1、Strategies for successful corporate separationsCONTENTSExecutive summaryWhy companies pursue corporate separationsHow to maximize value creation in corporate separations1.Reimagining NewCo and RemainCo during separation execution2.Deriving benefit from dedicated management focus 3.Tailoring capital

2、priorities to the unique profiles of the assets4.Managing the separation matters 5.Communicating with stakeholdersConclusion:Separation is a catalyst for transformationPage01020626Strategies for successful corporate separations|1Executive summaryDavid DubnerGlobal Head of M&A StructuringGoldman Sach

3、sSharath SharmaGlobal Vice Chair of Strategic TransformationsEY OrganizationCorporate separation activity has been growing at an outsized pace,especially in recent years.This increased activity is evident across companies of all sizes,industries and geographies.The allure of these transactions conti

4、nues to attract company executives,investors and other stakeholders.But what is prompting the increase and do corporate separations lead to an increase in long-term value?These are the questions Goldman Sachs and EY teams have sought to answer.As leading advisors in this space,our two organizations

5、have collaborated to develop comprehensive insights and data analytics on spin-offs and demergers:what corporate separations are;why a company would consider separating;when the optimal time is to execute;whom it impacts;and importantly,how a company can maximize value in a corporate separation.Our

6、research combines quantitative analysis of more than 160 global transactions from 20122022 in which the business being separated had a market capitalization greater than US$1 billion,as well as firsthand interviews with some of the worlds top executives who have experience with corporate separations

7、.We define a corporate separation as a capital markets separation of a subsidiary business.A capital markets separation offers companies a“do-it-yourself”or“self-help”alternative to optimize their portfolio without needing a buyer.We have assessed corporate separations in terms of total shareholder

8、return for the ParentCo pre-separation,and across the two resulting businesses post-separation RemainCo and NewCo.Our analysis shows that when corporate separations are executed well,they can lead to an excess blended return of roughly 6%from announcement to two years post-close as compared with the

9、ir respective companys sector index.Our analysis shows that when corporate separations are executed well,they can lead to an excess blended return of roughly 6%from announcement to two years post-close as compared with their respective companys sector index.EXECUTIVE SUMMARYFactors that contribute t

10、o the success of a corporate separation include:Dedicated management focus and distinct strategic priorities of the businesses being separated Independent access to capital and realigned capital allocation priorities that are tailored to the respective financial profiles Pure-play asset exposure for

11、 investors Clear communication with stakeholders on go-forward strategy and the“equity story”of the businessesExecutives should proactively and regularly conduct portfolio review exercises.Although various objectives may trigger a decision to separate,executives should ideally make the decision from

12、 a position of strength.Corporate separations can be complex and bespoke.To prepare your organization for a successful execution,we have outlined several leading practices that executives can follow.Why companies pursue corporate separationsStrategies for successful corporate separations|2WHY COMPAN

13、IES PURSUE CORPORATE SEPARATIONSI look at a company through two lenses:a strategic lens to proactively optimize the company,and the other lens of risk assessment.Risk and strategy should be tied together.Of the 17 transformative deals of my career,about half I did because there was a risk.The other

14、half were proactive decisions.“Ed Breen,Executive Chairman and Chief Executive Officer,DuPontStrategies for successful corporate separations|3Why companies pursue corporate separationsCompanies typically separate a business when they believe that the two companies are worth more separately than toge

15、ther as one company,and that the separation will create long-term value for all stakeholders.Through proprietary research and interviews with leading executives,our findings suggest that companies seek to separate either to seize an opportunity or to manage risk.More specific objectives may include:

16、Corporate Separations 101We define a corporate separation as a capital markets separation of a subsidiary business(NewCo).A parent company(ParentCo)may execute this through a prorata distribution of shares in NewCo to its shareholders(spin-off)or through an initial public offering(IPO)of the subsidi

