Accretion

Key Highlights

• It is a financial and accounting term describing the gradual, incremental increase in an asset’s value, earnings, or ownership over time, commonly applied in bond investing, mergers and acquisitions (M&A), and corporate growth._

• In bond investing, it occurs when a bond is bought below its par (face) value, and its value gradually rises to the face value by maturity.

What is Accretion?

Accretion is a financial and accounting term describing the gradual, incremental increase in an asset’s value, earnings, or ownership over time, commonly applied in bond investing, mergers and acquisitions (M&A), and corporate growth.

Accretion in Bond Investing

• It occurs when a bond is bought below its par (face) value, and its value gradually rises to the face value by maturity.

• The difference (discount) divided by the bond’s term determines the accretion rate.

• Contrasts with amortization, which applies to bonds bought at a premium.

Accretion in Mergers and Acquisitions (M&A)

• It indicates that the acquirer's earnings per share rise after the deal closes.

• A deal is "accretive" if the combined company’s EPS exceeds the acquirer’s standalone EPS.

• Typically occurs when the acquired company has a higher price-to-earnings ratio.

Ownership and Investment Growth

• In venture capital/private equity, accretion can refer to an increased ownership percentage without additional investment, often due to non-participation in funding rounds.

• Broadly applies to the appreciation of securities or assets, driving financial growth.