A company with a high P/E acquires a company with low P/E. Will the acquirer's P/E rise?

tndk3004's picture
Rank: Senior Chimp | 23

I get that if acquirer P/E is greater than the offer P/E, then the deal will be accretive. What does that mean in terms of P/E? Will it rise or fall?

Comments (2)

Jan 7, 2019

An acquisition is typically accretive when the acquiring firm has a P/E ratio greater than the target firms. The EPS of the acquiring company will increase due to an outsized gain relative to the cost of the acquisition (i.e., synergies), and because of the inverse correlation of EPS to P/E, the acquiring company's P/E will subsequently drop.

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Jan 7, 2019