This morning I met with a company considering an IPO who thought they needed some help. Instead of the storied high tech high growth startup type company, the company was a mature company looking to "spinoff" a division as a publicly traded company. This division had grown to be a large business and the shareholders were looking to take some money off the table. After they described in more detail their objectives, I made several points:
- They need a revenue/profit growth story for the future business; a successful past is not sufficient
- They need a team to support investor relations in the new company, a function they did not currently have
- They should consider recapitalizing the company before the listing as a more highly certain way to take money off the table
- They should consider other strategic alternatives to an IPO, such as selling the division or doing a rollup
This new article from HBR,"When a Spinoff Makes Strategic Sense", basically argues that spinoffs do not make sense. The HBR article looks at spinoffs strategically but fails to consider financial benefits, such as proceeds could be deployed in a better business. In the case of the company I visited, a spinoff allows them to realize value from an underappreciated asset. Spinning it off makes it easier to understand and value.