What Is a Pipeline?

In finance, the term pipeline is used to describe progress toward a long-term goal that invol𝓀ves a series of discrete s🍎tages. 

For example, private equity (PE) firms will use the term “acquisition pipeline” to refer to a series of companies they have flagged as potential acquisition targets. This pipeline would include several stages, such as industry research, lead generation, negotiations, 澳洲幸运5官方开奖结果体彩网:due diligence, and closing.

Another use for the term pipeline, although less common, is to refer to companies whose primary purpose is to be a conduit, or “pipeline”, for achieving certain 澳洲幸运5官方开奖结果体彩网:tax advantages.

How Pipelines Work

The pipeline metaphor is often used to describe progress through a series of stages culminating in a lꦗong-𓂃term goal. In many cases, the phrase is used to describe an ongoing process. For instance, in the example above of a private equity firm’s acquisition pipeline, the pipeline itself may never end because new deals will always be entering the pipeline as old ones are completed.

Pipeline also refers to companies that are seeking tax advantages, called "pipeline companies." According to the 澳洲幸运5官方开奖结果体彩网:pipeline theory, companies that pass on all their returns to their 澳洲幸运5官方开奖结果体彩网:shareholders should not be taxed like regular companies. Instead, the investors of that company should be taxed as individuals, with the distributions from their investment holdings included as part of their income.

Companies that adhere to this standard are often exempted from 澳洲幸运5官方开奖结果体彩网:corporate income taxes based on the premise that they are effectively an investment pipeline that passes their income directly through to investors.

Proponents of this business structure argue that taxing pipeline companies based on their corporate-level income would lead to double taxation since those same profits would eventually be taxed again once they are received as income by their investors. Examples of companies that often receive this tax treatment include 澳洲幸运5官方开奖结果体彩网:mutual funds, 澳洲幸运5官方开奖结果体彩网:limited partnerships (LPs), and 澳洲幸运5官方开奖结果体彩网:limited liability companies (LLCs).

Example of a Pipeline

Investment bankers might refer to a pipeline of deals, including various stages from securing clients, performing 澳洲幸运5官方开奖结果体彩网:underwriting and due diligence, achieving approval for regulators from the 澳洲幸运5官方开奖结果体彩网:Secu𝕴rities and Exchangeꦿ Commission (SEC), and marketing the client for an 澳洲幸运5官方开奖结果体彩网:initial public offering (IPO).

Similarly, banks might refer to their pipeline for processing new loans. In the case of 澳洲幸运5官方开奖结果体彩网:mortgages, this pipeline might include marketing initiatives such as 澳洲幸运5官方开奖结果体彩网:statement stuffers for generating new customers, performing 澳洲幸运5官方开奖结果体彩网:credit checks onꦺ loan applicants, andꦐ processing the paperwork required to finalize the loan.