Dilutive Acquisition

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  3. Target Firm

    A company which is the subject of a merger or acquisition attempt. ...
  4. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  5. Acquisition Loan

    A loan given to a company to purchase a specific asset or to ...
  6. Antidilutive

    A term describing the effects of securities retirement, securities ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Entrepreneurship

    Finding The Best Buyer For Your Small Business

    Learn more about the process business owners go through to seal a merger or acquisition deal.
  4. Forex Education

    The Dangers Of Share Dilution

    Investors need to be aware of the existence of dilutive securities and how they can affect existing shareholders.
  5. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  6. Fundamental Analysis

    How should a company budget for capital expenditures?

    Learn the difference between capital expenditures and operational expenses, and discover the importance of budgeting for capital expenditures.
  7. Fundamental Analysis

    What is accrual accounting in Oracle Apps?

    Learn more about Oracle Applications, an enterprise software system that enables businesses to streamline information systems – including accrual accounting.
  8. Fundamental Analysis

    Why do companies publish P&L statements?

    Understand the basics of the profit and loss statement, including why it is published and how it is used to assess financial stability.
  9. Investing Basics

    What is the first day of the quarter?

    Learn when the first day of the quarter is. Explore why investors and analysts prefer to compare results year-over-year due to seasonality.
  10. Investing Basics

    What is the difference between a quarter and a year in finance?

    Examine the difference between a fiscal quarter and a fiscal year. Learn why investors examine both quarterly and annual growth rates.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center