Staple financing, where the advisors to a company that is on the block offer financing to potential buyers, is said to be on the rise, according to Corporate Financing Week, an LMW sister publication. "Staple financing is becoming the norm rather than the exception," said Edward Yorke, co-head of Credit Suisse First Boston's financial sponsor coverage group.
Thomas H. Lee Partners' acquisition of brokerage firm Refco Group for $2.25 billion is a leading example, with Credit Suisse First Boston, Refco's advisor, as well as Banc of America Securities and Deutsche Bank, T.H. Lee's advisors, offering a loan and bond package for the transaction. But Yorke added that many middle-market M&A deals involving financial buyers now involve staple financing.
Staple financing offers the advantage of being more convenient and speedy since the seller's advisor does the due diligence and puts forward a financing package to the potential buyer. "There is an opportunity to shorten the timeline and increase the likelihood of the deal being done," said Simon Western, a managing director in the financial institutions group at B of A who worked on the Refco deal. Staple financing offers tremendous advantages for the investment banks as well. They get both M&A advisory and debt underwriting fees for the same deal and increase the chances of it actually getting done. T.H. Lee officials did not return calls.