Question:

Why would an acquisition be dilutive?

Bookmark
Remove Bookmark
Hide answer
Show answer
Answer hidden.

Answer:

An acquisition is dilutive to shareholders if the combined EPS (earnings per share) is lower than the standalone EPS of the buyer.

This happens when the additional amount of Net Income that comes from the seller is not enough to offset the buyer's foregone interest on cash, additional interest paid on debt, and the dilutive effects of issuing additional shares.

There are also things like the amortization of intangibles that can also make the acquisition dilutive to shareholders.

Other

Merger Model

Merger Model

What are synergies? What kinds of synergies are there?

Merger Model

What are some reasons for why a company would want to acquire another company?

Merger Model

In an all-stock deal, how can you quickly tell if a deal will be accretive or dilutive?

Merger Model

Why would a strategic acquirer typically be willing to pay more for a company than a private equity firm?

Merger Model

Walk me through a basic merger model

Merger Model

What is the difference between a merger and an acquisition?

Merger Model

Is there a shortcut to determine whether a transaction is accretive or dilutive to shareholders?

Merger Model

Why does goodwill get created in an acquisition?

Merger Model

A company with a higher P/E multiple acquires one with a lower P/E multiple. Is this deal accretive or dilutive?

The ultimate IB interview study guide.

FAQCategoriesAll questionsFeedbackAdd a question
©2022 EBITDOG