Module V· Relative P/E FrameworkIntermediate

Question

In a mixed deal with cash plus stock, how do you combine relative P/E logic?

Answer

Calculate a weighted-average financing P/E across funding sources. For stock, use acquirer P/E. For debt, use debt P/E based on after-tax cost of debt. For cash, use cash P/E based on after-tax foregone interest. Compare the weighted financing P/E with the acquisition P/E. If weighted financing P/E is higher, the deal tends to be accretive before other adjustments.

← PreviousHow does debt-deal logic work: what is debt P/E and why does debt P/E greater than acquisition P/E mean accretive?Next →What exactly is acquisition P/E, and why is it calculated on offer price rather than unaffected price?

Back to M&A Accounting