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
  1. What are some common accretive transactions?

    Find out about accretive transactions and how analysts determine whether or not an acquisition is accretive or dilutive by ... Read Answer >>
  2. How do I evaluate whether a company is a good acquisition candidate?

    Evaluate whether a company is a good acquisition candidate by analyzing its price, debt load, litigation and financial statements. Read Answer >>
  3. What is considered an accretive acquisition?

    Learn about accretion and dilution in mergers and acquisitions. What makes a deal accretive, and how is earnings per share ... Read Answer >>
  4. What does it signify about a company if there is a large difference between its EPS ...

    Learn more about basic earnings per share and diluted earnings per share, what the ratios measure and what a large discrepancy ... Read Answer >>
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