General Securities Sales Supervisor (Series10) Practice Exam

Why is the PIPE transaction advantageous for issuers?

1. It allows for a longer fundraising process

2. It reduces costs compared to traditional underwriting

3. It necessitates registered shares

4. It supports larger offerings only

The correct answer is: It reduces costs compared to traditional underwriting

A PIPE (Private Investment in Public Equity) transaction is advantageous for issuers primarily because it reduces costs compared to traditional underwriting processes. In a PIPE transaction, the issuer sells securities directly to accredited investors, often at a discount, which typically incurs lower transaction costs compared to a full public offering that involves underwriting fees, legal fees, and extensive regulatory compliance costs. This streamlined process allows issuers to raise funds quickly and efficiently, as they can avoid the lengthy and costly due diligence and marketing periods associated with an initial public offering (IPO) or secondary offerings managed by underwriters. Additionally, the reduced costs are beneficial for smaller issuers or those looking to raise capital in a more expedited manner without the overhead expenses linked to traditional methods. The other options do not present accurate advantages related to PIPE transactions. A longer fundraising process is contrary to the purpose of PIPEs, which aim for speed. While PIPEs can involve registered shares, this is not inherently an advantage of the transaction structure itself. Lastly, PIPE transactions can support various sizes of offerings, not just larger ones, making the option regarding larger offerings misleading.