# Accretion/dilution analysis

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**Accretion/dilution analysis** is a type of [M&A](/source/Mergers_and_Acquisitions) financial modelling performed in the pre-deal phase to evaluate the effect of the transaction on [shareholder value](/source/Shareholder_value) and to check whether [earnings per share (EPS)](/source/Earnings_per_share) for buying shareholders will increase or decrease post-deal.[1] Generally, [shareholders](/source/Shareholders) do not prefer dilutive transactions; however, if the deal may generate enough value to become [accretive](/source/Accretion_(finance)) in a reasonable time, a proposed combination is justified.

Aside is a simplified example. A real-life accretion/dilution analysis may be much more complex if the deal is structured as cash-and-stock-for-stock, if preferred shares and dilutive instruments are involved, if debt and transaction fees are substantial, and so on. Generally, if the buying company has a higher [price–earnings ratio (P/E)](/source/Price%E2%80%93earnings_ratio) multiple than that of the target, the deal is likely to be accretive. The reverse is true for a dilutive transaction.

## See also

- [Post-money valuation](/source/Post-money_valuation)
- [Pre-money valuation](/source/Pre-money_valuation)
- [Pro forma § Financial statements](/source/Pro_forma#Financial_statements)

## References

1. [Accretion / Dilution Analysis: A Merger Mystery](http://www.investopedia.com/articles/fundamental-analysis/09/accretion-dilution-analysis-mergers.asp)

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