Accretion/Dilution

A deal is accretive if the combined company's earnings per share are higher than the acquirer's standalone earnings per share, and dilutive if they are lower.

The result depends on the price paid, how the deal is financed and the target's earnings. Paying with cash or debt adds interest costs or lost interest income. Paying with shares increases the share count.

For example, an acquirer earns 100,000,000 with 50,000,000 shares, giving earnings per share of 2.00. It buys a target earning 30,000,000 by issuing 14,000,000 new shares. Combined earnings are 130,000,000 over 64,000,000 shares, or about 2.03, making the deal about 1.6% accretive, before synergies and other adjustments.

Accretion and dilution are closely watched by boards and investors, but they are not a full measure of value. An accretive deal can still destroy value if the acquirer overpays relative to the target's risk and growth, and a dilutive deal can create value in the long run. Analysis should be combined with valuation and strategic assessment.