Big Banks Next: Data Behind Company Spinoffs Reveals Value Creation, finds The Edge and Deloitte
Mar 8, 2015
Contrary to the objections of select corporate boards deciding against the strategic growth opportunities of separately listing a non-correlated division that activists and value investment funds view as currently trapping value, the proposition’s now about to get all the more eye opening. Not only do 2 in 10 spinoff stocks see M&A, newly analysed data by investment and corporate advisors, The Edge Consulting Group and Deloitte reveals that while not all separations work, the majority go on to beat peer groups and index benchmarks tremendously.
Reflecting on his own revered conglomerate empire, Warren Buffett last week highlighted in a letter that Spinoffs “make no sense for us”. While he may well be halting attention from his valuable business; “management are going to be shocked by our report’s discoveries”, comments Ryan Mendy, chief operating officer of The Edge. Now The Edge believes, “the big investment bank model is over as we know it”. With research citing multiple routes they will restructure via future Spinoffs, creating a whole new sector and M&A opportunities. Looking at shareholder returns over past 10 years, the team could have a very good point given banking giants such as, Bank of America, Citigroup and Deutsche Bank have generated shareholders average returns of -64% vs. the relative +75% from the S&P500 index.
Their 15 year study on corporate spinoffs worldwide goes on to uncover why…