Registered Direct vs PIPE vs Underwritten Offering, Compared

The short version

An at-the-market program sells shares gradually at the market price. The three offerings in this guide do the opposite: they sell a block of shares, all at once, at a fixed price agreed the night before or on the day. They differ in who finds the buyers, whether the shares are registered with the SEC at the time of sale, and how widely they are distributed.

• A registered direct offering sells registered shares off a shelf to a small group of investors found by a placement agent.
• A PIPE (private investment in public equity) sells unregistered shares privately; they are registered for resale later.
• An underwritten offering sells registered shares through one or more banks to a broader set of buyers, often after a day or two of marketing.

All three are dilutive. Their differences show up in the filings, the fees, and how quickly the new shares can be traded.

Side by side

Registered direct offerings

In a registered direct, a placement agent quietly contacts a handful of investors, agrees a price (usually at a discount to the last close), and the company files a 424B5 prospectus supplement taking the shares off its shelf. The deal is typically announced in a press release and an 8-K, often before the market opens, with closing a day or two later.

Because the shares are registered, buyers can sell them as soon as the deal closes. Investors often receive warrants too. When the company is short of baby shelf capacity, those warrants are frequently sold in a concurrent private placement, unregistered, so they do not count against the shelf. Buyers who would otherwise cross an ownership limit can take pre-funded warrants instead of some of the shares.

PIPEs

A PIPE is a private sale exempt from registration, commonly under Section 4(a)(2) of the Securities Act or Regulation D. The company discloses the unregistered sale in an 8-K under Item 3.02 and files the purchase agreement as an exhibit.

The buyers receive restricted securities. To sell, they need either a resale registration statement, usually an S-1 resale or an S-3 resale, filed under a registration rights agreement that sets deadlines, or an exemption such as Rule 144, which generally requires a holding period of six months for a reporting company. That gap between closing and tradability is the defining feature of a PIPE. It also explains why PIPE pricing and warrant terms tend to be more generous to the buyer.

Underwritten offerings

In an underwritten offering, one or more banks buy the shares from the company and resell them to the public (a firm commitment), or sell them on a best-efforts basis. For a small company it is often an overnight deal: announced after the close, priced that night, closed a couple of days later. The bank typically receives an overallotment option, the right to buy up to 15% more shares at the same price within 30 days, and insiders usually sign a lockup agreeing not to sell for a period.

Distribution is broader than in a registered direct, and the fees are typically higher.

A worked example: what the fees do

Hypothetical Company X has 30,000,000 shares outstanding, last closed at $2.20, and needs about $10 million. Compare two deals.

Registered direct: 5,000,000 shares at $2.00, plus warrants to buy 5,000,000 shares at $2.25 sold in a concurrent private placement. The placement agent takes 7% plus $100,000 of expenses.

Underwritten: 5,500,000 shares at $1.90 with a 15% overallotment option. The underwriting discount is 7%, plus $250,000 of expenses.

All figures are hypothetical.

The underwritten deal raises more, but issues more shares at a lower price. The registered direct issues fewer shares today but adds 5,000,000 of warrant overhang. If those warrants were later exercised for cash at $2.25, the company would receive another $11,250,000 and the share count would reach 40,000,000. Comparing deals means comparing the whole package, not just the headline price.

What to read in each filing

• The price and discount. The cover of the 424B5, or the 8-K for a PIPE, gives the per-share price. Compare it to the prior close.
• Warrants. Coverage (warrants per share), exercise price, term and any reset clauses.
• Fees. The plan of distribution or underwriting section lists the agent or underwriter compensation, including any agent warrants.
• Resale timing. For a PIPE, the registration rights agreement says when the resale registration must be filed and declared effective.
• Lockups. Who is locked up and for how long.

How to check a company on Signal8

• The live SEC filings feed shows 424B5 and 8-K filings as they arrive.
• Each company's Dilution tab, for example AAPL's Dilution tab, is where Signal8 organises recent offerings and warrants it has extracted. Coverage focuses on small-cap issuers.
• The dilution screener lets you compare companies on dilution-related data.

FAQ

What is the difference between a registered direct offering and a PIPE?

Both sell shares to a small group of investors at a fixed price. In a registered direct, the shares are registered off the company's shelf, so buyers can sell them as soon as the deal closes. In a PIPE, the shares are sold privately without registration, and buyers must wait for a resale registration statement or an exemption such as Rule 144 before selling.

Why are offerings priced below the market?

The discount compensates buyers for taking a large block at once, for the risk that the price moves before they can sell, and, in a PIPE, for the time they must wait before the shares are tradable. Discounts vary widely with the size of the deal relative to trading volume and the company's situation.

What is an overallotment option?

It is the underwriter's right, usually for 30 days, to buy up to 15% more shares from the company at the offering price. It lets the bank cover extra demand. If it is exercised, the company issues more shares and receives more proceeds than the base deal.

How do I find out how many shares an offering added?

Start with the 424B5 or the 8-K, which state the number of shares and warrants sold. The prospectus summary often shows shares outstanding before and after the offering. Later, the share count on the cover of the next 10-Q confirms the total.