Why would an acquisition be dilutive?

Answer hidden.


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.