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M&A Deal Evaluation
Article

M&A Deal Evaluation

Challenging Metrics Myths

A.T. Kearney, 2013

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Editorial Rating

8

Qualities

  • Analytical
  • Background

Recommendation

According to management consultants Philip Dunne and Angus Hodgson, major stakeholders in mergers and acquisitions tend to overemphasize earnings per share (EPS) as a metric for assessing potential success. However, “EPS accretion” doesn’t necessarily enhance shareholder value, nor does “EPS dilution” always destroy it. Other measures can be more valuable in predicting whether an M&A deal will prosper. getAbstract recommends this astute overview to executives and investors considering an M&A transaction now or in the future.

Take-Aways

  • Companies can grow earnings per share (EPS) either “organically” through improved performance or “inorganically” via mergers and acquisitions.
  • It is a myth that “EPS accretive” M&A deals build value while “EPS dilutive” deals destroy value.
  • If an acquiring company’s price-to-earnings (P/E) ratio remains constant after an M&A deal, while its EPS increases, the deal has managed to increase company value.

About the Authors

Philip Dunne is a partner with global management consultancy A.T. Kearney, where Angus Hodgson is a principal.