equirus-logo

Accretion

Accretion.webp

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.