M&A & Merger Models
Worked example: acquirer earns net income 500 on 200 shares (EPS 2.50) at a 50 share price. It buys a target earning 120 for 1,800 of equity value, funded 50% stock and 50% new debt at 6% (tax 25%). Accretive or dilutive?
Model answer
Stock portion: 900 / 50 = 18 new shares, so pro forma shares = 218. Debt portion: 900 x 6% = 54 of pre-tax interest, or 54 x 0.75 = 40.5 after tax. Pro forma net income = 500 + 120 - 40.5 = 579.5.…
The full, human-reviewed answer is in the bank.
Sign up free and Daily 10 serves you 10 questions a day from all 1,500+ — or go Pro for unlimited reps.
More from M&A & Merger Models
- What makes an acquisition accretive or dilutive to EPS?
- An all-cash deal: when is it accretive?
- What are synergies and what are the two types?
- What's the difference between a strategic buyer and a financial buyer?
- What does it mean for an acquisition to be accretive or dilutive?
- Walk me through how you calculate accretion/dilution at a high level.