How to Model a PIPE

Based on the most helpful WSO content, here are some steps and resources to help you model a PIPE (Private Investment in Public Equity) in your three-statement projection period:

Steps to Model a PIPE:

1. Understand the Structure of the PIPE Deal:

   • Equity Issuance: Determine the amount of equity being issued and the price per share.
   • Convertible Features: If the PIPE includes convertible securities, understand the conversion terms and conditions.
   • Warrants: Identify if there are any warrants issued as part of the deal and their exercise terms.

2. Adjust the Balance Sheet:

   • Cash: Increase the cash balance by the proceeds from the PIPE.
   • Equity: Increase the equity section by the amount of new equity issued. If there are convertible features, you may need to account for potential dilution.

3. Update the Income Statement:

   • Interest Expense: If the PIPE includes debt or convertible debt, include the interest expense.
   • Dilution: If the PIPE is convertible, model the potential dilution impact on EPS (Earnings Per Share).

4. Modify the Cash Flow Statement:

   • Financing Activities: Include the cash inflow from the PIPE under financing activities.
   • Operating Activities: Adjust for any changes in interest expense if applicable.

Resources for Further Reading:

1. WSO Threads and Discussions:

   • Scared Shitless: How Did You Actually Learn How To Competently Build Financial Models: This thread discusses how professionals learned financial modeling on the job, which might provide insights into practical modeling techniques. https://www.wallstreetoasis.com/forum/real-estate/scared-shitless-how-d…</a">Link

2. Modeling Tutorials:

   • PE Interview - Need to learn modeling in 2 days: This thread includes a free LBO modeling test which can be useful for understanding complex financial models. https://www.wallstreetoasis.com/forum/private-equity/pe-interview-need-…</a">Link

3. General Modeling Advice:

   • Modelling Gurus, please share your wisdom: This thread offers advice on building operating 3-statement models from scratch, which is essential for incorporating PIPE transactions. https://www.wallstreetoasis.com/forum/investment-banking/modelling-guru…</a">Link

Practical Tips:

• Start Simple: Begin with a basic model and gradually add complexity as you understand the deal terms.
• Use Templates: Utilize existing financial model templates and modify them to include the specifics of the PIPE deal.
• Validate Assumptions: Ensure all assumptions are realistic and validated against market data or deal specifics.

By following these steps and utilizing the resources mentioned, you should be able to effectively model a PIPE in your three-statement projection period.

Sources: PE Interview - Need to learn modeling in 2 days, Scared Shitless: How Did You Actually Learn How To Competently Build Financial Models, Modelling Gurus, please share your wisdom..., Help with Writing ER Reports for Beginners (Value Investing), Structuring and Flow in an M&amp;A Model