Sum-Of-Parts Valuation

AAA

DEFINITION of 'Sum-Of-Parts Valuation'

Valuing a company by determining what its divisions would be worth if it was broken up and spun off or acquired by another company.

INVESTOPEDIA EXPLAINS 'Sum-Of-Parts Valuation'

For example, you might hear that a young technology company is "worth more than the sum of its parts." This means that the value of the tech company's divisions could be worth more if they were sold to other companies. In most cases, larger companies have the ability to take advantage of synergies and economies of scale that are unavailable to smaller companies, enabling them to maximize a division's profitability and unlock unrealized value.

RELATED TERMS
  1. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  2. Acquisition

    A corporate action in which a company buys most, if not all, ...
  3. Abnormal Earnings Valuation Model

    A method for determining a company's worth that is based on book ...
  4. Asset Stripping

    The process of buying an undervalued company with the intent ...
  5. Tax-Free Spinoff

    A corporate action in which a publicly traded company spins off ...
  6. Breakup Value

    The sum-of-parts value of a publicly traded company. This value ...
RELATED FAQS
  1. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Full Answer >>
  2. Why are some spin-offs taxable and some are tax-free?

    The manner in which a parent company structures the spinoff and divests itself of a subsidiary or division determines whether ... Read Full Answer >>
  3. What are some of the more common reasons divestiture occurs?

    In finance, divestment or divestiture is defined as disposing of an asset through sale, exchange or closure. A divestiture ... Read Full Answer >>
  4. How do spinoffs differ from initial public offerings (IPOs)?

    A spinoff is when a public parent company organizes a subsidiary and distributes shares to current stockholders for the new ... Read Full Answer >>
  5. How do spinoffs impact investors in the both the parent and subsidiary companies?

    A spinoff is when a company takes a portion of its operations and breaks it off into a separate entity. In a spinoff, shares ... Read Full Answer >>
  6. How is taxation treated for both the parent and subsidiary company during a spinoff?

    A common separation strategy used by corporations includes divestiture activities that segment a portion of a company's operations, ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing Basics

    Conglomerates: Cash Cows Or Corporate Chaos?

    Huge companies may not be as infallible as previously assumed. Find out why bigger isn't always better.
  3. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  4. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  5. Economics

    What is a Spinoff?

    Businesses wishing to streamline their operations often sell less productive or unrelated subsidiary businesses as spinoffs.
  6. Chart Advisor

    How To Invest In Corporate Spin-offs

    In many cases, a spin-off is a win-win for the companies involved. But how can traders cash in on the corporate gerrymandering?
  7. Bonds & Fixed Income

    Cashing In On Corporate Restructuring

    Companies use M&As and spinoffs to boost profits - learn how you can do the same.
  8. Investing News

    6 Unlikely Rivals That Should Merge

    If these companies are looking for growth and cost-cutting, the best bet might be to look to their main competitors.
  9. Investing News

    The Appeal Of Company Spinoffs

    Companies are increasingly turning to spinoffs for a variety of reasons, including improving performance.
  10. Personal Finance

    Apple To Acquire Canada, Spin Off Quebec

    This deal will see a sleeker and faster running country. But don't worry, Apple won't make any changes to Tim Hortons or hockey.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center