Companies are finding it more difficult to extract value by spinning off businesses, according to a new analysis from Citi’s investment banking group. The study examined returns for the parent company from announcement to deal completion and returns for the spinoff two years after the transaction closed. Spinoffs underperformed their industry sectors by 5 percent on average between 2011 and 2015.
They used to do much better than that. The underperformance of 5 percent in recent years compares with an average overperformance of 30 percent between 2001 and 2005, and 19 percent between 2006 and 2010.
Despite the negative trend, spinoffs remain popular. Companies completed $121.5 billion such deals globally, according to Dealogic. For the year as of May 17, companies have announced $34.9 billion in spin-offs, 27 percent ahead of last year’s pace.