Glossary

With over 200 terms in both English and French, our M&A Dictionary is designed to help you better understand the key words and concepts related to the sale oe purchase of a business in Canada.

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Liquidity

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Category: Accounting and Finance

Definition:

The ease with which an asset or security can be quickly bought or sold in the market without significantly affecting its price. Liquidity is a crucial factor in M&A transactions, and it can be considered from three different perspectives. 1: Market Liquidity: This aspect of liquidity relates to the ability to buy or sell securities in the broader financial markets. In the context of M&A, market liquidity is relevant when a company’s shares are publicly traded. Companies with higher market liquidity may find it easier to attract potential acquirers, as there is a more active market for their shares. 2: Asset Liquidity: In M&A, asset liquidity refers to how easily a company’s assets can be converted into cash. Highly liquid assets, such as cash or marketable securities, are more easily converted, providing flexibility in funding and financing for the acquiring company. Conversely, if a company has a significant portion of its value tied up in illiquid assets, it may impact the ease and speed of completing an acquisition. 3: Deal Liquidity: This aspect focuses on the ability to execute a deal smoothly and efficiently. A liquid deal is one where the terms and conditions are clear, financing is readily available, and regulatory approvals can be obtained without significant delays. In contrast, a deal with liquidity challenges might face obstacles such as complex contractual terms, difficulties in securing financing, or prolonged regulatory processes. In M&A, the consideration of liquidity is important for both buyers and sellers. Buyers may assess the liquidity of the target company’s assets and the ease with which they can integrate the acquired business into their operations. Sellers, on the other hand, may be concerned about the liquidity of the consideration they receive, especially if it includes illiquid securities or non-cash components. Overall, liquidity considerations play a vital role in shaping the structure and terms of M&A transactions, influencing the attractiveness of a deal and its feasibility.