More and more companies seem to be recognizing the benefits of spinning-off assets or stand-alone business segments these days. In 2014, there were 60 completed U.S. spin-offs, third most of all time behind only 1999 and 2000.Spin-Off Advisors is predicting another 51 completed spin-offs by the end of 2015 as well.
(click to enlarge)
Why spin-off?
Spin-offs are typically viewed as positive for the parent company. The move is often made in an attempt to unlock some type of value in the parent company’s core business. For example, a company with a large, well-established, high margin, highly profitable business may also have a smaller segment that requires large debt load and/or operates on extremely low margins, but is a very high growth business. These two types of businesses typically appeal to different investors, and running both of them under the same corporate roof could mean that both the full fundamental value of the core business and the full growth value of the smaller business are not fully realized in the combined company’s share price.
By spinning-off the smaller company, the parent company immediately removes debt from its balance sheet, improves its overall margins and appeals more to value investors. The stand-alone growth business is free to shine on its own for growth investors as well.
Boosting margins, stimulating growth, adjusting debt, improving borrowing prospects and increasing market valuation are all common reasons why companies choose to spin-off businesses.
Hitting the ground running
While spin-offs can certainly benefit…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