17、ary business(carve-out IPO)followed by a back-end exit.As a result of the corporate separation,the separated business operates as a stand-alone public entity with its own equity currency and access to capital markets.In the US,these corporate separations are generally structured as tax-efficient spi

18、n-offs.Outside the US,they tend to be structured as demergers.Companies customize these structures to meet certain corporate objectives or jurisdictional regulations.Structuring features may include:ParentCo retaining a stake in NewCo to further optimize capital structure Raising capital in NewCo at

19、 the time of separation via a sponsor investment to provide capital and investor support Distributing NewCo shares in exchange for ParentCo shares via a split-off to provide shareholder choice and manage earnings per share dilution and dividend payout Enhanced management focus Flexibility to pursue

20、divergent strategies Repositioned equity story and established own equity currencySTRATEGICOPERATIONAL Reimagine and transform operations“Shrink to grow”through organic and inorganic opportunities Industrial,geographic and sustainability repositioning(incl.ESG)FINANCIAL Efficient capital allocation

21、strategy Optimized capital structure Access to capital marketsSTAKEHOLDERS Pure-play investment opportunity for investors Attract distinct research coverage Recruiting and retaining employeesStrategies for successful corporate separations|4Why companies pursue corporate separationsThe popularity of

22、corporate separations is on the riseAlthough corporate separations have been around for decades,they have been given new prominence in a portfolio review strategy in recent years.In 2022 alone,there were 30 announced global separations,representing approximately 17%of announced transactions in the l

23、ast decade.Through the 2010s,following the global financial crisis,companies embraced a philosophy that bigger was better.This drove nearly a decade of mega-merger activity and portfolio diversification.As a result,todays corporate portfolios are as complex as they have ever been.Approximately two-t

24、hirds of companies listed on the S&P 500 index have three or more business segments with over$500 million in revenue.More recently,the pandemic and financial market uncertainty,coupled with challenging operating and competitive conditions,have led companies to rethink their priorities and evaluate o

25、ptions to reposition their portfolios for success.After a decade of low cost of capital with US federal funds rates near zero,the rapid increase to an over 5%rate benchmark is having a material impact on growth priorities and associated capital allocation and portfolio decisions.“We expect an elevat

26、ed cost of capital and continued investor emphasis on profitability will support further spin-off activity in 2023.”Goldman Sachs researchAccording to the latest EY CEO Outlook Survey,48%of global CEOs expect to actively pursue a divestment,spin or IPO over the next 12 months.Number of announced tra

27、nsactions by year*201211201613201318201716201426201815201518201910202010202112202230Source:Company filings,CapIQ and other publicly available information.*Chart represents data for 179 announced transactions.Source:EY CEO Outlook Pulse March-2023US$1.2tof separation transactions closed since 2012Str

28、ategies for successful corporate separations|5Why companies pursue corporate separations47%36%As companies evaluate their portfolios,their options include a capital markets separation and sale to a strategic or financial buyer.We see companies increasingly employ dual-track processes where there is

29、an announced separation coupled with buyer engagement prior to or following such an announcement.A corporate separation such as a spin-off or demerger can be a“do-it-yourself”or“self-help”alternative to reconfigure portfolios as it is not dependent upon a counterparty.Corporate separation transactio

30、ns are size-,industry-and geography-agnostic.However,we have seen an increase in the relative size of corporate separations in recent years.Nearly half of transactions that closed between 2018 and 2022 were valued greater than US$5 billion while only a third were valued at this level between 2012 an

31、d 2017.Two industries stand out in recent corporate separation activity:Industrials and healthcare represent roughly 50%of globally announced separations in 2022.S&P 500 constituents by number of segmentsOne segmentIndustrials31%Naturalresources13%Healthcare11%Financial8%Real estate5%Technology,medi

32、a,telecommunications(TMT)18%Consumer 14%22.6%Three segments20.6%Two segments10.6%Four segments20.2%Five or more segments26.0%Separation transactions by industry and geography(201222)*US69%Non-US31%Source:Company filings,CapIQ and other publicly available information.*Charts represent data for 179 an

