Registered Direct Offering vs PIPE: What Is the Difference?

The company already has an effective shelf (Form S-3). A placement agent finds a handful of institutional buyers, the price is negotiated at a discount to the last close, and the deal is announced after the market closes or before it opens, with a prospectus supplement (424B5) filed the same day. The shares are freely tradable from settlement, so the discount is often small and the buyers can sell into the next morning's volume. Warrants are frequently attached at small companies, adding future dilution to the headline number. Because a shelf is required, a company below the "baby shelf" limit can only raise a third of its float this way in a year.

The company sells restricted shares, or convertible preferred stock, or notes with warrants, in a private placement exempt from registration. The buyers cannot resell until the company files a registration statement covering their shares and the SEC declares it effective, which the purchase agreement usually requires within 30 to 90 days. That lock-up is why PIPE discounts run larger than registered-direct discounts, and why the supply hits the market later, when the resale registration goes effective, rather than on the day of the deal. A PIPE is disclosed on an 8-K under Item 3.02 (unregistered sales of equity) together with Item 1.01 for the purchase agreement.

PIPEs are also how strategic investors come in. A pharmaceutical partner, a customer or a founder taking a large stake usually does it through a private placement negotiated alongside a commercial agreement. That kind of PIPE, an 8-K with 1.01 and 3.02 and a named strategic buyer, reads very differently from a financing arranged by a placement agent with hedge funds, even though the form of the filing is the same.

Nasdaq and NYSE rules require shareholder approval for a sale of 20% or more of a company's outstanding shares at a price below the "minimum price" (roughly the recent market price). Companies structure deals to stay under that line, or split them, or seek approval at a meeting. A deal that needs approval is disclosed with the proxy, and the vote (an 8-K under Item 5.07) is the next event.

• →Size against the float. Ten percent is routine; fifty percent is a recapitalisation.
• →Discount to the last close. A few percent for a registered direct with strong demand; twenty percent or more signals a company with little choice.
• →Warrants. Coverage of 50% to 100% doubles the eventual dilution and caps the stock, because warrant holders sell the shares as soon as they are in the money.
• →Who bought. Named strategics and existing large holders are one thing; "certain institutional investors" through a placement agent is another.
• →Use of proceeds, and how many months of cash the raise adds.

Insiders participating in either kind of deal report the purchase on Form 4 with code P, the same code as an open-market buy. Several insiders reporting the same price on the same day with a footnote naming the offering is a financing, not a cluster of independent decisions, and InsiderWatch's insider-buy pipeline reads the footnotes to separate the two.