What is 'Staple Financing'

Staple financing is a pre-arranged financing package offered to potential bidders for an acquisition. Staple financing is arranged by the investment bank advising the selling company and includes all details of the lending package, including the principal, fees and loan covenants. The name is derived from the fact that the financing details are stapled to the back of the acquisition term sheet.

BREAKING DOWN 'Staple Financing'

Staple financing provides benefits in an acquisition. Because financing is already in place, it provides the seller with more timely bids. Buyers benefit from seeing the terms of the pre-arranged lending deal, and no longer need to scramble for last-minute financing. This method allows the bank to garner fees from both sides of the merger, providing advice to the seller and lending to the buyer. Because staple financing expedites the bidding process, it has become common in the merger and acquisition field, although some concerns have been expressed as to the ethics of an investment bank serving interests on both sides of a transaction.

Why Use Staple Financing?

  • To maximize the sale price – by making the stapled debt package available to all potential purchasers, a potential bidder gains access to debt it may not have otherwise been able to raise on its own. From the seller's perspective, the greater the number of fully-funded potential bidders, the greater the competition and therefore the higher the potential sale price.
  • To facilitate a prompt sale – the banking process is streamlined when potential purchasers are presented with a well-negotiated term sheet, especially where they would otherwise have had to start from scratch with a syndicate of several banks.
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