As stock splits sour and IPO activity remains light, executives might continue to seek to add value through crafting spin-offs.
Spin-offs are potentially attractive from a strategic point of view because they can unlock value without being detrimental to existing shareholders of a parent company. It’s a rather efficient way for executives to shed nonessential or even underperforming businesses through the creation of a smaller, more agile fresh entity. Spin-offs might also be looked at to thwart would-be outside firms from coming in and breaking up a stand-alone conglomerate.
It’s also quiet on the stock-split front. Recall it was two years ago now when high-growth companies were eager to reduce their share prices to attract buyers. Our data show that while there have been splits here and there, such as Walmart’s 3-for-1 split back in February, there is certainly no imminent sign of a sharp pickup there. Instead, it may be that the rise of activist investors and dry powder in the private equity space could be fuel for spin-offs.