Offerings, PIPEs and registered directs
Registered Direct vs PIPE vs Underwritten Offering
Registered direct vs PIPE vs underwritten offering: how each sells a block of shares at a fixed price, how each is registered and disclosed, and what fees cost.
How registered directs, PIPEs and underwritten offerings differ
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 | PIPE | Underwritten offering | |
|---|---|---|---|
| Registered at sale? | Yes, off an S-3 shelf | No, sold privately | Yes, shelf or S-1 |
| Who finds buyers | Placement agent, best efforts | Placement agent or company | Underwriter(s) |
| Typical buyers | A few institutional investors | A few institutional investors | Broad institutional and retail |
| Shares tradable | Immediately on closing | After a resale registration or Rule 144 | Immediately on closing |
| Key filings | 424B5, 8-K | 8-K (Item 3.02), later S-1 or S-3 resale | 424B5 or final S-1 prospectus, 8-K |
| Uses shelf capacity | Yes | No | Yes, if off the shelf |
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.
| Registered direct | Underwritten (option exercised) | |
|---|---|---|
| Shares sold | 5,000,000 | 6,325,000 |
| Offering price | $2.00 | $1.90 |
| Discount to last close | 9.1% | 13.6% |
| Gross proceeds | $10,000,000 | $12,017,500 |
| Fees and expenses | $800,000 | $1,091,225 |
| Net proceeds | $9,200,000 | $10,926,275 |
| New share count | 35,000,000 | 36,325,000 |
| Increase in shares | 16.7% | 21.1% |
| New warrant overhang | 5,000,000 | 0 |
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.
See it on DilutionScan
Companies DilutionScan covers, with the instruments read from their SEC filings. Open one to see each instrument and the filing it came from.
- GNSGenius Group Limited8 warrant series, 1 convertible, 1 ATM program, 3 shelf registrations and 2 completed offerings on file
- SMXSMX (Security Matters) Public Limited Company Ordinary Shares10 warrant series, 8 convertibles, 2 equity lines, 4 shelf registrations, 4 S-1 registrations and 2 completed offerings on file
- HOLOMicroCloud Hologram Inc. Ordinary Shares2 warrant series, 1 convertible, 3 shelf registrations and 2 completed offerings on file
- SINTSintx Technologies, Inc.24 warrant series, 3 convertibles, 2 ATM programs, 6 shelf registrations, 1 S-1 registration and 4 completed offerings on file
Terms in this guide
- Registered direct offering
- A registered direct offering is a sale of new shares to a small group of investors, arranged by a placement agent off an effective shelf, so the shares are freely tradeable at closing.
- PIPE (private investment in public equity)
- A PIPE (private investment in public equity) is a private sale of unregistered shares, warrants or convertibles by a public company to selected investors, usually followed by a resale registration.
- Placement agent
- A placement agent is a broker-dealer hired to find investors for a company's offering on a best-efforts basis, paid a cash fee and often warrants, without committing to buy the securities.
- Form 424B5 prospectus supplement
- A 424B5 is a prospectus supplement filed under SEC Rule 424(b)(5) to document a specific offering made off an effective shelf, stating the securities sold, the price and the use of proceeds.
- S-1 resale registration
- An S-1 resale registration registers shares already issued or issuable to named investors so they can sell them publicly; the company itself usually receives no proceeds from those sales.
- Pre-funded warrant
- A pre-funded warrant is a warrant sold for almost the full share price up front, leaving a nominal exercise price such as $0.0001, so a buyer can stay under ownership limits until it exercises.
- Lockup agreement
- A lockup agreement is a promise by insiders or investors not to sell or transfer their shares for a set period, commonly 90 to 180 days after an IPO or an offering.
- Form 8-K
- A Form 8-K is the SEC current report a public company files, generally within four business days, to disclose material events such as agreements, offerings, executive changes and listing notices.
- Rule 144
- Rule 144 is the SEC safe harbor that lets holders publicly resell restricted or control securities without registration once conditions such as a holding period are met.
- Warrant overhang
- Warrant overhang is the block of shares that could be created if a company's outstanding warrants are exercised, potential dilution not yet in the shares outstanding figure.
Related guides
- What Is Stock Dilution? How New Shares Affect YouStock dilution explained with worked numbers: what happens to your ownership when a company issues new shares, and where to spot it coming in SEC filings.
- What Is an ATM Offering? At-the-Market Sales ExplainedWhat an at-the-market (ATM) offering is, how the sales agreement and 424B5 work, how fast an ATM can sell shares, and where its sales show up in later filings.
- How to Read a 424B5 Prospectus SupplementHow to read a 424B5 prospectus supplement in five minutes: the cover, offering summary, dilution table, plan of distribution and baby shelf paragraph, in order.
- Warrant Overhang: How to Count Shares Not Issued YetWhat warrant overhang is, how to total it from the warrant table in a 10-Q, and how cash, cashless and pre-funded exercises change the eventual share count.
- How to Trade Penny Stocks Without Getting DilutedA dilution-first guide to penny stocks. How new shares reach the tape, which SEC filings announce them, worked examples, and a 20-minute filing check.
- Why Penny Stocks Drop After Good News: The Offering PlaybookWhy a small-cap stock can fall on a strong press release. Registered direct and ATM mechanics, the offering math with a worked example, and the filings to read.
Check any ticker for dilution
DilutionScan reads each covered company's SEC filings and lists its warrants, convertibles, ATM programs, shelves and S-1s on one page, with a dilution rating and cash runway.
This guide is from the Signal8 Academy, the research team behind DilutionScan. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.