Spinoffs usually outperform their parent companies, Goldman Sachs research finds

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There's usually a 4-point outperformance of a spinoff relative to its parent, Goldman research finds

After a year in which U.S. companies announced 44 spinoffs and completed 20 — including General Electric’s GE spinoff of its healthcare unit, and Intel’s INTC spinoff of Mobileye Global MBLY — analysts at Goldman Sachs expect more transactions in 2023.After a year in which U.S.

“Below-trend economic growth coupled with investor focus on corporate profitability means managements should consider spinoffs as a strategy to lift margins and create shareholder value,” said strategists led by David Kostin in a note to clients. Since 1999, spinoffs outperform their parents by a median 4 percentage points over the following 12 months, the Goldman research finds.

In 2021, these spinoffs outperformed their parent by 3 points, with the best performing being Sylvamo’s SLVM outperformance of International Paper IP , and the worst being Kyndryl’s KD underperformance of IBM IBM . The Goldman team say there are three attributes that are associated with better spinoff returns: lower forward price-to-earnings multiples, lower expected earnings per share growth, and lower projected net margins. When spinoffs meet all three of those criteria, they see a median outperformance of 18 percentage points over the next 12 months.

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