Accretive/Dilutive
if a transaction IS NOT all stock (can't just compare P/E), how would we find out if it's Accretive or dilutive?
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owned on interview Q? it should be on this site... or get the M&I guide.
I got this qusetion a couple of times---- i think the key is recognizing that the P/E rule only works for all equity deal. If transaction is made in Cash/Debt, P/E doesn;t matter at all. As for how it does work, i think it gets a lot more complicated and honestly, unless your interviewer is a real bitch/ you had hardcore finance experience before, no one's gonna expect you to know this.
FYI: M&I doesn't give the answer.
haven't gotten it before but i fear i will. it's not in the M&I guide..
Here's a quick-and-dirty answer that should get you through an interview question:
You need to build out a merger model and run an accretion/dilution analysis on the EPS. If a transaction is made with debt, the additional debt on the pro forma balance sheet is going to increase interest expense, which will decrease EPS. If made with cash, there is a foregone cash interest income that needs to be taken into consideration. In a "strategic" transaction (where an A-D analysis would make sense), it is often a combination of the above, but just know that the accretion/dilution of the deal will depend on the consideration paid because of the above reasons.
thanks for the explanation jimbrown.
Quae impedit enim tempore debitis. Et culpa corrupti animi ab. Occaecati quia animi enim facilis repellat.
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