M&A Accretion Dilution Modeling

M&A Accretion / Dilution Model — Course Description

Mergers & Acquisitions | EPS Impact | Deal Structures | Synergy Analysis

Course Overview

This course builds a complete, interview-ready M&A Accretion/Dilution model from first principles. You will learn how to analyse whether an acquisition increases or decreases the acquirer's Earnings Per Share, how to structure a deal across cash, stock, and mixed consideration, how to model Purchase Price Allocation and its ongoing P&L impact, and how to phase in synergies net of integration costs to arrive at a fully defended pro forma EPS. The course follows TechCorp Inc.'s acquisition of SoftwareCo Ltd. — a $10.9 billion deal financed 50% in cash and 50% in stock — through every stage of the merger modelling process.

By the end of this course, you will be able to build a fully integrated M&A model, explain why a deal is accretive or dilutive and which specific drivers are responsible, present a value creation bridge to a board or investment committee, and answer the most demanding M&A questions in investment banking, private equity, and corporate development interviews.

What You Will Learn

• What accretion and dilution mean, why EPS is the primary short-term deal metric, and critically, why EPS accretion is not the same as shareholder value creation
• How to build a Sources & Uses table, structure cash versus stock consideration, and verify the deal balances before touching any other part of the model
• How to establish the standalone EPS baseline for both the acquirer and the target — the benchmark against which all accretion/dilution is measured
• How to build a pro forma combined Income Statement incorporating target earnings, after-tax synergies, integration costs, PPA amortisation, and incremental interest on acquisition debt
• How Purchase Price Allocation works in practice — Goodwill, customer relationships, patents, PP&E step-ups, inventory step-ups, and the Deferred Tax Liability that each creates
• How to model revenue synergies, cost synergies, and integration costs across a three-year phase-in schedule and calculate the present value of synergies to determine whether the premium paid is justified
• How to calculate the EPS accretion/dilution percentage and build a full value creation bridge decomposing each driver's individual contribution
• How the P/E rule of thumb works for all-stock deals — and why it breaks down once cash, debt, PPA, and synergies are introduced
• How to build three sensitivity tables varying offer premium, cost synergies, cash/stock mix, and financing rate
• How to apply the LBO floor valuation and understand where the strategic buyer's bid must sit relative to what a financial sponsor would pay

Course Structure

ModuleTopic

1. What is Accretion/Dilution? — Core Concepts & Logic

2. Deal Structures — Cash, Stock & Mixed Consideration

3. Sources & Uses — Deal Funding & Balance Check

4. Standalone Financials — Setting the EPS Baseline

5. Pro Forma Model — Combining the Companies

6. Purchase Price Allocation — Goodwill, Intangibles & DTL

7. Synergies — Revenue, Cost & Integration Costs

8. Accretion/Dilution Analysis — Full EPS Build & Bridge

9. Sensitivity Analysis — Premium, Synergies & Financing Mix

10. Excel Model Guide — Before & After Tabs

11. Common Mistakes & Interview Traps

12. Q&A Bank — 40 Advanced Interview Questions

13. Glossary — M&A Terms & Structures

Case Study — TechCorp Inc. Acquires SoftwareCo Ltd.

TechCorp Inc. (share price $85.00, 500mm diluted shares, LTM net income $1,200mm, P/E 35.4x) acquires SoftwareCo Ltd. (share price $42.00, 200mm diluted shares, LTM net income $280mm) at a 30% premium, implying an offer price of $54.60 per share and total equity consideration of $10,920mm at an offer P/E of 39.0x.

The deal is structured as 50% cash / 50% stock, funded by $5,460mm of new acquisition debt at 5.5% and the issuance of 64.2mm new TechCorp shares. Annual PPA amortisation is $35mm. Cost synergies phase in at $80mm / $140mm / $180mm across Years 1–3, revenue synergies at $0 / $50mm / $120mm, and integration costs run at $120mm / $60mm / $20mm.

The result: Year 1 is slightly dilutive as integration costs exceed early synergies, turning accretive from Year 2 as the synergy ramp outpaces the financing and PPA costs, with strong accretion in Year 3 at full synergy run-rate.

Excel Model — What's Included

The course includes a fully built Excel workbook with 14 tabs and 125 formulas:

• Deal Assumptions tab — single source of truth for all inputs: prices, shares, premium, financing rate, PPA D&A, and all synergy assumptions
• Before tabs — four separate student practice sheets (S&U, Standalone, Pro Forma, AccDil) with ??? placeholders and formula hints
• After tabs — four complete answer keys with all formulas and cross-sheet links
• Sensitivity Tables — three tables covering EPS impact across premium × synergies, premium × cash mix, and synergies × financing rate — all traffic-light colour coded
• Q&A Bank — 40 questions embedded directly in the model
• Glossary — 30 M&A terms with definitions and formulas

The Five Accretion/Dilution Drivers — Explained

This course goes beyond a single EPS number and teaches you to decompose the result into its five components:

• Target Earnings Contribution — how much NI the target adds per pro forma share
• Share Dilution Effect — how new shares issued reduce EPS for existing holders
• Incremental Interest Cost — after-tax cost of acquisition debt per pro forma share
• PPA Amortisation — non-cash intangible charge that persists for years post-close
• Net Synergies — after-tax benefit of cost and revenue synergies net of integration costs

Understanding each driver individually is what separates a junior analyst from someone who can defend a deal in front of a board or an investment committee.

Who This Course Is For

• Investment banking analysts and associates working on M&A transactions
• Corporate development professionals evaluating acquisition targets
• Private equity associates assessing strategic M&A alongside LBO analysis
• Equity research analysts modelling the impact of announced deals on acquirer EPS
• MBA students and CFA candidates studying mergers, acquisitions, and corporate valuation

Prerequisites

A solid understanding of the Income Statement and basic EPS mechanics is required.

Familiarity with the three-statement model is strongly recommended.

Completion of the Sutras DCF Valuation and Three-Statement Model courses will provide the ideal foundation.

Prior knowledge of accounting for acquisitions (goodwill, intangibles) is helpful but fully explained within the course.

Level: Advanced

Format: PDF Study Guide + Excel Model (Before/After)

Q&A Bank: 40 Interview Questions with Full Model Answers

Case Study: TechCorp acquires SoftwareCo — $10.9bn deal | Year 1 dilutive → Year 3 accretive