Walk me through an accretion-dilution analysis / merger model.

Published On - March 10, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity
  • Make transaction assumptions: consideration (cash, debt, or equity), transaction fees, synergies, etc.
  • Combine income statements of the acquirer and target
  • Adjust income statement and shares outstanding accordingly to financing terms
    • Add after-tax synergies
    • Adjust for additional expenses (transaction fees)
    • Add additional shares
    • Subtract forgone interest on cash
    • Subtract additional after-tax interest expense on debt
  • Calculate earnings per share (EPS) by dividing combined net income by total post-merger shares outstanding of acquiring company
  • Compare combined EPS with acquiror’s current EPS to determine if the deal is accretive (higher EPS) or dilutive (lower EPS)