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Module V· Relative P/E FrameworkIntermediate
Question

What exactly is acquisition P/E, and why is it calculated on offer price rather than unaffected price?

Answer

Acquisition P/E is the price the buyer pays for the target divided by target net income. It uses the offer price because that is the buyer's actual cost, including premium. The unaffected price may describe pre-deal trading value, but it is not what the buyer pays. Premium raises acquisition P/E and makes accretion harder.

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