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Stapled Finance

43 Pages Posted: 2 Aug 2007 Last revised: 14 Jan 2009

Paul Povel

University of Houston - Department of Finance, C.T. Bauer College of Business

Rajdeep Singh

University of Minnesota - Twin Cities - Carlson School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 2009

Abstract

Stapled Finance is a loan commitment arranged by a seller in an M&A setting. The key feature is that whoever wins the bidding contest has the option (not the obligation) to accept the loan commitment. Stapled finance has become common: in 2004, it was offered in 39% of US deals that involved private equity funds. We show that stapled finance benefits sellers if there are financial buyers in the pool of bidders, because it makes them bid more aggressively. However, the lender expects not to break even and must be compensated for offering the loan. This reduces, but does not eliminate the seller's benefit. It also implies that buyout loans that originated as stapled finance will show poorer performance than other buyout loans.

Keywords: Stapled Finance, Mergers & Acquisitions, Takeovers, Debt, Auctions

JEL Classification: G24, G32, G34

Suggested Citation

Povel, Paul and Singh, Rajdeep, Stapled Finance (January 2009). Available at SSRN: https://ssrn.com/abstract=1004402 or http://dx.doi.org/10.2139/ssrn.1004402

Paul Povel (Contact Author)

University of Houston - Department of Finance, C.T. Bauer College of Business ( email )

University of Houston
334 Melcher Hall
Houston, TX 77204
United States
713-743-4759 (Phone)

HOME PAGE: http://www.bauer.uh.edu/povel

Rajdeep Singh

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1061 (Phone)
612-626-1335 (Fax)

HOME PAGE: http://umn.edu/~rajsingh

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