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Private-equity firms can't get the financing needed to buy entire public companies, so they're doing the next best thing: buying parts of them.

By taking non-controlling stakes in public companies via private investments in public equities, or PIPEs, private-equity firms are able to put some money to work at a time when their traditional market, leveraged buyouts, is still dry.

Such investments have often received negative press as ways for vulture lenders to take advantage of companies that can't access capital in more traditional ways. But now, better-known, larger companies are increasingly issuing PIPEs. And they are finding private-equity firms to be willing participants.

Great Atlantic & Pacific Tea Co. (GAP), which runs A&P Stores, recently raised $435 million in a PIPE, selling newly created securities to, among others, supermarket mogul Ron Burkle's Yucaipa Cos. In a privately negotiated transaction announced earlier this week, buyout firm TPG Capital agreed to buy seven million Armstrong World Industries Inc. (AWI) shares from a trust set up to pay damages to Armstrong's asbestos victims.

Office Depot Inc. (ODP) earlier this year received $350 million from private-equity firm BC Partners. As is typical in PIPEs, the deal was very advantageous for BC, which got three seats on Office Depot's board and could eventually own 20% of the company as part of the terms.

According to data from PrivateRaise LLC, private-equity or venture-capital firms have been involved in 18% of all PIPE transactions that PrivateRaise has tracked in 2009, up from 11% in 2008.

While it did get board seats, TPG's deal with Armstrong isn't a traditional PIPE since it doesn't involve the issuance of newly created shares. But it's an example of TPG's willingness to make private investments in public companies. Of the 14 PIPE deals TPG has done since 2001, 10 have occurred since 2007, according to PrivateRaise.

TPG, which wouldn't comment on the Armstrong deal beyond its announcement, has also seen PIPEs burst, most notably in its ill-fated investment in Washington Mutual, which is now owned by JPMorgan Chase & Co. (JPM). Other big private-equity players in PIPEs in the past few years have been Warburg Pincus LLC, which made a PIPE investment in commercial bank Webster Financial Corp. (WBS) earlier this year, and Capital Research & Management Co.

"The PE [private-equity] and venture-capital guys have stepped in because values are cheap and a lot of these companies probably shouldn't have been public and are more like venture-stage companies," said Jack Hogoboom, a partner at Roseland, N.J.-based Lowenstein Sandler, a law firm that represents many PIPE investors. "The investors get companies with better financial controls and they also get more potential liquidity than their customary investment targets."

As with almost everything involving financing, PIPE issuance is sharply down. And it's too early to know whether private-equity firms' increased market share is a temporary or permanent phenomenon.

"Private equity has typically been around in the PIPE industry," said Phil Gerewich, a spokesman for PrivateRaise. But now, Gerewich said, fewer leveraged buyout, or LBO, opportunities and the disappearance of some hedge funds has made private-equity firms think about PIPEs even more.

That isn't to say that "non-controlling stake" is going to become part of every private-equity firm's vocabulary.

At a Massachusetts Institute of Technology symposium earlier this year, Thomas H. Lee co-President Scott Schoen admitted interest in PIPEs with one big caveat.

Schoen said at the time that his firm would only invest in PIPE deals that gave his firm the chance to eventually influence management decisions.

-By Joseph Checkler, Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com

(Laura Kreutzer contributed to this report.)