Accretion Dilution Example for M&A Deal Screening
Accretion dilution analysis estimates whether an acquisition increases or decreases the buyer's earnings per share after the transaction.
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A deal is accretive when pro forma EPS is higher than the buyer's standalone EPS. It is dilutive when pro forma EPS is lower.
Use accretion dilution analysis early in public-company M&A screening.
Use it again after synergy, financing, and purchase accounting assumptions are refined.
EPS accretion does not automatically mean value creation. A deal can be accretive and still destroy value if the buyer overpays.
Buyer EPS impact
Assume a buyer earns $200 million, has 100 million shares, and buys a target with $30 million of earnings. If new financing costs and share issuance reduce combined earnings per share below $2.00, the deal is dilutive despite adding target earnings.
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Frequently Asked Questions
Can a dilutive deal be good?
Yes. A strategic deal can be temporarily dilutive if long-term cash flow and competitive benefits justify the price.
What drives dilution most often?
High purchase price, expensive financing, and large share issuance are common dilution drivers.
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