Accretion/dilution analysis: Difference between revisions
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'''Accretion/dilution analysis''' is a type of [[Mergers and Acquisitions|M&A]] analysis performed in the pre-deal phase to evaluate the effect of the deal on shareholder value and to check whether |
'''Accretion/dilution analysis''' is a type of [[Mergers and Acquisitions|M&A]] analysis performed in the pre-deal phase to evaluate the effect of the deal on shareholder value and to check whether shareprice for buying shareholders will increase or decrease. |
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==Simple example<ref>[http://74.6.239.185/search/srpcache?ei=UTF-8&p=accretion%2Fdilution+analysis+edu&fr=yfp-t-701&u=http://cc.bingj.com/cache.aspx?q=accretion%2fdilution+analysis+edu&d=5034079754717444&mkt=en-US&setlang=en-US&w=8d9c8c02,280b194d&icp=1&.intl=us&sig=eJt1U7AcX3YULL9jukUW.A-- Stock Or Cash—A Financial Perspective]</ref>== |
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==Simple example== |
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===Pre-deal situation=== |
===Pre-deal situation=== |
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BuyCo plans to acquire 100% shares of SellCo in a stock-for-stock transaction. |
BuyCo plans to acquire 100% shares of SellCo in a stock-for-stock transaction. |
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*NewCo expected shareprice = P/E of BuyCo*expected EPS = 16.7x*$2.25 = $37.45 |
*NewCo expected shareprice = P/E of BuyCo*expected EPS = 16.7x*$2.25 = $37.45 |
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===Post-deal=== |
===Post-deal situation=== |
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*The shareprice of NewCo fall from $50 to $37.45, so the deal is likely to be dilutive for BuyCo shareholders. |
*The shareprice of NewCo fall from $50 to $37.45, so the deal is likely to be dilutive for BuyCo shareholders. |
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*BuyCo shareholders own 100000/178000=56% of NewCo |
*BuyCo shareholders own 100000/178000=56% of NewCo |
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This article was last edited by Lamro (talk | contribs) 14 years ago. (Update timer) |
Accretion/dilution analysis is a type of M&A analysis performed in the pre-deal phase to evaluate the effect of the deal on shareholder value and to check whether shareprice for buying shareholders will increase or decrease.
Simple example[1]
Pre-deal situation
BuyCo plans to acquire 100% shares of SellCo in a stock-for-stock transaction.
- BuyCo has a net income of $300 000 and 100 000 shares outstanding.
- Market shareprice of BuyCo is $50.
- The pre-deal EPS = $3.0 and pre-deal P/E = 16.7x
- SellCo has a net income of $100 000 and 50 000 shares outstanding.
- Market shareprice of SellCo is $60.
- The pre-deal EPS = $2.0 and pre-deal P/E = 30.0x
The deal
- BuyCo agrees to pay a premium for control of 30%, so the offer price for a SellCo’s share is 1.3*$60 = $78
- The stock-for-stock exchange ratio is $78/$50 = 1.56
- BuyCo issues 1.56*50 000 = 78 000 new shares to exchange them for all the SellCo shares outstanding
- Total shares of NewCo = 100 000 (pre-deal shares of BuyCo) + 78 000 (new shares) = 178 000 shares
- NewCo expected EPS = Total net income/Total shares outstanding = (300 000+100 000)/178 000 = $2.25
- NewCo expected shareprice = P/E of BuyCo*expected EPS = 16.7x*$2.25 = $37.45
Post-deal situation
- The shareprice of NewCo fall from $50 to $37.45, so the deal is likely to be dilutive for BuyCo shareholders.
- BuyCo shareholders own 100000/178000=56% of NewCo
- SellCo shareholders own 78000/178000=44% of NewCo
References
External links
- THE IMPACT OF EPS ACCRETION AND DILUTION ON STOCK PRICES
- Valuation of a P&C Company
- Example of A/D Analysis
