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Accretive Acquisition

An accretive acquisition is a type of acquisition where the acquiring company’s earnings per share (EPS) increase as a result of the deal. This happens when the acquired company contributes more to the bottom line than the cost of the acquisition itself, leading to immediate financial benefits for the shareholders of the acquiring company. Accretive acquisitions are sought after because they indicate that the acquisition is financially advantageous and will boost the acquirer’s profitability. These acquisitions are typically funded in a way that maximizes financial benefits, such as through cash or debt, especially when the cost of debt is lower than the return on the acquired assets.

Example

If Company A acquires Company B, and the combined profits after the acquisition result in a higher EPS for Company A’s shareholders, the acquisition is considered accretive.

Key points

• Boosts the acquiring company’s EPS.

• Sign of a financially beneficial acquisition.

• Preferred by companies seeking to increase shareholder value.

Quick Answers to Curious Questions

They are important because they immediately enhance the acquiring company’s EPS, leading to potential increases in stock price and shareholder returns.

Companies often analyze the financials of the target company, ensuring that the deal will contribute positively to their EPS.

Accretive acquisitions increase EPS, while dilutive acquisitions decrease EPS, at least initially.