Who We Are What are Spin-Offs General Thesis Articles Research Portfolio Mgt. Many diversified companies are electing to spin off parts of their business, finding that this restructuring technique can create significant value for shareholders. Newly independent companies are no longer constrained by the overall strategic direction of their former parent. This independence forces them to develop their own roadmap for success. Spin-Off situations can be very rewarding.
Investors can often achieve superior investment performance from spin-offs for a variety of reasons.
Institutional investors often shy away from spin-offs. Sometimes the spin-off does not meet the investor's portfolio requirements. For example, the market capitalization may be too small, a comparable company may already be represented in the portfolio, or the fund may be constrained by indexing requirements. This lack of initial sponsorship often creates a vacuum of downward pressure on the share price not attributable to business fundamentals. In effect, there is a temporary inefficiency that can be captured by astute investors.