Corinne Amrein Published Last reviewed

The difference between a PIPE transaction and a registered direct offering is when the securities are registered, and everything else follows from it. In a registered direct offering the shares come off an already-effective registration statement, so a non-affiliate can sell them at closing. In a PIPE transaction the shares are issued unregistered and wait for a resale registration or Rule 144.

Key takeaways

  • Shelf eligibility usually decides it for you. Without an effective shelf there is no take-down, and the registered route loses its main advantage.
  • Registration is not a shareholder-approval exemption. Nasdaq's interpretive material is explicit that an offering is not public merely because it is registered, so the 20% test applies to both.
  • The discount is the price of the restriction. An investor taking registered shares carries no resale risk and should not be paid for one. If the terms look the same either way, one of them is wrong.
  • A shell history changes the answer. Rule 144 is unavailable to a current or former shell except on the Rule 144(i) conditions, which removes the private route's fallback.
The two resale routes: shares registered when they are issued, or registered after the closing Two vertical tracks side by side, from the same agreed terms. The registered direct track runs three stages: an effective shelf already on file, normally Form S-3; shares registered when they are issued, off a prospectus supplement filed at pricing; and no resale filing after the closing. The PIPE track runs four: nothing filed at signing, with no shelf required; shares issued unregistered as restricted securities, legended; registration that comes after closing, by way of either a resale statement declared effective or Rule 144 where it is available; and legend removal on that basis. Having two more stages, the PIPE track ends further down the diagram. The same raise, two routes Registered direct PIPE transaction Effective shelf already on file Normally Form S-3 Shares registered when they are issued Prospectus supplement filed at pricing No resale filing follows the closing Nothing further to clear Route ends here Nothing filed at signing No shelf required Shares issued unregistered Restricted securities, legended Registration comes after closing Resale statement declared effective or Rule 144, where it is available Legend removed only on that basis On an opinion delivered to the transfer agent Route ends here Green edge: where registration happens on each route. Whether either route is open turns on the issuer's facts.
Both routes start from the same agreed terms. A registered direct offering registers the shares when it issues them, so the track ends after three stages and nothing is filed afterwards. A PIPE transaction issues them unregistered, and registration comes after closing—either a resale statement declared effective, or Rule 144 where it is available—so the track runs two stages longer before a legend can come off. The green edge marks where registration happens on each track. Whether either route is open turns on the issuer's own facts.

The decision table

Twelve questions separate the routes. Read every row below the first as a consequence of it.

PIPE transaction compared with a registered direct offering
Question PIPE transaction Registered direct offering
Registered when issued? No: restricted securities with a legend Yes: off an effective statement
Can a non-affiliate sell at closing? No Yes
What must exist before you start? Nothing filed An effective shelf, normally Form S-3
Registration form Resale on Form S-1 or S-3, after closing Prospectus supplement off the shelf
Who places it Negotiated direct, or a placement agent Placement agent, best efforts
Disclosure at pricing Current report at signing Prospectus supplement plus a current report
Work after closing Resale filing, comments, effectiveness, legend removal Effectively none
Shareholder approval analysis Applies Applies: registration is not the test
Price reference Fixed at signing, or a later VWAP window Fixed at pricing
Sweeteners Warrants common; deeper discount Warrants sometimes, often unregistered
Workable for a former shell? Only if a registration statement carries it Yes, subject to form eligibility
Where it fails Resale route cannot be delivered No shelf, or the baby-shelf cap binds
Structural comparison only. Not an offer, a quote, or a rate card.

Shelf eligibility usually settles it

A registered direct offering is quick because the registration work is already done. Take that away and the advantage goes with it. In broad terms an issuer may use Form S-3 for a primary offering where it has been subject to Exchange Act reporting for at least 12 calendar months and has filed everything on time; the detail sits in the form's general instructions and is worth confirming rather than assuming.

Two limits then bite. Where public float is below US$75 million, General Instruction I.B.6 still allows the form but caps primary sales at one-third of public float in any rolling 12-month period, which is often smaller than the raise contemplated. And an issuer that is not eligible can register on Form S-1, but there is no take-down: the statement must be filed and declared effective for that offering, which is the waiting period the private route was chosen to avoid. The shelf page sets this out in full.

