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PIPE Transactions in Canada

Things to know

  • PIPE transactions afford domestic and foreign investors a means of making investments in Canadian public companies through the private purchase of equity securities directly from public companies.
  • There is no single blueprint for PIPE transactions.  Each is negotiated on a case-by-case basis and is a product of deal-specific objectives and dynamics. 
  • PIPE transactions often involve the issuance of common equity, but may also be structured as issuances of preferred equity, convertible debt securities, warrants or a combination of securities, depending on the objectives of the investor and the issuer.
  • Depending on the relative size of a PIPE transaction, the investment may be accompanied by a negotiated package of investor rights, including a combination of information rights, registration rights, pre-emptive rights, board nomination rights, redemption rights and approval rights.

Things to do

  • Consider the extent and depth of necessary legal due diligence.  Canadian public companies are subject to continuous disclosure obligations and, as such, investors will have ready access to financial and other information about public companies, as well as copies of organizational documents and material contracts.  If more extensive diligence is desirable, companies will expect prospective investors to enter into non-disclosure and standstill arrangements.
  • Depending on which Canadian stock exchange the public company’s securities are listed, PIPE transactions may be subject to pricing restrictions that limit the amount of any discount to market prices at which the securities may be issued.
  • If the number and type of securities issued as part of a PIPE transaction would materially affect control of the public company, stock exchanges may require the public company to obtain the approval of its shareholders prior to closing the investment.
  • An investor that acquires 10% or more of the outstanding voting or equity securities of a Canadian public company will become subject to insider reporting and “early warning” requirements under Canadian provincial securities laws.  These requirements include issuing a news release and filing a public report, a moratorium on further acquisitions until one business-day following the filing of the public report, and further reporting upon certain subsequent changes in ownership.  Eligible institutional investors may be able to avail themselves of a more lenient alternative monthly reporting regime.
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