Liquidity Event - Explained
What is a Liquidity or Exit Event?
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Table of ContentsWhat is a Liquidity Event?How does a Liquidity Event Work? Example of Liquidity Event Academic Research on Liquidity Events
What is a Liquidity Event?
Liquidity event refers to the merger, acquisition, sale, or purchase of a company. It also refers to the relationship whereby a company purchases the assets and assumes the debts of another company. In other words, the liquidity refers to a company obtaining liquid cash via a structural transaction.
How does a Liquidity Event Work?
Liquidity can be used by the company seeking emergency cash to invest in other business or offset unknown externalities or financial risks. This makes the liquidity an important aspect that enable companies to seize opportunities.
When the company or the shareholders have cash at their disposal, or can get access to finances easily, they are placed at a better position to seize the opportunity that comes around.
Checkable accounts, cash, and savings accounts are some of the liquid assets for individuals and companies since they are readily available cash for any use. This kind of cash is important for equity investment or financing the ongoing business.
Example of Liquidity Event
Facebook company was founded by Mark Zuckerberg, other individual co-founders and the venture capital firms which are listed as the major shareholders of the company. The founding of Facebook was as a result of a liquidity event.
The company began by raising $16 billion in the IPO and started as a publicly trading company with a valuation of $ 104 billion. By that time Mark Zuckerberg was the major shareholder owning 28.2 % of Facebook which worth approximately $29.3 billion as his liquid event. Thereafter, some of the company's such DST Global, and Accel partners joined Mark Zuckerberg to spread the cell and increase the bandwidth of Facebook through increased investment. Besides the commonly available liquid event are initial public offerings and direct acquisition by the major companies.
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