PIPE Transactions In Canada

Overview

This guide provides a high-level overview of private investments in Canadian public equities (PIPE), including common areas of negotiation, strategic rationale, typical deal terms and relevant regulatory and stock exchange approvals involved in such transactions. We invite you to contact the contributing editors of this guide or any other member of our Corporate practice group to discuss PIPE transactions.

A PIPE is a transaction between a public company and a qualified investor that involves a private placement of securities by the company to the investor. PIPEs are usually a significant, but still minority, investment in a company and are frequently accompanied by a negotiated package of investor rights and protections.

PIPE transactions can vary significantly in structure. In most cases, a PIPE will involve the issuance of common equity, although preferred equity, convertible securities, warrants or a combination of such securities may also be used.

There is no single blueprint for a PIPE. Each is the product of deal-specific objectives and dynamics. This guide summarizes common considerations and themes that we regularly encounter in negotiating PIPE transactions.

Strategic considerations

The company

There are several potential advantages to raising capital through a PIPE for companies to consider.

Developing a long-term and/or strategic relationship with a large shareholder

A PIPE can result in a block of shares being held by a strategically significant partner and may form part of a larger commercial relationship between the investor and the company. The block of shares may also act as a bulwark against potential activist investors or unsolicited bidders.

Alternative source of financing

A PIPE offers companies a flexible means of raising capital, potentially with greater speed, efficiency and certainty than traditional public offerings. In addition, a PIPE may provide companies with access to financing during periods of market volatility or turmoil, financial distress, or when a company's low market capitalization or other circumstances restrict access to institutional investors or make access to public capital markets unattractive or unavailable.

Confidentiality

Typically, a PIPE will only be disclosed publicly after definitive agreements have been negotiated and entered into. There is no formal public offering or marketing process associated with a PIPE, which can reduce risks associated with stock price fluctuations.

Bespoke rights and protections

Subject to stock exchange rules and applicable securities laws, the parties may negotiate a broad range of rights and protections that govern the terms of the investment. For companies, these protections may include extended hold periods, standstills or voting support obligations imposed on the investor.

Quick access to capital on a controllable time frame

Given that a PIPE is typically negotiated directly between two parties and does not require the preparation of a disclosure document or review of such disclosure document by a securities regulator, PIPE transactions can often be concluded more quickly than other forms of capital raising.

Lower transaction expenses

Transaction costs for the company can be lower than many other financing alternatives.

There can also be certain disadvantages to raising capital through a PIPE.

Significant investor control

The relative size of the investment and negotiated investor rights may result in an investor acquiring influence over a company without providing liquidity to existing shareholders. This may limit the company's freedom to make certain business or operational decisions without consulting — or, in some instances, soliciting the approval of — the investor.

Discount to market price

Given the longer hold periods and associated lack of liquidity, investors may insist that the securities be issued at a discount to prevailing market prices.

Toehold may discourage future acquirors

The presence of a significant block of shares in the hands of a strategic investor may discourage future buyers from attempting to acquire the company.

Risk of debt-like treatment

Negotiated investor rights may include features that result in rating agencies or applicable accounting rules treating all or a portion of a PIPE investment like debt, which could negatively affect covenant compliance or credit ratings.

Limited investor access

Because a PIPE by definition is only offered to investors eligible to purchase securities on a prospectus-exempt basis, the company sacrifices access to the broader public market and, in some cases, participation by its existing shareholders. Limited investor access may require the company to price the transaction at a steeper discount or agree to more investor-friendly terms to secure sufficient capital.

The investor

There are distinct advantages to investing in a company through a PIPE that may not be available through other investment channels.

Favourable economic terms

A PIPE will often (but not always) be priced at a discount to current market prices to compensate the investor for a lack of immediate liquidity imposed by securities law and stock exchange hold periods. PIPE investments are sometimes also accompanied by warrants that provide the investor with an additional "sweetener."

Opportunity to influence corporate strategy

An investor may negotiate governance (including board appointment) and approval, veto or consultation rights that provide it with influence over the company's go-forward strategy.

Additional investor rights and protections

An investor may negotiate additional rights and protections not commonly available in a public offering, such as anti-dilution protections (i.e., pre-emptive rights), registration rights and information rights. These rights can offer a level of investment monitoring and protection for public securities that more closely resemble those afforded to investors in private companies and may not otherwise be available to the company's broader shareholder base.

Structuring flexibility

An investor may wish to invest in preferred shares, debt securities or convertible securities on the basis that such securities may grant them preferential dividend or interest entitlements, a liquidation preference over common shares and/or priority over equity securities. So-called "structured equity" investments are becoming increasingly commonplace globally, but as of 2025 remain relatively infrequent in Canadian public equity markets outside recent structured investments in telecom infrastructure. There has, however, been a surge in structured investments in private companies.

Alternative to M&A

Investing in a company through a PIPE may allow the investor to realize some of the objectives of an acquisition without having to acquire the entire company. A PIPE may provide a pathway to a future acquisition of the company or an opportunity for the investor to generate a return.

Investing in a company through a PIPE may also include certain disadvantages.

Hold periods and standstills

An investor may be subject to extended hold periods for the securities that it acquires, as well as a standstill that prevents it from acquiring further securities or voting its securities against management.

Insider reporting and limitations

An investor that holds more than 10% of a public company, whether prior to or as a result of the PIPE, will be subject to insider and early warning reporting requirements and may be subject to related party transaction restrictions. In addition, if the insider holds material non-public information, the investor may be precluded from trading in the company's securities under applicable insider trading restrictions.

Equity investment risk

In addition to the inherent exposure to downside risk associated with equity investments, PIPE investors often face reduced liquidity. This is primarily due to securities law restrictions that can complicate the ability to exit a control position.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.