### Definition Accretion, in the context of M&A, refers to the increase in earnings per share (EPS) of the acquiring company following a transaction. This occurs when the additional earnings generated by the acquisition exceed the transaction costs, creating immediate value for shareholders.
### Calculation of Accretion To determine whether an M&A transaction is accretive, analysts compare the EPS of the acquiring company before and after the acquisition. A simple method involves dividing the combined net income of both companies by the new total number of outstanding shares:
Accretion = (Net Income of Acquirer + Net Income of Target) / Total Number of Shares After Transaction
### Practical Significance Accretive transactions are attractive to buyers as they increase shareholder value. However, companies should not focus solely on accretion but also consider strategic alignment, cultural fit, and long-term synergies.