33、nounced transactions.Source:Company filings,CapIQ and other publicly available information.of separation transactions closed from 201822 valued US$5b,up from 34%in 201217of separation transactions closed since 2019 with NewCo market cap 30%of ParentCo at closeHow to maximize value creation in corpor

34、ate separationsStrategies for successful corporate separations|6HOW TO MAXIMIZE VALUE CREATION IN CORPORATE SEPARATIONSThe goal of a company is to create long-term value for stakeholders.In a corporate separation transaction,long-term value creation occurs through the following:Dedicated management

35、focus and strategy,which facilitates operational transformation and increases operational efficiencies,including improvements in revenue growth;operating margins;selling;general and administrative expenses(SG&A);return on invested capital;and better project investment decisions.Independent access to

36、 capital markets and establishing a separate equity currency.This allows companies to tailor their capital structure and allocation priorities appropriately.The creation of pure-play companies,which provide greater transparency for investors who are looking to hold specific classes of assets and all

37、ow them to invest more efficiently.Clear communication with stakeholders on the equity story of the ndependent businesses.Strategies for successful corporate separations|7How to maximize value creation in corporate separationsBased on our analysis of more than 160 transactions,corporate separations

38、lead to an average blended excess return of approximately 6%over the respective sector indexes for the period of two years post-close of transaction.Some of this return is influenced by merger and acquisition(M&A)opportunities,where the businesses may either be a target of or grow their business thr

39、ough M&A.Although not to the level of US transactions,our research indicates that non-US transactions also outperform,with excess total shareholder return(TSR)of approximately 3%.Given the recent popularity of non-US separations,we expect continued increases in transaction volume outside the US.Tota

40、l shareholder return vs.sector index0%4%8%(2)%2%6%Waiting period for completionEstablishing new equity story and valuationBuilding credibility around goals and business strategyCloseAnnouncement1 year post-close2 years post-close+6%excess returns for companies executing separations vs.index(1.3)%7.3

41、%6.2%blended excess TSRSource:Company filings,CapIQ and other publicly available information.Excess TSR is defined as the change in the companys stock price relative to the change in a benchmark index(i.e.,relevant sector index in the S&P 500)and dividends paid out over the same period.Our analysis

42、measures the performance over the period from the day before the separation announcement to two years post-transaction close including:the increase in ParentCo share price from announcement to close;ParentCo dividends paid between announcement and close;increase in RemainCo and NewCo share price or

43、combined market cap from close to two years post-close;and dividends paid by RemainCo and NewCo for the two years post-close.Strategies for successful corporate separations|8How to maximize value creation in corporate separationsThe rationale for this positive reaction to a corporate separation anno

44、uncement is simple:Investors understand that separations lead to an optimized portfolio at ParentCo and the creation of more focused and pure-play businesses,which results in better returns.We typically see a significant increase in TSR immediately post-separation as this is the first opportunity in

45、vestors and research analysts have to be able to independently value the two businesses.It is essential for both businesses to effectively communicate their business strategies,and also to set and achieve realistic financial targets to build credibility.While long-term outperformance is not guarante

46、ed,the strategic vision and decisions executives make pre-separation are critical.The key metrics that drive long-term outperformance are revenue growth and improved operating margins.There are five areas where companies should focus their efforts to maximize long-term value for shareholders.Derivin

47、g benefit from dedicated management focusTailoring capital priorities to the unique profiles of the assetsManaging the separation mattersCommunicating with stakeholdersReimagining NewCo and RemainCo during the execution12345In the short term,we can see the benefits of a separation through the market

48、 reaction on announcement.On average,there is a 2.1%increase in ParentCo share price vs.the broader index(relative to the relevant sector indexes)at the time of announcement.70%had a positive reaction on announcement(relative to sector benchmark)(10)%(15)%(20)%(5)%0%20%25%10%5%15%+2.1%averageParent

