Capital Market Implications Of Spinoffs

Spinoff activities have picked up in recent years. In 2015, more than $250 billion worth of spinoff transactions were closed globally - the highest level in the last 20 years.

This report analyzes the short- and long-term performance of spun-off entities and their parent companies in the U.S. and international markets. We also examine a related but distinct corporate restructuring activity – equity carve-outs, which separate a subsidiary through a public offering.

Main findings of this research include:

• Within the U.S., spun-off entities generated long-term outperformance after the spinoff. In the one-year (three-year) period following the closing date, spun-off entities outperformed their industry peers by a cumulative 8.39% (22.08%) on average, despite underperforming by more than 2% in the initial 30 days.
• In the U.S., parent companies outperformed their industry peers between the announcement date and closing date. The average daily excess return was five basis points, significant at the five percent level. Over the three-year period following the closing date, only parents that divested subsidiaries in a different industry showed outperformance.
• Outside the U.S, spun-off entities and their parents demonstrated similar return patterns as those in the U.S.
• Carve-outs are difficult to profit from, unless the investor participates in the initial stock offering. On average, the first day price jump over the offering price was 21.48% (62.22%) above industry mean in the U.S. (outside the U.S.). Long-term excess returns of carve-outs were not statistically significant.
• A strategy of buying U.S. companies that were spun off in the past three years outperformed the market by 0.48% per month between 1998 and 2016.

Learn more about S&P Global Transactions data and how professionals can use the S&P Capital IQ platform click-through capabilities to drill-down into spinoff details.