What Does Liquidity Event Mean?
A liquidity event refers to the process by which an investor monetizes its investment in a private company. Liquidity events are most often triggered by financial buyers such as private equity firms in order to exit their investments. There are various ways to undertake a liquidity event including the sale to or merger with another company, or taking the public company through an initial public offering (IPO).
While a sale is considered to be the main way to provide liquidity for investors, some liquidity can also be achieved by having the company pay out some or all of its cash flow in dividends. Financial buyers measure the internal rate of return (IRR) in their investment by not only estimating the net cash realized when the liquidity event is triggered, but also via dividends throughout the life of the investment.