From spin-off to pay-off
A deep dive into achieving spin-off success
As companies evolve and grow, their managers face many challenges.
How to drive growth, how to maintain or enhance profitability, where and how to allocate capital and management attention and how to articulate the strategy to the market. Sometimes, company management takes the decision to separate one business line or segment from the whole through a strategic sale, an IPO or a spin-off to existing shareholders.
But not every separation creates a win-win scenario, where there is value creation for owners of both the remaining company (the “Parent”) and the separated business. In this paper, we evaluate what drives good versus suboptimal outcomes for corporate separations. To do this effectively, we need a set of data that enables us to evaluate operating performance, valuation trends and the company’s strategic narrative for the Parent before separation, and then also for the Parent and their separated business after separation.
There are many complications with analyzing corporate separations altogether. For strategic sales, it is difficult to evaluate the outcome for the separated business, since it gets folded into a larger public company or becomes private. The same holds true for public offerings (IPOs) of subsidiaries, as they frequently remain consolidated with and controlled by the Parent. For spin-offs, however, we have the ability to track the performance and valuation outcomes of the separated business (the “SpinCo”) as cleanly as we can for the Parent.
Therefore, reviewing the market data for Parents and SpinCos enables us to provide our clients with the guidelines and benchmarks to navigate a successful spin-off.