Accretion and dilution calculator
Test what a merger does to the buyer’s earnings per share, how much synergy it needs, and who ends up owning what.
M&A · EPS · Synergies · Free
The buyer and the target
One year of earnings, any unitHow it is paid for
The rest is cash.
The rest comes from cash on hand.
Synergies and accounting
Synergies rarely arrive in full in the first year.
Amortised against earnings; 0 for none.
Accretive
+2.3%
2.50 to 2.56 a share
Synergies to break even
27
run-rate, against 60 entered
Target holders own
7.8%
16.9 new shares, 0.338 per target share
What the deal adds to the buyer's earnings
Each step is after tax. The buyer's 500.0 becomes 554.6, shared across 216.9 shares instead of 200.0. Earnings grow 10.9% and the share count 8.4%: earnings per share rise only if the first is the larger.
The two rules of thumb
The stock part
Buyer P/E 16.0x against 22.5x paid. Paying in shares worth less per dollar of earnings than the earnings bought: on its own, dilutive.
The cash part
After-tax cost 4.05% against an earnings yield of 4.44% bought. The earnings bought cost less than the money: on its own, accretive.
Before synergies, fees on cash and any write-up, which the headline includes.
Accretion by share paid in stock and premium
Your case is marked| Stock \ Premium | 15% | 25% | 35% | 45% | 55% |
|---|---|---|---|---|---|
| 0% | +7.1% | +6.3% | +5.4% | +4.6% | +3.8% |
| 25% | +5.6% | +4.7% | +3.8% | +2.9% | +2.0% |
| 50% | +4.2% | +3.3% | +2.3% | +1.3% | +0.4% |
| 75% | +3.0% | +1.9% | +0.9% | −0.1% | −1.1% |
| 100% | +1.8% | +0.7% | −0.4% | −1.5% | −2.5% |
Sources and uses
| Buyer shares issued | 675 |
|---|---|
| New debt | 540 |
| Cash on hand | 162 |
| Total | 1,377 |
| Equity at 27.00 a share | 1,350 |
|---|---|
| Fees | 27 |
| Total | 1,377 |
Equity price only: the target's own debt is assumed to stay in place, as in most public deals. Interest on new debt 32.4 and interest given up on cash 4.9, both before tax.
How it works
The price is the target’s share price plus the premium, times its shares. The part paid in stock is issued at the buyer’s share price, which adds shares; the cash part is borrowed or taken from cash on hand, which costs interest paid or interest no longer earned.
Pro forma net income is the two companies’ earnings for the year, plus the synergies recognised, less that interest and any amortisation of written-up assets, all after tax. Divided by the buyer’s shares plus the new ones, it gives pro forma earnings per share; above the buyer’s own, the deal is accretive.
Two checks give the sign before the arithmetic: stock is accretive when the buyer’s P/E is above the P/E it pays, and cash is accretive when the after-tax cost of the money is below the earnings yield it buys. The breakeven is the run-rate synergy at which the deal is neither.
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