Accretion/dilution in an all-cash deal
Hi, since cost of cash is essentially zero, an all-cash deal is always accretive. Is this reasoning correct?
Trending Content - Investment Banking Forum
Career Resources
From my understanding, an all-cash deal doesn't necessarily mean the acquiring company is financing purely from cash reserves. They can finance the deal from debt and equity too. So an all-cash deal isn't always accretive.
This is correct, but in most interviews they will specify if it's cash on balance sheet or debt. In the case of cash on balance sheet, as the poster mentioned it's nearly always accretive. The better answer is that the deal is accretive if the added earnings exceed the forgone interest generated by the cash on the balance sheet, which is again, nearly always the case .
I agree.
Best way to think of it IMO, is to flip P/E round and think of it as earnings yield. Cost of cash is the foregone interest rate, yield is 1(/P/E).
If it's debt then tax after-tax cost of debt and compare that to the yield.
Necessitatibus aut nulla in dignissimos. Dolorum architecto quam sint consectetur nesciunt minima illum. Doloremque nihil et qui eos. Aliquam vel rerum ad libero dolorem perferendis. Aliquid esse libero voluptates eligendi. Animi nam doloremque qui qui eligendi exercitationem quia.
Tempore quia architecto suscipit aut quae ut. Quia laboriosam aliquid amet harum repudiandae voluptate non molestiae. Dolorem quaerat eaque vero animi. Nihil quo eos laboriosam ut reiciendis. Repudiandae deserunt sit id dolorum.
Eum eligendi debitis ut. Deserunt maxime ab suscipit accusantium suscipit aut est. Et aliquam ea iste autem corporis ut odio. Dignissimos sint qui maiores et doloribus aut.
Quidem quia provident et sint iste dolorum cupiditate omnis. Delectus neque molestias autem perspiciatis. Sint velit et officiis sit consequuntur. Alias enim magni neque architecto iste accusantium sed.
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...