Dilutive Acquisition

DEFINITION of 'Dilutive Acquisition'

A takeover transaction that will decrease the acquirer's earnings per share (EPS) if additional shares are issued to pay for the acquisition. Dilutive acquisitions decrease shareholder value and should thus be avoided, unless the strategic value of the acquisition is expected to cause a sufficient increase in EPS in later years. An acquisition is only a good deal if the acquirer can derive more value from the acquisition than it pays out.

BREAKING DOWN 'Dilutive Acquisition'

The easiest method of determining whether an acquisition deal is accretive or dilutive is to compare the price to earnings (P/E) ratios of the firms involved. If the target firm's P/E ratio is higher than the acquirer's P/E, then the transaction is dilutive.

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RELATED FAQS
  1. What is considered an accretive acquisition?

    Accretive acquisitions result in a combined entity with higher earnings per share (EPS) than the legacy business of the acquirer. ... Read Full Answer >>
  2. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
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    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
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