What determines whether an acquisition in an all-stock deal will be accretive or dilutive?

In an all-stock acquisition, whether the deal is accretive or dilutive is primarily determined by the valuation multiples of the acquirer and the target. When assessing the impact of the acquisition on the earnings per share (EPS) of the acquiring company, it's essential to compare these valuation multiples.

If the target company has a higher valuation multiple (such as a higher price-to-earnings ratio) than the acquirer, the acquisition could be dilutive, meaning that it may reduce the acquirer's EPS. Conversely, if the acquirer has a higher valuation multiple than the target, the acquisition is likely to be accretive, leading to an increase in the acquiring company's EPS. This dynamic hinges on how the prices of the stocks involved reflect the underlying value and future earnings potential of the companies.

Understanding this relationship helps stakeholders gauge how the acquisition will affect shareholder value immediately following the transaction, making the valuation multiples a key factor in determining the financial outcome of the deal. Thus, the choice highlighting the significance of valuation multiples accurately encapsulates the core determinant of whether the acquisition will be accretive or dilutive.