Accretion / dilution (M&A)
Principles of Finance glossary · Time Value of Money
Definition
Pro-forma earnings-per-share impact of an acquisition. Accretive if pro-forma EPS exceeds standalone acquirer EPS; dilutive if lower. The P/E quick rule: in a 100% stock deal, the transaction is accretive when the acquirer's P/E exceeds the target's. Accretion does not equal value creation - an EPS-accretive deal can still destroy NPV if the premium exceeds the present value of realized synergies.
Accretion / dilution (M&A) in plain English
When one company buys another, investors immediately ask: did this make each share of the buyer worth more or less? "Earnings per share" (EPS) is just the company's total profit divided by its number of shares — the slice of profit behind each share. A deal is "accretive" if it pushes that per-share profit up, and "dilutive" if it drags it down. Here's the trap, though: a deal can boost EPS today and still be a terrible decision — if the buyer overpaid, the extra profit isn't worth the price tag, so higher EPS can hide a real loss of value. Think of buying a lemonade stand: it might add to your total profit, but if you paid way more than the stand will ever earn you back, you still got fleeced.
Also called: M&A
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