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70% of spin-offs, carve-outs and divestitures result in day-one market outperformance
17% Average excess total shareholder return (TSR) delivered from post-2020 deals
By proactively identifying corporate separation opportunities, CFOs can unlock shareholder value.
Corporate separation has long been a powerful tool for unlocking shareholder value. Over the past decade, spin-offs, carve-outs and divestitures have generated more than US$1.2 trillion in value, with 70% of these announcements resulting in day-one market outperformance. Notably, post-2020 deals have delivered an average excess total shareholder return (TSR) of 12%. Yet separations are often framed as reactive responses to external pressures or underperformance.
A 2025 EY-Goldman Sachs study robustly challenges this view. According to an analysis of over 200 transactions since 2012, companies initiating separation from a position of strength, with positive sector-indexed share price performance in the three years pre-announcement, achieved 15.6% excess TSR two years post-close. This compares to just 4.5% for those acting defensively.
CFOs are in a unique position to help companies embrace separations as a value driver by advocating for separation as a proactive, repeatable strategy focused on growth and multiple expansion. By identifying opportunities, building compelling business cases and integrating separation strategies into the corporate playbook, CFOs can leverage separations not only in times of crisis but as a consistent engine for growth and transformation.
Identifying corporate separation opportunities
Traditional metrics to identify separation opportunities have focused on operating margins, TSR, return on invested capital (ROIC) and earnings per share accretion/dilution. To support proactive separation, CFOs should instead use forward-looking metrics that reveal valuation gaps; selling, general and administrative (SG&A) inefficiencies; and transformation potential. The following metrics can assist CFOs in diagnosing and creating a business case for separation:
Capital velocity gap
How fast a business unit (BU) converts incremental invested capital into incremental free cash flows compared to the parent company and peers.
Relevance
Persistent low velocity suggests capital trapped in slow loops. A spin-off can free capital to higher-velocity cores.
How to measure
(A) Divide the change in free cash flow by the change in invested capital for each BU over a 12- to 24-month period and compare these results to the corporate average and sector median.
(B) Assess the time-to-market for new products, the percentage of product releases delivered on schedule and procurement cycle times against peer benchmarks.
Case study: Western Digital and SanDisk (2025)
The hard disk drive (HDD) business had slower, more stable cash cycles than the higher-velocity, higher-investment flash business (SanDisk). Separation allowed SanDisk to invest aggressively in flash R&D, while Western Digital could focus on the stable, high-capacity HDD business, particularly serving the hyperscale cloud and AI markets.
Strategic focus & alignment
Whether a BU is aligned to the company’s future growth vectors and adequately funded to realize its innovation potential.
Relevance
Misaligned BUs can distract from core strategies, trigger investor skepticism about fit and reduce valuation multiples.
How to measure
(A) Determine the percentage of each BU’s revenue or earnings before interest and taxes (EBIT) that is aligned with strategic pillars (e.g., AI, sustainability, platforms).
(B) Evaluate R&D and capex funding in relation to each BU’s revenue or EBIT share.
Case study: IBM and Kyndryl (2021)
The legacy, low-growth managed infrastructure business (Kyndryl) was misaligned with IBM’s strategic focus on hybrid cloud and AI. The spin-off allowed IBM to shed noncore assets and invest capital more heavily in its innovation-centric businesses like software and consulting, while Kyndryl gained the autonomy to pursue its own growth strategy in infrastructure services.
Customer synergy/fit friction
How much real cross-sell exists between BUs vs. assumed synergies.
Relevance
If customers do not buy across BUs and channel conflicts exist, separation may be warranted.
How to measure
(A) Calculate the overlap ratio, which is the percentage of customers from one BU who also purchase from a separate BU.
(B) Measure the incremental margin generated from cross-selling between BUs.
(C) Analyze the net promoter score difference between the parent brand and the BU brand.
Case study: GE and GE Aerospace, GE HealthCare, GE Vernova (2023–24)
GE’s various businesses served distinct customer universes with little crossover, from commercial airlines (Aerospace) to hospital systems (HealthCare) and utilities (Vernova). The split allowed each independent company to focus on its specific customer needs and market dynamics.
Value multiple compression
Whether the market applies a group discount because BUs with different profiles are bundled together.
Relevance
A persistent gap indicates that the corporate narrative is muddled; separation can trigger a rerating. EY-Goldman Sachs data shows that over 75% of separations show a 2.0x+ multiple disparity between the new company and the company that remains after separation, indicating investor appetite for pure play exposure.
How to measure
(A) Use a sum-of-the-parts approach by applying peer enterprise value; earnings before interest, taxes, depreciation and amortization; or price-to-earnings ratios to each BU and comparing these to the overall group trading multiple. Track any discrepancies.