49、share price reaction vs.sector index at announcementSource:Company filings,CapIQ and other publicly available information.*Includes pending and closed transactions that have announced since 2012.CASE STUDYAs an active player in the M&A market,DuPont has demonstrated the benefit of proactive portfoli

50、o reviews.In 2015,Dow and DuPont announced a merger of equals followed by a three-way split into three public companies:Dow(materials science business),Corteva(agriculture)and DuPont(specialty products).The spin-offs,which were completed in 2019,resulted in three market-leading Fortune 250 companies

51、.In more recent years,DuPont has continued to engage in frequent M&A with divestitures of the nutrition and bioscience,and materials and mobility businesses.DuPont has used the capital generated from these transactions to reposition the company as a market leader in electronics,industrial technologi

52、es and next-generation automotive materials exemplified by the 2021 acquisition of Laird Performance Materials.When we decide to undertake a separation,we do it for the long-term strength of the company.Some people spin to get rid of a weak link.I never do that.I want NewCo to be the best in the ind

53、ustry.I want to give them a chance to rock and roll.“Ed BreenExecutive Chairman and Chief Executive Officer,DuPontActive portfolio management:DuPontStrategies for successful corporate separations|10How to maximize value creation in corporate separationsCorporate separations are catalysts to reimagin

54、e RemainCo and NewCo to maximize long-term value.Examples of optimization or transformation initiatives include:Investing more in capabilities and projects that are a source of differentiation Identifying opportunities to move appropriate systems to new or transformative solutions Optimizing pricing

55、 strategies and channel expansion.Rationalizing the number of vendors and focusing on strategic partner spend Augmenting organizational agility by establishing optimized delivery models Identifying transition service agreement(TSA)exit opportunities for modernization and innovation that will fuel bu

56、siness transformation and reduce costs beyond IT Rationalizing the number of legal entities to reduce costs and free up resourcesOne of the main reasons companies separate businesses is to allow each to tailor their operations in accordance with their business requirements and priorities.When a comp

57、any is executing on a corporate separation,there is a strong argument for both RemainCo and NewCo to seize the opportunity to fundamentally reimagine their operations,from decisions on organizational structure to decisions on fit-for-purpose technology.Ideally,ParentCo leaders will identify operatio

58、nal improvements and cost optimization initiatives for both RemainCo and NewCo pre-announcement to provide ample time to implement during the execution phase.However,once there is a transaction announcement,the clock starts ticking and the markets are eager for the transaction to close.Consequently,

59、companies can find themselves deprioritizing these same improvement initiatives that are the very source of value creation.Instead,ParentCo leaders should use the execution period to activate transformation initiatives for both RemainCo and NewCo,rather than taking a more expedient but less optimal“

60、clone-and-go”approach.A best practice is to pursue high-value and complementary minitransformations to impact growth and gross margins.These areas are not typically impacted by corporate separations and can be pursued in tandem with the separation to generate value in the first year post-separation.

61、However,companies should conduct a cost-benefit analysis so that any transformational initiatives are not overly cash intensive and do not materially impact the separation timeline.1Reimagining NewCo and RemainCo during separation executionStrategies for successful corporate separations|11How to max

62、imize value creation in corporate separationsAs part of the optimization process,NewCo and RemainCo have the chance to assess their levers for growth as independent companies.Given the generally different financial profiles and operating stages of the two businesses,we observe that typically one com

63、pany focuses on margin improvement post-separation and the other focuses on revenue growth.Our analysis shows that NewCo is often the growth company while RemainCo prioritizes margin.Of course,there are precedent transactions where this is the reverse.P&L metric(as%of revenue)RemainCoNewCoRevenue gr

64、owth+0.4%+4.7%Change in cost of goods sold(0.6)%+0.3%Change in SG&A(0.4)%+0.7%Change in profit and loss(P&L)metrics between close and 2-years post-closeSource:Company filings,CapIQ and other publicly available information.*(P&L metrics reflect median change two years post-close).When becoming a new,

