In recent years, we have seen many major corporations announce plans to split up into separate entities. This trend of corporate separations has been on the rise, and it is not just limited to struggling businesses seeking to restructure. Even successful companies are choosing to break free from their existing structures to unlock value and tap into new opportunities. In this blog post, we will delve deeper into the reasons behind this trend and explore some of the most notable examples of corporate separations in recent times.

Breaking Free: The rise of corporate separations

Introduction

Corporate separations are becoming increasingly popular as companies search for ways to improve their financial outlook. This trend is being fueled by a lack of merger and acquisition activity. In recent years, many businesses have been unable to find suitable M&A targets or have been priced out of the market.

Goldman Sachs and EY recently coauthored a report on successful corporate separations. In a podcast episode, David Dubner, global head of M&A structuring, and Sharath Sharma, global vice chair at EY, discuss the report and the reasons behind the rise of corporate separations.

The benefits of corporate separations

Companies that are struggling to grow or improve their financial performance may benefit from a corporate separation. This strategy involves separating a business into two or more separate entities, allowing each of them to focus on a specific market or product line.

One of the benefits of corporate separations is that it can unlock hidden value. A company may have a number of different business units that are not performing as well as they could be. By separating these units, each one can be managed with a specific focus and strategy. This can often lead to improved financial performance and a higher valuation for each entity.

Another benefit of corporate separations is that they can provide greater flexibility. By separating a business into different entities, it becomes easier to make changes to the structure of the organization. This can be particularly useful for companies that are looking to streamline their operations or are facing difficulties due to market conditions.

Successful corporate separation strategies

The Goldman Sachs and EY report identified a number of strategies that have led to successful corporate separations. One of the key factors is having a clear strategic vision for each of the separated entities. This involves understanding the strengths and weaknesses of each business unit and developing a plan to maximize their potential.

Another important factor is having strong leadership in place. The report found that successful corporate separations required leaders who were able to make difficult decisions and communicate the benefits of the separation to stakeholders.

Effective communication is also important during the separation process. It’s essential to keep all stakeholders informed and engaged throughout the process. This can help to minimize the impact of the separation and ensure that it’s a smooth transition.

The rise of corporate separations: A podcast discussion

In a podcast episode recorded on March 30, 2023, David Dubner and Sharath Sharma discussed the reasons behind the rise of corporate separations. They noted that a lack of M&A activity had led many companies to consider alternative strategies for improving their financial outlook.

They also discussed the benefits of corporate separations, including the increased flexibility and value creation that this strategy can provide. The podcast provided insights into the key success factors for corporate separations and the importance of strong leadership and communication throughout the process.

FAQs After The Conclusion

1. Are corporate separations the same thing as divestitures?

No, corporate separations involve splitting a business into two or more separate entities, while divestitures involve selling off a business unit or asset.

2. Is it always a good idea for companies to consider corporate separations?

No, each company’s situation is unique, and corporate separations may not be the best strategy for every business.

3. How can corporate separations unlock hidden value?

By focusing each entity on specific products or markets, the value of each business unit can be maximized.

4. What is the role of leadership in a successful corporate separation?

Strong leadership is critical during a corporate separation. Leaders must be able to make difficult decisions and communicate the benefits of the separation to stakeholders.

5. Does the information in the podcast constitute financial advice?

No, the podcast does not provide financial advice or recommendations. It is intended as an informational resource for companies that may be considering a corporate separation.