We've been thinking about whether the changes to Rule 506 offerings are likely to have any effect on the PIPE market. Our preliminary conclusion is that the ability to use general solicitation is unlikely to have much effect on PIPE transactions. An already public company generally turns to a PIPE transaction for financing because the company wants to ensure that it will be able to obtain definitive commitments from PIPE purchasers before announcing the financing. In order to address Regulation FD concerns and avoid a premature disclosure regarding the potential private financing, the company and its financial intermediary will obtain confidentiality undertakings from potential purchasers. It would be inconsistent with this approach to rely on general solicitation. Moreover, there often are special circumstances, such as an acquisition, that compel the company to rely on a PIPE transaction instead of a shelf takedown. To the extent that a company shares material non-public information with potential PIPE purchasers (which information will later be made public through a cleansing release), using general solicitation in connection with the PIPE transaction also would not be possible. However, the practices relating to PIPE press releases may change going forward. Now, the press release announcing the entry into definitive PIPE purchase agreements does not name the PIPE placement agent since that would not comport with the strict requirements of Rule 135c. Given the additional flexibility relating to general solicitation, counsel may be more comfortable with naming the financial intermediary in a Rule 135c release.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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