Definition - What does Staple Financing mean?
Staple financing is defined as a pre-arranged form of financing package provided by investment banks to potential bidders during a bidding or acquisition process.
There are two main purposes and advantages brought by staple financing:
- Maximize the price of the prospect being sold – the debt package offered by staple financing offers a sense of guarantee for the bidders that financial assistance is possible. This, in effect, allows the bidder to raise their stake, and, from the seller’s perspective, gain the opportunity to have higher selling price.
- Prompt an easy selling process – given the immediate and readily available resource of finances, it is easier to prompt the sale leading to a smooth and successful transaction process.
Divestopedia explains Staple Financing
Staple financing is a strategic approach that basically boosts the selling process of an investment during an auction process. It is usually initiated by the investment banks, and would include information on fees, pricing, and structure of the financing in place in order to complete the transaction. This type of financing was originally named based on the fact that the financing term sheets were usually distributed by stapling the information to the memorandum or acquisition terms during bidding process. This strategy can be useful and advantageous to all parties involved, as it provides assistance in creating a smooth selling process between the seller and the buyer. It also increases the chances of a successful transaction for the investment bank that has pre-arranged the financing structure.
What Can a Private Equity Investor Control in a Deal?
Join thousands of others with our weekly newsletter