Definition
A financing condition allows the bidder to walk away if it cannot secure financing for the deal by expiration. The condition is more common in private equity LBO tender offers than in strategic corporate deals.
Why it matters
Targets and shareholders dislike financing conditions because they introduce closing risk. Strategic acquirers using cash on hand typically waive financing conditions; financial sponsors often include them but pair with a substantial reverse break fee payable if financing falls through.
Disclosure
Source-and-amount-of-funds disclosure on Schedule TO must include any financing condition and the status of the financing commitments.