APAC PIPE deal activity endures amid recessionary fears

PIPE deal activity peaked in 2021 but remained robust throughout 2022 as listed companies urgently raised private capital

A private investment in public equity (PIPE) deal is a way for publicly traded companies to raise private capital quickly In a difficult market environment. PIPE deals are becoming more common with public markets trending down. 

What is a private investment in public equity (PIPE) deal?

A traditional PIPE transaction involves a listed company selling common or preferred stock at a set price to the investor to raise capital. Alternatively, a structured PIPE transaction involves issuing common or preferred shares of convertible debt. While PIPE deals bear similarities to public-to-private deals, the objective is different. PIPE deals inject capital into the target company, while public-to-private transactions are aimed at taking full control.

A PIPE deal can lead to an increase in share price, as the new capital will be used for strategic development that improves the prospects of a company, while the involvement of blue-chip private equity funds can also improve the perception of a company. For instance, after Beijing-headquartered enterprise management software company Yonyou Network Technology announced that it completed a $8.2bn private placement of shares led by private equity firm Hillhouse Capital Group and including investment from Singapore sovereign wealth fund GIC. Its shares climbed by as much as 4.2%. 

In APAC, PIPE deal activity peaked in 2021, as the region grappled with pandemic lockdowns and volatility in public markets – 145 deals were completed with an aggregate value of $33.7bn. The value was 2.5 times that of 2020’s and more than 4 times that of 2019’s $7.9bn (Fig. 1). Although the figures were lower in 2022, with 116 PIPE deals closed with an aggregate value of $24.8bn, activity is still robust compared with the decade preceding 2021. 

Investors and fund managers with high levels of dry powder can also pick up discounted stocks through PIPE deals. For example, in the wake of luxury e-commerce retailer Secoo Holding’s bankruptcy filing, private equity firms Beijing HCYK Corporation Management Partner and Timing Capital entered into share purchase agreements at a total price of $4mn for 5,000,000 Class A ordinary shares.

PIPE deals do not always involve distressed companies. In fact, the two largest PIPE deals in APAC in 2022 and 2023 year to date were aimed at realigning to new strategic objectives. Let’s look at the top three deals in APAC since 2022. 

3 largest PIPE deals in APAC in 2022

1. Hitachi Construction Machinery (JPY 182,457mn or $1.66bn): In January of last year, the largest PIPE deal in APAC was the $1.66bn sale of a 26.1% stake in Hitachi Construction Machinery (half of Hitachi’s stake) to Japanese Industrial Partners and ITOCHU Corporation. Hitachi was streamlining operations to prioritize its digital businesses and still maintains a 25% stake in the unit.
2. Ssangyong C&E Co ($1.50bn): In July 2022, South Korea’s largest cement producer Ssangyong C&E received $1.50bn from both South Korean private equity firm Hahn & Company and London-headquartered secondaries buyer Coller Capital. The deal was to fund Ssangyong C&E Co’s continued expansion into waste management businesses as part of aligning its ESG objectives. Its waste management system focuses on waste-to-energy practices, which reduced coal use by about 30% between 2018 and 2022. However, gross carbon emissions have only fallen by 3.3%. The deal was also the largest GP-led secondary buyout in Asia.
3. Sanan Optoelectronics Co. (RMB 7,900mn or $1.18bn): In December 2022, a group of investors including corporate investor Guangxi Railway Investment Group and Shanghai Caitong Asset Management agreed to acquire an undisclosed stake in Shanghai Stock Exchange-listed LED chips and products maker, Sanan Optoelectronics, for CNY 7.9bn ($1.18bn). Sanan Optoelectronics’ market value declined by 53.1% between 2021 and 2022, due to a weakening consumer market. However, the company obtained Apple’s certification for MiniLED chips in early 2022 and is now seeking to grow from an independent design manufacturer to a contract manufacturer.

As macroeconomic headwinds persist, PIPE deals can be used by public companies to raise funds quickly. Evolving market trends may also prompt public companies to seek private capital to pivot to new strategic objectives. PIPE deals can be used as part of the investor playbook as a good way to gain position in a public company. A benefit is that such deals can be customized to investors’ needs. 

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