Mergers and Acquisitions
Calculate EPS accretion and dilution
Can a deal lift reported earnings per share and still be a poor investment?
Practise calculate EPS accretion and dilution with a worked example and a short check.
Compare the buyer’s earnings per share before and after the deal. Accretion measures the change in this ratio, while value depends on what you pay and earn.
EPS change = pro forma EPS ÷ standalone EPS − 1
Standalone $60m ÷ 30m = $2. Pro forma $75m ÷ 35m ≈ $2.142857. Divide by $2 and subtract one for about 7.14%.
Buyer has $60m earnings and 30m shares, so EPS is $2. Add $12m target earnings and $3m synergy, with 5m new shares. $75m ÷ 35m ≈ $2.14, or 7.14% accretion.
Standalone $60m ÷ 30m = $2. Pro forma $75m ÷ 35m ≈ $2.142857. Divide by $2 and subtract one for about 7.14%.
Without synergies, what is pro forma EPS on those assumptions?