What must a buyer assess to determine if a deal is accretive?

To determine if a deal is accretive, the buyer must assess the yield of the seller compared to the weighted average cost of capital (WACC) for the buyer. An accretive transaction occurs when the earnings generated by the acquisition exceed the cost of financing the acquisition. In simple terms, if the return on investment from the acquired company is higher than the cost incurred to finance that investment, the deal will positively impact the buyer's earnings per share (EPS), making it accretive.

This financial metric is crucial because it directly affects the profitability and value of the acquiring company. If the yield from the seller is greater than the buyer’s cost of capital, then shareholders are likely to benefit, and the acquisition enhances the buyer's financial position.

Evaluating future market growth, overall market sentiment, or the geographical reach of the seller's business focuses more on external factors that are important for understanding the overall transaction environment, but they do not directly indicate whether a deal will be accretive from a financial standpoint.