Stapled finance

Paul Povel, Rajdeep Singh

Research output: Contribution to journalArticlepeer-review

21 Scopus citations

Abstract

"Stapled finance" is a loan commitment arranged by a seller in an M&A setting. Whoever wins the bidding contest has the option (not the obligation) to accept this loan commitment. We show that stapled finance increases bidding competition by subsidizing weak bidders, who raise their bids and thereby the price that strong bidders (who are more likely to win) must pay. 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 stapled finance loans will show poorer performance than other buyout loans.

Original languageEnglish (US)
Pages (from-to)927-953
Number of pages27
JournalJournal of Finance
Volume65
Issue number3
DOIs
StatePublished - Jun 1 2010

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