Private placements make a comeback

Private placements allow companies to raise capital without much of the complexities of dealing with the federal securities regulations. The main reason is that the investors are mostly institutions (and really don't need protections).

Well, as the public equity markets get more turbulent, we are now seeing a spike in private placements (according to a piece in Financial News).

After all, companies still need money, right? This is especially the case for small caps. As a result, they are dialing up dollars with private placements -- which are often referred to as PIPEs (or private investment in public equity).

Interestingly enough, even mega companies are using PIPEs, such as Merrill Lynch (NYSE: MER), UBS (NYSE: UBS) and Citigroup (NYSE: C). Basically, the PIPE structure was a quicker way to raise billions from off-shore entities and sovereign wealth funds.

However, the terms can be pro-investor (yes, speed has its disadvantages). For example, PIPEs often have warrants (to buy additional shares), liquidation preferences, large dividends and so on.

Traditionally, it's been hedge funds that have been the players in the PIPE business. But, in light of the fall off in buyout deals, I suspect we'll see many private equity firms jump into the game as well.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.