Private Placement
A private placement is a sale of securities — shares, convertibles, bonds — to a selected group of investors rather than to the public, without a full prospectus, under exemptions for sophisticated buyers. A venture round is one; so is a listed company's overnight placing to institutions, and the PIPE that funds a SPAC merger. It is faster and cheaper than a public offer, reaches fewer investors, and is priced at a discount.
- Also known as
- Placing, Private offering, PIPE
- Used at
- every private funding round; listed companies raising capital quickly (an accelerated bookbuild of new shares to institutions); SPAC mergers, where the PIPE tops up the trust; debt raised from insurers and funds rather than in a public bond
- Binding
- subscription or placing agreements; the securities are usually restricted from resale for a period, and the investors must qualify as sophisticated or institutional under the relevant exemption (Regulation D in the US, the prospectus exemptions in the EU and UK)
- Typical discount
- 3–8% to the market price for a listed company's placing; a negotiated valuation for a private company; a PIPE at the SPAC's $10 trust price or below
- Typical size limit for a listed company
- pre-emption guidelines in the UK allow 10–20% of share capital without offering existing holders first; larger raises need a rights issue or shareholder approval
- Parties
- the issuer, the placing agent or bank, and the investors — funds, insurers, family offices, strategics
How a private placement works in practice
A listed fintech needs €80m for an acquisition and does not want the six weeks and the prospectus a rights issue requires. Its bank launches an accelerated bookbuild after the market closes: institutions are called, a book of orders is built overnight at a discount to the closing price, and by the morning the shares are placed and the money is committed. The company announces the raise and the acquisition together; existing shareholders who were not in the book are diluted by the new shares and the discount, which is why pre-emption rules cap how much can be placed this way.
For a private company the placement is the round: shares sold to funds under subscription agreements, with the term sheet's rights, no prospectus and no public. For a SPAC merger, the PIPE is what makes the deal fundable when redemptions drain the trust: institutions commit, at signing, to buy shares at completion, and the target knows what cash it will actually receive.
Debt private placements are the quiet part of the market: a payments company borrowing €150m from three insurers on a ten-year note, documented privately, priced off the public bond market without a public bond's disclosure or rating.
Example
A listed payments company at €30 a share (a €900m market value) agrees to buy a competitor for €120m. Its bank runs an accelerated bookbuild the same evening: 4.2m new shares — 14% of the capital, within the pre-emption limit — placed at €28.50, a 5% discount, to 40 institutions, raising €120m before a 2% fee. The book is 2.5 times covered in ninety minutes. The next morning the company announces the acquisition and the placing; the shares open at €29.20. Existing shareholders outside the book were diluted by 12% and a 5% discount for a deal the market priced as accretive; a rights issue would have offered them the shares instead, six weeks later, at a deeper discount and a €3m higher cost.
Common mistakes
- Placing shares at a discount to fund a deal the market does not like, and losing the discount twice. - Exceeding pre-emption limits without shareholder approval, and facing the votes at the next AGM. - A PIPE agreed at $10 when the SPAC's shares trade at $9.50, so the PIPE investors are underwater at completion and the target's cash is less certain than it looks. - Selling restricted securities to investors who do not qualify under the exemption, which is an unregistered public offer. - Private companies treating a placement's valuation as a market price; it is a negotiation with the buyers who showed up.