Accretion vs Dilution: Analysis in Private Equity

The accretion/dilution concept refers to the impact an acquisition has on the buying firm’s Earnings Per Share (“EPS”). An acquisition is accretive when the combined EPS (known as pro forma EPS) is greater than the buyer’s standalone EPS. An acquisition is dilutive when pro forma EPS is less than the standalone EPS.

For example, suppose analysts expect 3M’s EPS to be $6.12 in 2011. If they were to acquire Company ABC, pro forma EPS in 2011 is now expected to be $6.18

Accretion vs Dilution: Analysis in Private Equity