What is the separation thesis and why is it so important?
all recently made such announcements. While it is too soon to predict the effectiveness of any single recently announced deal, this intensified focus on separations raises some critical questions about the value created from a spin-off. What is it that these companies are hoping to achieve? What challenges will they face? How will they create shareholder value in light of these challenges?
The huge disparity in performance between winners and losers led us to focus our research on what leading companies do that results in such dramatic outperformance—as well as on the missteps that trip up other companies. More than anything else, it is a well-crafted separation thesis that helps them to focus and provides a roadmap to value creation. In our study, we found that the existence of a clear and robust separation thesis was the single-biggest difference between top-quartile and bottom-quartile separations.
Consider the case of a recent manufacturing company that used its internal equity story to set clear post–spin-off revenue growth and EBITDA targets for year one and year four. These were each backed up with specific activities to enable the company to reach those targets. The company then set up priority projects in line with the high-value activities. These projects ran alongside the separation program to deliver the needed changes to the business by day one.
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