Post-acquisition price/earnings valuation
A post-acquisition P/E valuation forecasts earnings attributable to the combined ordinary shareholders after relevant financing costs, taxes and synergy effects, then multiplies them by an appropriate post-transaction P/E ratio. The multiple may change with risk, growth, gearing and market expectations; the acquirer's pre-deal multiple is not automatically valid. For a share offer, calculate the post-issue share count and compare value per share and ownership effects. Avoid applying a total acquisition price to earnings per share, which mixes total and per-share units.
Worked example
Combined maintainable ordinary earnings are forecast at $12 million and a supported post-deal P/E is 10. Estimated combined equity value is $120 million. If 30 million shares will be outstanding, the indicative value per share is $4, before other relevant adjustments.
Common mistake
Dividing total purchase price by earnings per share or assuming the bidder's pre-acquisition P/E must remain unchanged after a transaction that changes risk and growth.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Direct | September 2026–June 2027 |