Definition of Dilutive acquisition:
When an acquiring company takes over another company but does not receive an increase on the profit margin.
An acquisition or merger typically involves a combination of two or more companies. Companies make acquisitions for various reasons, including to boost earnings, market share, or the number of customers. Companies also merge with the goal of reducing costs if there's duplication of processes within the two companies. By eliminating the acquired company's duplicative manufacturing process, for example, the combined entity would realize cost savings–called cost synergies.
A dilutive acquisition is a takeover transaction that decreases the acquirer's earnings per share (EPS) through lower (or negative) earnings contribution. Also, lower EPS can occur if additional shares are needed to be issued by the acquiring company to pay for the acquisition. EPS is a company's net income–or profit–divided by the number of outstanding common shares of stock. A dilutive acquisition can decrease shareholder value temporarily. However, if the deal has strategic value, a dilutive acquisition can potentially lead to an increase in EPS in later years.
How to use Dilutive acquisition in a sentence?
- A dilutive acquisition can occur from lower (or negative) earnings contribution from the target company or if stock shares are issued to pay for the deal.
- Although a dilutive acquisition can decrease shareholder value temporarily, it can potentially lead to an increase in EPS in later years.
- A dilutive acquisition is a takeover transaction that decreases the acquirer's earnings per share (EPS).
Meaning of Dilutive acquisition & Dilutive acquisition Definition