Evaluating M&A Deals:  Accretion vs. Dilution of Earnings-per-share

Carliss Y. Baldwin

Background Note | HBS Case Collection | October 2007 (Revised February 2008)

Evaluating M&A Deals: Accretion vs. Dilution of Earnings-per-share

Abstract

When discussing the pros and cons of an acquisition, practitioners often talk about the impact of the deal on the buyer's earnings-per-share (eps). An acquisition is said to be "accretive" if the buyer's eps goes up post-deal; it is "dilutive" if the buyer's eps goes down. Describes why managers are concerned with accretion and dilution; how to tell if a deal is accretive; why high P-E buyers can pay a premium and still have an accretive deal; how accretive deals can be bad (and dilutive deals good); and how much accretion or dilution to expect based on the terms of a deal.

Keywords: Business Earnings; Mergers and Acquisitions; Private Equity; Negotiation Deal;

Format: Print

4 pages

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Baldwin, Carliss Y. "Evaluating M&A Deals: Accretion vs. Dilution of Earnings-per-share." Harvard Business School Background Note 208-059, October 2007. (Revised February 2008.)

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Evaluating M&A Deals: Accretion vs. Dilution of Earnings-per-share

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