65、independent public company,NewCo should carefully select and prioritize its optimization initiatives,as this is a particularly busy period.It is essential to prioritize and pursue initiatives that are cash neutral(i.e.,no high-cash-drain projects)while protecting working capital to set-up for a succ

66、essful debut.Although NewCos generally outperform RemainCos in the first two years post-close,only 10%simultaneously outperform the market,grow revenue and reduce SG&A expenses.Our research shows that NewCo outperformance is often linked to its revenue growth.Therefore,an optimal strategy for NewCo

67、leadership is to focus on allocating resources and investments to initiatives that will drive the top line.In parallel,they should identify initiatives that will help improve costs in the long run.These may include:Increasing investment in select capabilities and projects that drive improved return

68、on invested capital;working capital efficiencies;and cash flow growth.Creating a compelling equity story that is aligned to strategic priorities.Developing a fit-for-purpose operating model that enables growth.Ensuring predictable results tied to accruals and one-time cost charges from ParentCo.Typi

69、cally,one company focuses on growth and the other focuses on margin improvement.Strategies for successful corporate separations|12How to maximize value creation in corporate separationsIn an EY corporate divestment study,60%of executives said that they should have done more to improve RemainCo than

70、simply eliminate costs,while 56%said they should have focused on RemainCo earlier in the process.For RemainCo,this is an opportunity to transform itself during the transaction.As part of its transformation efforts,RemainCo should optimize its cost structure and proactively address stranded costs,whi

71、le striving for growth.This may include:Developing operating models suitable for RemainCos needs,including revamping processes,people,systems,suppliers and assets.Reducing stranded costs(at a minimum)and implementing aggressive cost reduction programs.Optimizing intellectual property(IP)and rational

72、izing the number of legal entities.Reimagining areas for innovation and growth.Reviewing segments,peers and key performance indicators(KPIs)for executive compensation.In an EY corporate divestment study,60%of executives said that they should have done more to improve RemainCo than simply eliminate c

73、osts,while 56%said they should have focused on RemainCo earlier in the process.For both NewCo and RemainCo,SG&A changes tell an interesting,yet intuitive story.NewCo SG&A costs generally increased because of incremental costs related to being stand-alone and a public company.Conversely,67%of RemainC

74、os were able to reduce SG&A costs because of stranded cost elimination and formal restructuring programs.CASE STUDYTransformation during separation:United Technologies Corporation and CarrierUnited Technologies Corporation(UTC,now Raytheon Technologies)completed a spin-off of its heating,ventilation

75、 and air-conditioning(HVAC)business,Carrier,in April 2020.Leadership leveraged a unique process to build consensus around the decision to spin.Taking advantage of the separation as an opportunity to transform operations was strategically important for Carriers ability to build an investment case as

76、a public company.During the transaction,UTC identified and seized value creation opportunities across footprint consolidation,lease renegotiation and facility management to achieve recurring cost savings.“The pandemic provided Carrier an opportunity to come together as a team at the epicenter of imp

77、ortant secular trends including an increased focus on healthy indoor air environments,effective cold chain solutions and sustainability,”explained Dave Gitlin,Chief Executive Officer.Carrier.Once separated from UTC,Carrier was positioned as a leader in the HVAC,refrigeration,fire and security equipm

78、ent market with investments focused on its organic growth.Immediately post-spin,Carrier established The Carrier Way,which would transform the business model,customer experience and culture.Carrier announced initiatives to reduce high costs,simplify processes,divest non-core assets and embark on a di

79、gital transformation,including optimizing industrial productivity by adapting digital technology and committing to taking out US$600 million(revised up to US$700 million today)of costs over three years.In April 2023,three years after its spin-off from UTC,Carrier announced an acquisition of Viessman

80、n Climate Solutions and a plan to exit its fire and security and commercial refrigeration businesses.This proactive portfolio transformation decision further simplifies the Carrier business portfolio and positions the company to be a pure-play and higher growth global market leader in climate soluti

