What impact do one-time transaction costs have on accretion/dilution?

One-time transaction costs, such as fees related to mergers and acquisitions, typically create a reduction in earnings in the short term, as these costs are expensed directly against earnings. When looking at accretion or dilution, these transaction costs can cause the combined entity to report lower earnings immediately following the transaction. This reduced earnings impact means that, in the short run, the earnings per share (EPS) will be lower than anticipated, leading to dilution.

Understanding the mechanics of how these costs function is essential. They are not capitalized but rather are expensed in the period they are incurred, directly impacting the income statement. Thus, while the long-term potential for growth and synergy may suggest an increase in earnings over time, the immediate effect of those one-time costs is negative—diluting the earnings for the shareholders during that initial period.

This detailed view clarifies why recognizing one-time transaction costs can lead to EPS dilution, reinforcing the concept of measurable short-term impacts in M&A transactions.