Corporate spinoff: how all roads can lead to growth

For the business leaders of today, the message is simple: Grow now. Long gone are the days of patient boards and investors who tolerate short-term losses to create long-term positions. Today’s global executives are tasked with managing business priorities, employee concerns, investor mandates, and their relationships with the communities they serve all at once.

As organic growth cannot always be counted on and acquisitions can be costly—both in terms of upfront capital investment and downstream integration costs—spinoffs have become more and more attractive to corporate leaders looking to inject a shot of adrenaline into their businesses.

Traditionally, the rationale for a spinoff is to streamline operations, refocus on specific growth verticals within the business, and increase shareholder value. While there are significant inherent nuances to the reasons for spinning off a business, the projected outcomes are remarkably consistent regardless of sector, market, or geography.

Pursuing independent growth

The primary goal of any spinoff is to create a vibrant standalone brand and business, free and independent of its parent company. When executed correctly, both the newly created spinoff and the prior owner are given the flexibility and autonomy to pursue their own growth strategies.

For the spinoff company, operating independently allows investments to be more targeted to specific areas of the business that have been identified as having strong growth potential.

The newly formed entity is able to develop and pursue its own tailored, growth strategy, which can be effected more quickly than when the business unit was embedded in a diversified company, with interests spread across multiple divisions or sectors.

Exercising newfound agility

All stakeholders can reap the benefits of a properly managed spinoff. With a smaller footprint, incremental growth is easier to achieve and sustain for the spinoff business, despite the smaller market capitalization. Employees also benefit, as they can break away from past conventions and seek their own paths to success as part of a smaller, and in most cases, more entrepreneurial culture. Finally, customers of the spinoff brand should experience an increase in quality of service from dedicated account representatives, as well as a product and services portfolio that more closely reflects their needs. A more robust R&D product pipeline, specific to the spinoff’s market, means the new entity is able to allocate the majority of its resources to developing innovations directly motivated by the industry they live in.

Attracting new opportunities

For the investment community, a vibrant standalone brand represents an opportunity to invest in an enterprise that’s solely focused on one market area, with an experienced leadership team, and pedigree passed on from its prior owner (consider Synchrony’s successful spinoff from GE, for example).

When defining your strategy, the goal may be to develop a strong standalone brand that grows into its own. However, for stakeholders with a faster timeline in mind, turning a spinoff into an attractive acquisition target can be another avenue for growth.

By shedding the weight of a bigger diversified company, a market-ready spinoff can also become a fast target for investors (both public and private) looking to make bolt-on acquisitions, with the goal of entering new markets.

But in order to prove the potential worth of the new brand, several steps must first be taken to ensure all stakeholders that there will no loss of service:

  1. The organization’s value proposition—both internally and externally—must be clear and galvanizing for audiences to understand and rally around.
  2. The newly spun-off business must quickly reassure customers that nothing will change in terms of product quality, service, and future innovation.
  3. Finally, the newly formed business must prove through both its leadership team and its quarterly financials that it can consistently exceed targets, expand margins, and decrease operating costs. Quickly establishing momentum in these areas will generate the interest required for a fast sale.

A brand that gets you to your goal

Whether angling for independent growth, seeking a surge of investment, or hoping to attract potential buyers, a market-ready brand is a critical component that will get you to your goal.

Launching and sustaining a market ready brand mandates that you to have a concise, persuasive story to tell the marketplace, supported by a compelling identity and a strong messaging framework that helps you communicate your value proposition to all stakeholders. 

The primary goal of all spinoffs is the same: to become a vibrant entity that consumers, investors, employees, and other companies want to attach themselves to. A market-ready brand will bolster you through this major business transformation, and set you on the path towards growth.

Do you have a new brand story to spin? Download our guide to spinoff success:

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