M&A Accretion/Dilution Calculator

Enter the buyer's and target's net income, shares outstanding, and share price, then set the offer premium and the percentage of the deal funded with cash (the remainder splits between debt and stock in this model). Add the debt interest rate, the foregone interest rate on cash used, expected pre-tax synergies, and the buyer's tax rate.

The calculator computes the purchase price, the financing mix in dollars, the after-tax cost of that financing, pro forma combined net income and share count, the resulting pro forma EPS, and the accretion or dilution percentage versus the buyer's standalone EPS.

Buyer: $50,000,000 net income, 10,000,000 shares, $50.00 share price (standalone EPS $5.00). Target: $10,000,000 net income, 3,000,000 shares, $25.00 share price, 20% offer premium. Deal terms: 40% cash consideration (split evenly between cash and new debt in this model), 6.5% debt interest rate, 3.0% foregone cash interest rate, $2,000,000 pre-tax synergies, 21% tax rate.

Purchase price: 3,000,000 shares × $25.00 × 1.20 premium = $90,000,000.

Financing split: $18,000,000 in new debt, $18,000,000 in cash, and $54,000,000 in new stock, which at the buyer's $50.00 share price means issuing 1,080,000 new shares.

After-tax financing costs: debt interest costs ≈ $924,300 after tax; foregone interest on the cash used ≈ $426,600 after tax.

After-tax synergies: $2,000,000 × (1 − 0.21) = $1,580,000.

Pro forma net income: $50,000,000 + $10,000,000 + $1,580,000 (after-tax synergies) − $924,300 − $426,600 = $60,229,100.

Pro forma shares: 10,000,000 + 1,080,000 = 11,080,000.

Pro forma EPS: $60,229,100 ÷ 11,080,000 ≈ $5.44, up from the buyer's standalone $5.00, an accretion of roughly +8.72%.

Because the deal is already accretive, the synergy break-even calculation shows a negative required pre-tax synergy (roughly −$4,112,785), meaning the deal is already accretive before any synergies: EPS would stay at or above $5.00 even if combining the companies added about $4.1 million of pre-tax costs instead of saving $2 million.

Calculating pro forma EPS requires estimating the combined net income and the new share count outstanding after transaction closing.

Pro Forma Net Income blends the earnings of the buyer and target, adjusts for transaction financing costs, and adds estimated synergies:

Combined Net Income = Buyer Net Income + Target Net Income + After-Tax Synergies - After-Tax Financing Costs

Where After-Tax Financing Costs include interest expense on new debt issued and foregone interest income on cash used to fund the purchase.

Pro Forma Shares Outstanding accounts for new buyer shares issued to target shareholders:

Combined Shares = Buyer Shares + New Shares Issued

New Shares Issued = (Equity Purchase Price × Stock Consideration %) / (Buyer Share Price)

Pro Forma EPS is then:

Pro Forma EPS = (Combined Net Income) / (Combined Shares)

The financing mix of a deal (cash, debt, or stock consideration) has a major impact on accretion/dilution.

Cash & Debt Financing: Cash is typically the cheapest source of financing, as the cost of debt (interest expense) is after-tax and foregone cash interest is low. Debt financing avoids equity dilution, but increases leverage and financial risk.

Stock Financing: Issuing new equity increases the share count, which dilutes the ownership percentage of existing shareholders. If the buyer's P/E ratio is higher than the target's P/E, a stock-for-stock deal is mathematically accretive. If the buyer's P/E is lower, the deal is dilutive unless significant synergies are achieved.

Synergies are cost savings or revenue enhancements expected from combining corporate operations. The synergy break-even target represents the minimum pre-tax synergy required to make a dilutive deal break-even (0% accretion/dilution):

Required Pre-Tax Synergies = (Target Net Income - After-Tax Financing Costs - Dilution Impact) / (1 - t)

Sanity-check the target's standalone value with the DCF calculator, or if this deal is being financed with debt, model the leverage structure using the LBO model.