# M&A Accretion/Dilution Calculator Analyze pro forma financial impacts of a merger, combined earnings per share, and synergy break-even targets for M&A deals. --- - **Canonical URL:** https://dothecalculation.com/calculators/mergers-acquisitions-accrual-calculator - **Category:** Financial calculators - **Publisher:** Do The Calculation (https://dothecalculation.com) - **Cost:** Free, no account or sign-up required - **Privacy:** Runs entirely in the browser; inputs are never sent to a server - **Methodology:** https://dothecalculation.com/methodology --- ## M&A Accretion/Dilution Calculator — Pro Forma EPS Impact Analyze the pro forma EPS impacts of a corporate merger or acquisition, model stock/cash consideration mix, and calculate synergy break-even requirements. - Pro forma Combined EPS analysis - Stock vs. Cash financing mix optimizer - Synergy target break-even thresholds ## M&A Accretion and Dilution Analysis Accretion/dilution analysis evaluates the financial impact of a proposed merger or acquisition on the buying company's Earnings Per Share (EPS). The primary goal is to determine if the combined company's EPS will increase (accretion) or decrease (dilution) compared to the buyer's standalone EPS. An transaction is **accretive** when the combined pro forma earnings divided by the new share count is higher than the buyer's standalone EPS. It is **dilutive** when pro forma EPS falls below the buyer's standalone level. ## How to Use This 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. ## Worked Example: $90M Acquisition, 40% Cash Consideration 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. Pro forma net income: $50,000,000 + $10,000,000 + $2,000,000 (synergies) − $924,300 − $426,600 ≈ $60,649,100. Pro forma shares: 10,000,000 + 1,080,000 = 11,080,000. Pro forma EPS: $60,649,100 ÷ 11,080,000 ≈ $5.47 — up from the buyer's standalone $5.00, an accretion of roughly +9.47%. Because the deal is already accretive, the synergy break-even calculation shows a negative required synergy (roughly −$3,249,100), meaning this transaction would still be accretive even with about $3.2 million less in synergies than assumed. ## The Pro Forma Net Income and Combined EPS Formulas 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: $$\text{Combined Net Income} = \text{Buyer Net Income} + \text{Target Net Income} + \text{After-Tax Synergies} - \text{After-Tax Financing Costs}$$ 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: $$\text{Combined Shares} = \text{Buyer Shares} + \text{New Shares Issued}$$ $$\text{New Shares Issued} = \frac{\text{Equity Purchase Price} \times \text{Stock Consideration \%}}{\text{Buyer Share Price}}$$ **Pro Forma EPS** is then: $$\text{Pro Forma EPS} = \frac{\text{Combined Net Income}}{\text{Combined Shares}}$$ ## The Impact of Deal Financing: Stock vs. Cash 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. ## Synergy Break-Even Targets 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): $$\text{Required Pre-Tax Synergies} = \frac{\text{Target Net Income} - \text{After-Tax Financing Costs} - \text{Dilution Impact}}{\text{1} - t}$$ ## Related Calculators Sanity-check the target's standalone value with the [DCF calculator](/calculators/corporate-valuation-dcf-calculator), or if this deal is being financed with debt, model the leverage structure using the [LBO model](/calculators/lbo-model). ## Frequently asked questions ### What is the difference between cost synergies and revenue synergies? Cost synergies are savings achieved by eliminating redundant operations, headcount, or systems (often highly predictable). Revenue synergies are additional sales achieved by cross-selling products or entering new markets (harder to estimate). ### Why would a buyer execute a dilutive acquisition? A buyer might pursue a dilutive transaction if the target has high growth potential, proprietary technology, or strategic positioning that will accelerate long-term earnings, despite short-term EPS dilution. ### How does the buyer's P/E ratio affect a stock deal? In an all-stock deal, if the buyer's P/E is greater than the target's P/E, the transaction is accretive. If the buyer's P/E is lower than the target's P/E, the transaction is dilutive. ### What are transaction adjustments in M&A? Adjustments include subtracting after-tax interest expenses on new debt, subtracting foregone interest on cash used, adding synergies, and adjusting for depreciation and amortization write-ups. ### How do you calculate new shares issued in a deal? New