Pipeline
What Is a Pipeline?
In finance, the term pipeline is utilized to depict progress toward a long-term goal that includes a series of discrete stages.
For instance, private equity (PE) firms will utilize the term "acquisition pipeline" to allude to a series of companies they have hailed as potential acquisition targets. This pipeline would incorporate several phases, for example, industry research, lead generation, talks, due diligence, and closing.
One more use for the term pipeline, albeit more uncommon, is to allude to companies whose primary purpose is to be a conduit, or "pipeline", for achieving certain tax advantages.
How Pipelines Work
The pipeline similitude is frequently used to portray progress through a series of stages coming full circle in a long-term goal. As a rule, the phrase is utilized to portray a continuous interaction. For example, in the model above of a private equity company's acquisition pipeline, the actual pipeline might in all likelihood continue forever in light of the fact that new arrangements will continuously be entering the pipeline as old ones are completed.
Pipeline additionally alludes to companies that are seeking tax benefits, called "pipeline companies." According to the pipeline theory, companies that give every one of their returns to their shareholders ought not be taxed like ordinary companies. All things being equal, the investors of that company ought to be taxed as people, with the distributions from their investment holdings included as part of their income.
Companies that stick to this standard are frequently absolved from corporate income taxes in light of the reason that they are successfully an investment pipeline that passes their income straightforwardly through to investors.
Advocates of this business structure contend that taxing pipeline companies in view of their corporate-level income would lead to double taxation since those equivalent profits would ultimately be taxed again whenever they are received as income by their investors. Instances of companies that frequently receive this tax treatment incorporate mutual funds, limited partnerships (LPs), and limited liability companies (LLCs).
Illustration of a Pipeline
Investment bankers could allude to a pipeline of arrangements, including different stages from securing clients, performing underwriting and due diligence, achieving endorsement for regulators from the Securities and Exchange Commission (SEC), and marketing the client for a initial public offering (IPO).
Additionally, banks could allude to their pipeline for processing new loans. On account of mortgages, this pipeline could incorporate marketing drives, for example, statement stuffers for generating new customers, performing credit checks on loan candidates, and processing the paperwork required to settle the loan.
Features
- The term is likewise used to allude to companies that have been structured to stay away from double taxation.
- Various organizations will take on their own minor departure from the term, for example, "deals pipeline", "research and development pipeline", and "acquisition pipeline".
- In finance, the term pipeline is utilized to depict progress toward a long-term goal that includes a series of discrete stages.
