Sum-Of-Parts Valuation

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.

BREAKING DOWN '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. Acquisition Premium

    The difference between the estimated real value of a company ...
  5. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  6. Split-Off

    A means of reorganizing an existing corporate structure in which ...
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. Stock Analysis

    Fortune Brands Home & Security: An Activist Investment Analysis (FBHS)

    Read about Bill Ackman's highly successful breakup of longtime holding company Fortune Brands in one of the most profitable examples of Wall Street activism.
  6. Stock Analysis

    Hess Corporation: An Activist Investment Analysis (HES)

    Learn about Elliott Management's 2013 activist investor involvement with Hess Corporation. Find out what the hedge fund changed about Hess's management.
  7. Stock Analysis

    McGraw Hill Financial: An Activist Investment Analysis (MHFI, MHE)

    Learn about the high-profile split between McGraw Hill Financial and McGraw Hill Education, and how a few activist investors changed the corporate landscape.
  8. Stock Analysis

    Yahoo: An Activist Investment Analysis (YHOO)

    Learn about recent investor activism related to Yahoo. Find out which activist investor is involved, what it is recommending and how Yahoo is reacting.
  9. Stock Analysis

    Who Are McDonald’s Main Competitors?

    Find out which companies are McDonald's closest competitors. Learn about the largest fast food chains in the world and which companies compete indirectly.
  10. Stock Analysis

    3 Reasons HP Splitting into Two Companies is a Good Idea (HPQ)

    Learn about the Hewlett-Packard Company and why it has faced a declining business since 2010. Understand why it is splitting into two businesses.
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. How can a company execute a tax-free spin-off?

    The two commonly used methods for doing a tax-free spinoff are either to distribute shares of the spinoff company to existing ... Read Full Answer >>
  3. What happens to the company stock if a subsidiary gets spun off?

    When a subsidiary gets spun off, the company's stock tends to drop. However, the investor in the stock does not lose any ... Read Full Answer >>
  4. What are some common cash-debt strategies that occur during a spinoff?

    Cash-debt strategies that are commonly used to in a spinoff to enable the parent company to monetize the spinoff are debt/equity ... Read Full Answer >>
  5. What are the tax implications for both the company and investors in a divestiture ...

    In finance, divestiture is defined as a reduction of a company's assets as a result of asset closures or the selling of business ... Read Full Answer >>
  6. How can a divestiture help a company?

    In finance, the divestiture, or divestment, represents a reduction of an asset or its sale to another company mainly for ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center