shares issued = (Purchase Price × Stock Consideration %) / Buyer's Share Price. ### What is foregone interest on cash? It is the interest income a company loses by spending its cash balance on an acquisition rather than leaving it in interest-bearing accounts. It is subtracted from pro forma earnings. ### What is purchase price allocation (PPA)? PPA is the accounting process of allocating the purchase price to the target's tangible and intangible assets, with the remainder capitalized as goodwill. This can increase pro forma depreciation and amortization. ### How does interest rate affect deal accretion? Higher interest rates increase the borrowing cost of debt financing, which reduces pro forma net income and makes deals less accretive or more dilutive. ### What is a stock-for-stock merger? It is a transaction where the target shareholders exchange their shares for newly issued shares of the buying company at a specified exchange ratio. ### How is accretion/dilution percentage calculated? Accretion/Dilution % = [(Pro Forma EPS / Standalone Buyer EPS) - 1] × 100. ### Why does a higher cash consideration percentage often make a deal more accretive? Cash and debt financing avoid issuing new shares, so the combined earnings are divided across a smaller pro forma share count than an all-stock deal would produce. As long as the after-tax cost of that cash or debt is lower than the earnings yield of the target being acquired, funding more of the deal with cash and debt tends to boost pro forma EPS. ### Does a negative synergy-required figure mean the deal has no risk? No. A negative synergy-required figure means the deal is accretive under the assumed inputs even before counting synergies — but synergies, interest rates, and target performance are all projections. Integration risk, higher-than-planned interest costs, or synergies that fail to materialize can still turn an accretive deal dilutive after closing. ## Related concepts - **Earnings Per Share (EPS)** — A company's net income divided by its outstanding common shares. - **P/E Ratio** — Price-to-Earnings ratio, reflecting market valuation multiples. - **Synergy** — The financial benefit achieved through combining corporate assets and operations. - **Pro Forma** — Projected combined financial statements showing the expected results of two companies after a merger closes. ## Related guides - [Business Valuation Methods: A Practical Owner Guide](https://dothecalculation.com/blog/business/business-valuation-methods) — Compare market, income, and asset valuation methods, normalize revenue and profit, and use multiples as a planning range rather than a formal appraisal. - [ROI Calculation: Formula, Annualized Return, and Examples](https://dothecalculation.com/blog/business/roi-calculation) — Calculate ROI and annualized return with total costs included, compare opportunities consistently, and understand what a simple ROI result leaves out. ## Related calculators - [Convertible Note & SAFE Valuation Calculator](https://dothecalculation.com/calculators/convertible-debt-pricing-calculator) — Calculate startup convertible note and SAFE conversion share price, post-conversion ownership, and founder dilution impact. - [Startup Equity Dilution & Cap Table Simulator](https://dothecalculation.com/calculators/startup-equity-dilution-calculator) — Simulate venture capital seed and Series A funding rounds, share pricing, option pool dilution, and founder equity ownership stakes. - [Discounted Cash Flow (DCF) Calculator](https://dothecalculation.com/calculators/corporate-valuation-dcf-calculator) — Estimate a company enterprise and equity value using a multi-year discounted cash flow model with terminal value assumptions. - [LBO Model & Debt Schedule Calculator](https://dothecalculation.com/calculators/lbo-model) — Evaluate leveraged buyout returns, debt payoff schedules, multiple of invested capital, and internal rate of return metrics. - [Business Valuation Calculator](https://dothecalculation.com/calculators/business-valuation-calculator) — Estimate your business value using practical valuation methods such as earnings multiples and asset-based approaches for buyers or investors. - [Capital Expenditure (CapEx) ROI Calculator](https://dothecalculation.com/calculators/capex-roi-calculator) — Evaluate capital expenditure projects using return on investment, simple payback period, and net present value metrics before you invest. --- _This tool is for educational purposes only. 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