What each route costs the issuer

An investor buying registered shares takes no resale risk, so it is not compensated for one. An investor buying restricted securities is, and that shows up as a wider discount, warrant coverage, or both. If a private structure is offered at the same effective terms as a registered one, something has been mispriced.

The costs that move the other way are filings and time. A resale registration statement means legal fees, an auditor consent, staff comments and a period under an effectiveness obligation with damages attached. A registered direct front-loads that work into a shelf already paid for.

Registration does not answer the approval question

Nasdaq Listing Rule 5635(d) applies to transactions other than public offerings, and the interpretive material on that definition makes clear an SEC registration is not what makes an offering public. A firm-commitment underwritten deal with real bookbuilding generally qualifies; a registered direct placed with a handful of investors generally does not. The rule is set out on this site under the Nasdaq 20% rule.

The instruction is simple: have counsel run the 20% Issuance test against the Minimum Price on both structures, at the price under discussion, before choosing. The answer is often identical, in which case approval drops out of the decision and the resale mechanics settle it. The same discipline applies to the capacity rules on other exchanges.

General information, not legal advice. Form eligibility, the availability of Rule 144, the treatment of an offering under any listing rule and the application of the baby-shelf cap all turn on facts specific to the issuer. Take advice from qualified securities counsel in the relevant jurisdiction before choosing a structure.

Five questions, in order

One: is a shelf effective today? If not, the registered route is not the fast one, whatever it looks like on paper.

Two: is public float above US$75 million? If not, the one-third cap may be smaller than the raise, and a private structure is not subject to it.

Three: has the company ever been a shell? If so, Rule 144 is unavailable except on the Rule 144(i) conditions and the private route depends entirely on a registration statement being delivered.

Four: does the size and price trip the 20% test? Run it on both. If both are caught, the vote is happening either way and it stops being a differentiator.

Five: is the investor paying for liquidity it is not receiving? If the discount is not visibly smaller on the registered route, the terms are not priced honestly. Ask us to price both, or start with the eligibility tests.

Read next

Instrument

Registered direct offering

How the registered route is priced, placed and closed, in full.

Read the instrument page →

Process

How a PIPE transaction runs

Wall-crossing to legend removal, with the conditions at each stage.

Follow the deal process →

Instrument

At-the-market offerings

The third route: selling into the market over time off the same shelf.

Compare an ATM program →

Primary sources

PIPE and registered direct: frequently asked questions

What is the difference between a PIPE and a registered direct offering?

Registration timing. In a registered direct offering the securities are registered before they are issued, so a non-affiliate holds freely tradable shares at closing. In a PIPE transaction the securities are issued unregistered and restricted, and the investor waits for a resale registration statement to be declared effective or for Rule 144 to become available.

Is a registered direct offering a public offering?

Not automatically, and this is the most expensive misunderstanding in the comparison. Registering an offering does not remove it from the exchange shareholder-approval rules. The interpretive material, the facts the staff weighs and what it means for a raise sized near the 20% threshold are set out in full on the registered direct offering page.

Which route is faster?

It depends on whether a shelf registration statement is already effective. With one, a registered direct can be priced and closed off a prospectus supplement. Without one, the registration must be filed and declared effective first, which removes the advantage and often makes the private route quicker. Timing is never guaranteed.

Does registering the offering avoid the 20% rule?

No. Nasdaq Listing Rule 5635(d) applies to transactions other than public offerings, and registration alone does not make an offering public. The 20% test against the Minimum Price should be run on both structures at the price actually being discussed, before either is chosen, because the answer is frequently the same for each.

Can a former shell company use a registered direct offering?

Registration does not depend on Rule 144, so a former shell that is otherwise eligible to use the form can register an offering. That is exactly why the registered route matters more to a former shell: Rule 144 is unavailable except on the Rule 144(i) conditions, so registration is the only reliable path. Form eligibility for a former shell carries its own conditions and has to be confirmed with counsel.

Price both routes

Ask for both structures, then compare them properly.

Tell us the exchange, the shelf status, the public float and the amount. Both routes are priced against the same facts, and the difference between them is the number worth arguing about.

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