Positioning for Growth: Carve-Outs & Spin-Offs

Abstract

With equity markets and MA preliminary signs are already positive: - Strategic review and economic profitability analysis frequently identify divestiture candidates within multi-line businesses; however, divestitures are often delayed due to common misconceptions. - Restructuring creates value through improved market transparency, resource allocation, incentives and accountability. - Value creation studies of parents' short-term cumulative abnormal returns average 2-4%, but range widely from -30% to 35%: - Winner parents show a higher prevalence of companies in industrial sectors, mature businesses, and more business lines. Their subsidiary businesses exhibited lower levels of debt and dividends, and brighter future prospects. - Loser parents tended to appear less mature in terms of valuation and dividend profiles, and showed greater uncertainty around commitment to separation - evident by the prevalence of Trackers and retained control. - Takeover premiums account for a portion, but are not sufficient to explain all, of the value created; operating improvements have also been shown. Long-run value creation estimates are contentious, but range as high as 20-25%. Divested subsidiaries outperformed their industries by 6% in their first year. - Financial policies need to be recalibrated in the face of a restructuring. We also note relationships between financial policies and the restructuring methods employed.