Accretion Question
Why would an acquisition be dilutive? I understand that the cost of doing the deal (cash, debt, and equity) affect it but I'm having a tough time thinking through this. Can anyone help?
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Think about it in the way of averages.
company A is earning 10 dollars per share (EPS) company B is earning 5 dollars per share
A decides to purchase B so what will happen to its average EPS? (Assuming all else equal)
The average EPS will go down or it'll get diluted since now Company A is earning less on a per share basis than it did before the merger.
can somebody fact check this?
Lol what? The above answer is correct. A deal can be accretive/dilutive in multiple facets. EPS, margin, FCF conversion, etc.
How about in terms of thinking it through the fact that the seller's Net Income has to offset the foregone interest on cash, interest expense on debt, and shares outstanding for equity?
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