Carve-out and prosper: Footsie firms propelled by spin-offs

Michael Bow
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COMPANY spin-outs bolster the earnings growth of the parent group and drive up the value of shares, a study out today says.

Amid a wave of companies carving out units into standalone firms, fresh evidence shows companies pursuing the strategy to grow earnings by 9.5 per cent a year, on average, two years after the spin-off. Over five years, earnings rise 5.3 per cent a year.

Corporates hiving off businesses also beat their benchmark share price index, with shares rising more than seven per cent on average over a five year period.

The study, from EY, analysed 200 large spin-out deals involving companies from the FTSE 100 and FTSE 250 from 2007 onwards.

These deals prove even more fruitful for shareholders who own the separately listed carve-outs.

Shareholders see the value of their stock rise by 45.1 per cent over three years and 40.5 per cent after five years.

EY partner Charles Honnywill said: “There has been a wholesale change in market dynamics since the credit crisis. In many lower-growth economies, executives are divesting parts of their companies to redeploy capital and/or reduce debt levels to improve share performance.”