Spinning off a business can create value and accelerate growth at a company and the spun-off entity, delivering solid, long-term returns for stakeholders. But leaders need to ask critical questions as they consider whether a spin-off is the right transaction. Are there segments of your portfolio that no longer fit with your company’s core competencies, even if they continue to perform well? Are there business units that could perform better under focused leadership, and enable the remaining company to gain stronger focus as well? These considerations and others open the door for companies to explore spin-offs.
Effective planning across all elements of your business is vital to ensuring success. PwC looked at 900 spin-offs over the past 20 years to identify the strategies or methodologies that set the successful ones apart. Those who had the most success followed a detailed playbook based on wide-ranging spin-off experience, and we found five overarching commonalities:
Understand the underlying shareholder value proposition of the suggested spin-off and how the opportunities for value creation are distributed across your business. It’s essential to identify key levers of performance — such as where you should focus on growth and where you should optimize margins or capital — that will drive value across different parts of your organization. Proactive portfolio assessments are critical to success.
Take the time to define the structure, approach and roadmap for the transition. When spin-offs fail, it’s usually due to poor execution, not bad strategy.
Spin-offs are enterprise-wide transformative events. Be methodical and involve departments from the boardroom to the back office, each at the appropriate time. Delay in functional involvement at a critical juncture can extend the spin-off timeline and drive up transaction costs.
Do the right deal at the right time. Consider macro and geopolitical environments, economic indicators, industry trends and outlook, digital disruption, stock market expectations and other factors to determine spin-off timing. Failure to anticipate the impact of the external factors can adversely affect the transaction.
Success means making sure every decision-maker has the right information, which requires going a layer deeper and analyzing what the data tells you to make strategic decisions. Break down company silos to get the data and share it while having a data management strategy to ensure a single source of truth.
Creating a solid framework to manage the various components of a successful spin-off is essential. That framework starts with forming a governance structure, including establishing a transition management office (TMO) before the deal announcement to ensure operational cross-functional alignment. This framework should cover several areas:
The companies that were able to drive significant performance in their stock prices relative to the market were able to unlock value by improving their execution pre- and post-spin-offs.
Spin-offs involve a high degree of complexity, with many levers for realizing value. Minimizing one-time costs and stranded costs, increasing speed to market, limiting disruptions … all of these challenges and more require a detailed playbook that’s informed by extensive deals expertise. As you consider spinning off part of your organization, please review our Spin-off Roadmap: PwC’s guide to successful spin-offs, which is based on our experience helping hundreds of companies. Along with the help of experienced advisors, this guide will be instrumental to your spin-off success.
US Divestitures Services Leader, PwC US