Cash vs. Stock Acquisitions
Whenever any acquisitions happen, it either paid via cash or stock, with the recent one, Byju’s acquires WhiteHat Jr for $300 million in an all-cash deal. A lot of people might be wondering what an All-cash deal or All-stock deal is.
In this article, we will discuss the differences between the all-cash, and all-stock deal.
The term All cash” and “All stock” are generally used regarding mergers and acquisitions. While focusing attention on what exactly is a merger or acquisition, it is nothing more than a deal between two parties or companies where either one company purchases another, or in the first case when two companies decide to merge into one.
Such types of mergers and acquisitions occur via all stock or all-cash offers.
All-cash deal
An all-cash deal is one method through which acquisitions can be completed in which the whole transaction is done in cash only. When an all-cash deal occurs, the equity side of the balance sheet remains unchanged for the parent company.
The parent company purchases the shares of the company being acquired solely in cash. This occurs only when the parent company is much larger than the other company getting acquired. The financial position of the parent company is not much affected while entering into an all-cash deal.
Ex: Byju’s acquires WhiteHat Jr for all-cash deal:(https://techcrunch.com/2020/08/05/indias-byjus-acquires-whitehat-jr-for-300-million/)
All-stock deal
An all-stock deal is one method through which acquisitions can be completed in which the whole transaction is done in exchange for stock only. When an all-stock deal occurs, the equity side of the balance sheet of the parent company is greatly affected.
Ex: Zomato acquires Uber Eats India for all-stock deal:(https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/zomato-acquires-uber-eats-in-an-all-stock-transaction/articleshow/73465982.cms)
Benefits of an all-stock deal over all-cash deal?
One of the main benefits of the all-stock deal is that it preserves cash for the parent company. For the company getting sold, the all-stock deal enables them to be part of the future growth of the business and potentially defer the tax payment on the profit made with the sale.
