What Is an All-Cash Deal?
An all-cash deal can have different meanings depending upon the context in which it is used. Essentially, it can refer to any exchange of cash for an asset in the absence of additional financing or exchange of other capital such as stock. There are two common scenarios where it is used: in a corporate acquisition or purchase of real estate.
The cash purchase of a target company by an acquiring company. When an all-cash deal occurs, the equity portion of the parent company's balance sheet remains unchanged. The parent company uses cash to purchase a majority percentage of the target's shares. This is opposed to an all-stock deal, where equity on the balance sheet would be affected.
The transfer of a real estate property without financing or mortgages. The buyer would produce the appropriate funds at the time of closing; the seller would receive the entire selling price at closing.
All-Cash Deal Explained
All-cash mergers and acquisitions occur with no exchange of stock; the parent company purchases a majority of the common shares outstanding of the target company using only cash. This mostly occurs when the purchasing company is much larger than the company it is buying.
An all-cash real estate transaction occurs with no buyer financing. There may be significant drawbacks to paying cash for real estate, including tax consequences resulting from no mortgage interest tax deduction or the loss of earning power on the money that is tied up in the purchase. However, sellers of real estate can prefer all-cash deals as there is no risk that the buyer's financing might fall through.