Explain accretion/dilution analysis.
A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Tests whether an acquisition increases (accretive) or decreases (dilutive) the acquirer's EPS. Calculate: pro-forma combined EPS vs. standalone acquirer EPS. Key inputs: purchase price, financing mix (cash/debt/stock), synergies, goodwill amortization (not under IFRS). A dilutive deal isn't necessarily bad if strategic value justifies it. Accretion/dilution is a PE and IB favorite interview topic.
WHAT INTERVIEWERS LISTEN FOR
- ✓Compares pro-forma EPS to standalone EPS
- ✓Considers purchase price and financing mix
- ✓Accounts for synergies and amortization
- ✓Dilution not always negative
- ✓Common in PE and IB interviews
COMMON MISTAKES
- ✗Ignores financing mix impact
- ✗Confuses accretion with value creation
- ✗Omits goodwill amortization treatment
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