Advice for CEOs

Spin offs are an important topic for executives and investors in today’s entrepreneurial economy. A powerful trend is enhancing the supply of spin outs: public companies face pressure from activist investors to spin off operations that, in the view of the activists, depress the stock price because they are not synergistic with the company’s other lines of business. Activists typically claim that these operations represent a misallocation of capital and management time and attention. As for demand to invest in spinoffs, private equity and other financial investors often see a promising upside in the business that--as a standalone, with its own strategy and investment and an intensified focus--can realize its potential better than it could as part of a larger entity. For their part, strategic investors may think they can better unlock synergies with other businesses than the former owner could.