Accretion
Investment Banking glossary · M&A & LBO Modeling Dynamics
Definition
Increase in acquirer pro forma EPS from a transaction: Accretion = (PF EPS - Standalone EPS)/(Standalone EPS). Rule of thumb: in all-stock deals, accretive when acquirer P/E > target P/E; in cash/debt deals, accretive when the target's earnings yield exceeds the acquirer's after-tax cost of acquisition debt.
Accretion in plain English
When one company buys another, investors ask a simple question: "Did this deal make each share of the buyer more profitable or less?" Accretion means each share now earns MORE — the profit-per-share (EPS, earnings per share) went up after the deal. The quick mental test: if you pay with your own stock, the deal helps when the buyer's shares are "pricier" relative to earnings than the target's (a higher P/E, price-to-earnings). If you pay with cash or borrowed money, it helps when the profit you're buying is worth more than the after-tax cost of the loan you took to buy it — basically, are the new earnings cheaper than the interest bill?
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