In recent years, large diversified conglomerates have been focusing on unlocking value by divesting slower-growing units through spin-offs. These spin-offs help in shedding the ‘conglomerate discount’, enabling a truer valuation for both the parent company and the spin-off. Companies like GE Aerospace, Kellanova, Johnson & Johnson, and Raytheon Technologies have utilized spin-offs to sharpen their strategic focus, attract new investors, and increase shareholder value. Activist demands for change or competitor announcements can also push companies towards spinning off units to unlock value and enhance growth opportunities.
A Bloomberg article from April 1, 2024, highlighted the increasing trend of spin-offs as a means to unlock shareholder value. Companies like GE Aerospace (previously General Electric), Kellanova (Previously Kellogg), Johnson & Johnson, and Raytheon Technologies have successfully utilized spin-offs to enhance shareholder value. Despite a slight decline in the number of spin-offs in 2023 compared to previous years, the trend is expected to continue in 2024, further solidifying the role of spin-offs in the market. The consistent trend of spin-offs points towards the positive impact on valuations and strategic focus for companies utilizing this strategy.
To track the performance of spin-offs, multiple indexes and ETFs have been created, including the Bloomberg Spin-Off Index (BNSPIN), the Invesco S&P Spin-Off ETF (CDS US), and the S&P US Spin-Off Index (SPUSSOUP). These indexes help investors monitor the performance of spin-offs in the market and identify potential opportunities for investment. The BNSPIN Index has shown impressive performance, rising 38% year to date in 2024 and outperforming the S&P 500 Index by a significant margin. This highlights the potential benefits of incorporating spin-offs into investment portfolios for long-term value creation.
A list of 55 spin-offs was analyzed, with a focus on the top performers since 2020. Companies like Constellation Energy and Carrier Global have shown exceptional growth since their spin-offs, delivering significant returns for investors. Constellation Energy, with a focus on nuclear-powered electricity generation, has benefited from federal and state decarbonization policy goals and is well-positioned for future growth. Similarly, GE’s spin-offs of GE HealthCare and GE Vernova have generated superior returns, showcasing the success of the spin-off strategy in unlocking value and enhancing shareholder returns.
Moving forward, spin-offs like Crane Co, GE Vernova, and Worthington Steel are expected to deliver market-leading returns based on their strong operational performance and growth prospects. These companies operate in sectors like aerospace, power, wind, electrification, steel processing, and automotive, positioning them for growth in evolving markets. With a focus on transforming portfolios, achieving strong margins, and capitalizing on industry tailwinds, these spin-offs are poised for continued success and investor interest. Overall, the trend of spin-offs as a strategy for unlocking shareholder value and enhancing growth opportunities remains strong in the market, with potential for long-term value creation and investment opportunities.
