Dilutive Acquisition

What is a 'Dilutive Acquisition'

A dilutive acquisition is 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
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  2. What is the difference between an accretive and a dilutive merger?

    Learn how to distinguish between a merger and acquisition (M&A) deal that is accretive and one that is dilutive, and why ... Read Answer >>
  3. Why is a company's diluted EPS always lower than its simple EPS?

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  4. What does it signify about a company if there is a large difference between its EPS ...

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  5. How do I evaluate whether a company is a good acquisition candidate?

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