Case study: eBay and PayPal (2015)
PayPal, a rapidly growing FinTech business, was constrained within eBay’s marketplace structure, potentially limiting its valuation multiple. The spin-off allowed PayPal to operate independently and be valued as a pure play payments company, leading to a substantial increase in its market capitalization.
Innovation funding gap
Quantifies systematic under or overfunding of a BU’s innovation relative to its economic weight, often revealing why promising units underperform within conglomerates.
Relevance
Separation can unlock a BU’s true potential by allowing it to set its own funding priorities and attract capital aligned with its specific growth profile.
How to measure
Calculate the funding gap in basis points (bps) as the difference between the BU’s share of R&D and capex and its revenue or EBIT share. Monitor the time-to-approval for funding compared to peers and review the backlog of deferred proposals.
Instituting regular corporate separation reviews
To embed separation as a proactive, repeatable lever, CFOs should champion regular separation reviews as part of their portfolio strategy and capital planning. CFOs can start by integrating forward-looking metrics, such as capital velocity gap and innovation funding gap, into strategy sessions and portfolio reviews. Initially, ad hoc alerts or one-off analyses can help build confidence and demonstrate value. The following four areas represent essential steps in a structured process for proactively identifying and evaluating potential corporate separations:
Cadence
Introduce a “separation watchlist” segment in quarterly portfolio reviews and hold monthly CFO-led working sessions with strategy, financial planning and analysis, corporate development and investor relations to update metrics and judgments.
Metrics
Apply a minimal set of forward-looking indicators, such as capital velocity gap, sum-of-the-parts vs. group multiple, innovation funding gap, customer fit and entanglement readiness, to flag outliers without overwhelming reporting processes.
Triggers
Monitor for persistent multiple gaps, unfavorable velocity/funding, low customer overlap or strategic misalignment as signals to escalate.
Decision gates
Transition through several stages, starting with screening (creating a watchlist), then moving to scoping (developing a two-page overview), followed by shaping (evaluating options and estimating costs and entanglements), and finally reaching the sponsorship stage (seeking approval from the executive leadership team or board).
As these reviews gain traction, CFOs can advocate for making them a standard part of the corporate playbook, so separation opportunities are routinely identified and evaluated.
Addressing key challenges in the corporate separation process
Effectively managing the separation process is crucial for a smooth transition and expanding value. One of the primary considerations for CFOs is the management of one-time operational costs. These typically range from 2% to 6% of the new company’s equity value, with a median of 3% across all separations. For new companies valued over $10 billion, this figure tends to be around 2%. Notably, IT carve-outs can account for 30% to 50% of total operational expenses. To mitigate these costs and risks, CFOs should prioritize strategic architecture choices, such as adopting cloud-first infrastructure and establishing robust IT governance frameworks. Implementing AI-driven reporting and clearly defined transition service agreement (TSA) scopes can further enhance efficiency during the separation process.
Another critical aspect is addressing organizational entanglement, as the structural complexity of the separation often dictates its ultimate success and growth trajectory. For highly entangled businesses, EY-Goldman Sachs data indicates that the average one-time cost can reach 6.2%, with modest revenue growth of only 2.2% over two years. In contrast, independent businesses with fit-for-purpose strategies tend to achieve significantly better outcomes, with average costs of 3.0% and revenue growth of 12.9%. Leaders must carefully assess the degree of business entanglement and overall organizational readiness before initiating the separation process. CFOs should quantify entanglement by baselining shared applications, data domains, plants and personnel, assigning costs and lead times to each component. This helps prepare the new company to operate independently from day one with limited reliance on TSAs.
Finally, prioritizing design over speed is essential for a successful separation. The EY-Goldman Sachs study shows a low correlation between execution timeline and outperformance, emphasizing that a thoughtful, well-structured execution is more important than raw speed. Leaders should focus on meticulous planning of the separation, clearly defining the specific components being separated, such as products, teams and systems. Establishing an interim operating model for the new company and planning the sequence in which IT systems and data will be separated is vital to avoid disrupting critical functions. The CFO can support this process by creating scenarios for duration economics; developing three duration scenarios (base, slow and fast); and illustrating value sensitivity in terms of TSR, cash flow and SG&A run rate.
With a clear understanding of capital allocation, investor sentiment and operational dynamics, the narrative around corporate separation can be transformed from a defensive maneuver into a proactive growth strategy. By conducting regular separation assessments grounded in well-defined metrics and supporting separations through careful execution, CFOs can drive sustainable growth and unlock shareholder value regardless of the company’s current position.
