Accretion Dilution
Hi, was wondering if anyone could walk through how to get to a post M&A EPS number.
Company A has revenue of $10 mm, 20% NI margin, and 35% tax rate. Company B has revenue of $5 mm and a 10% NI margin. Company A also has 1,000,000 shares outstanding trading at $100 a share. Suppose Company A purchases Company B for 10x NI, financed with 80% debt and 20% equity. Interest is 10%. Is this acquisition accretive or dilutive?
Are you sure there isn’t a typo? A trades at 50x PE? Definitely accretive.
Anyways. Back of the envelope. Assume acquire B cash free debt free: Company B NI = $0.5mm Txn Value = 100.5 = $5mm Equity issued = 50.2 = $1mm or 10k shares PF A Total Shares = 1,010,000
PF NI = Company A NI + Company B NI - incremental interest expense (assume no forgone interest in cash, incremental amortization etc.) PF NI = 2+0.5-40.1(1-0.35) PF NI = $2.24mm
PF EPS = 2.24mm/1010000 = $2.22 SA EPS = 2/1000000 = $2.00
Facere voluptates ipsam ut nemo. Nostrum dignissimos ea at vitae. Est repudiandae dolor sunt accusantium quo. Et facere voluptas porro animi. Rerum fuga modi neque qui quos ratione.
Distinctio et est quos sit et. Officiis qui sapiente fugit aut. Et corrupti ea sit aut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...