Accretion/dilution analysis is a type of
M&A financial modelling performed in the pre-deal phase to evaluate the effect of the transaction on
shareholder value
Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value".
Definition
The term "shar ...
and to check whether
EPS for buying shareholders will increase or decrease post-deal.
[Accretion / Dilution Analysis: A Merger Mystery](_blank)
/ref> Generally, shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
do not prefer dilutive transactions; however, if the deal may generate enough value to become
accretive in a reasonable time, a proposed combination is justified.
Aside is a simplified example. A real-life accretion/dilution analysis may be much more complex if the deal is structured as cash-and-stock-for-stock, if preferred shares and dilutive instruments are involved, if debt and transaction fees are substantial, and so on. Generally, if the buying company has a higher P/E multiple than that of the target, the deal is likely to be accretive. The reverse is true for a dilutive transaction.
See also
*Post-money valuation Post-money valuation is a way of expressing the value of a company after an investment has been made. This value is equal to the sum of the pre-money valuation and the amount of new equity.
These valuations are used to express how much ownership e ...
*Pre-money valuation
A pre-money valuation is a term widely used in the private equity and venture capital industries. It refers to the valuation of a company or asset prior to an investment or financing. If an investment adds cash to a company, the company will hav ...
*
References
External links
THE IMPACT OF EPS ACCRETION AND DILUTION ON STOCK PRICESValuation of a P&C CompanyExample of A/D Analysis
{{DEFAULTSORT:Accretion dilution analysis
Valuation (finance)
Corporate finance