81、ons.We looked at the spin as an opportunity to create a fundamentally new company.We wanted to preserve what was working very well.But we also wanted to pivot to a new company.We seized the once-in-a-lifetime opportunity as a 100-year-old start-up.“Dave Gitlin,Chief Executive Officer,CarrierThere wa

82、s initial skepticism about the transaction among employees,leadership team and board.To address this,we stood up a“red”team to be critical on the spin transaction and why we shouldnt separate.They helped present the downside at each stage and presented their findings to the board.We ultimately agree

83、d the spin was still the right choice,but everyone knew the downsides and we had stress tested the decision.We closed the spin in April 2020,one week into a national lockdown.The process helped give our leadership team comfort in their decision.“Greg Hayes,Chief Executive Officer,Raytheon Technologi

84、esStrategies for successful corporate separations|14How to maximize value creation in corporate separations2Deriving benefit from dedicated management focus Corporate separations provide an opportunity for leadership teams to focus their attention on the priorities of their specific business,rather

85、than juggling the nuances inherent in a diversified parent.Embracing this focus is the first step that drives outperformance.This is also an opportunity to develop a corporate governance and board profile for NewCo that may differ from RemainCo.Announce the leadership team early to help it prepare t

86、o run a public company.The timeline for CEO and CFO announcements varies across the transactions,with some transactions announcing NewCo CEOs concurrently with transaction announcement.Nearly two-thirds of transactions announced NewCo leadership teams within five months of the transaction announceme

87、nt.A best practice is to announce NewCo leaders early in the separation process to give them sufficient time to shadow ParentCo executives on public company responsibilities.This ensures that the NewCo team is well versed on leading a company and effectively communicating the strategy of NewCo at ex

88、ternal events,such as investor days,rating agency presentations,and debt and equity roadshows.Investors can get to know the management team early,and NewCo management can gain experience in speaking about NewCo as it readies its debut in the public market.The primary reason we named the team early w

89、as to train them with the requirements they need.We wanted to hit ground running.Naming later could affect training.“Steve Cahillane,Chairman and Chief Executive Officer,Kellogg CompanyNearly two-thirds of transactions announced NewCo leadership teams within five months of the transaction announceme

90、nt.Strategies for successful corporate separations|15How to maximize value creation in corporate separations84%of NewCo CEOs promoted internally73%of NewCo CFOs promoted internallyNewCo management also functions as the internal champions for NewCo during the transaction,which is critical as decision

91、s are made around Day 1 capital structure and other ongoing relationships,such as Transition Services Agreements(TSAs).However,ParentCo leaders should establish clearly defined roles,responsibilities and decision rights to avoid conflicts between RemainCo and NewCo leadership over decision-making re

92、garding the separation.During the separation execution period,NewCo leadership will have limited bandwidth to enact change as the organization separates.The best use of their attention will come from focusing on core business areas,rather than adjusting back-office operations.Select the right leader

93、ship team.Based on our research,more than 60%of NewCos promoted both their CEO and CFO internally.While their familiarity with the business unit allows them to quickly set the direction of the new company during the separation,internally promoted executives are less likely to have experience leading

94、 a public company.To offset this deficit,ParentCo leaders will want to provide training for NewCo management that could range from job shadowing to boot camps to mock investor meetings.When building out the new management team,ParentCo leaders should take the opportunity to increase management diver

95、sity.Across diversity metrics,NewCo exceeded ParentCo leadership teams in percentage of growth of diversity across gender,race,ethnicity and age.For example,NewCo organizations had around 11%more diverse leadership teams than ParentCos.Companies should also thoughtfully mix talent between internal a

96、nd external for other executives.C-suite readiness checklistConduct on-the-job training through job shadowing.Hold public meeting boot camps so that NewCo leaders can improve their skills around public company responsibilities,including capital allocation,investor relations and enterprise strategy.H

97、old meetings for NewCo board and management to align on NewCo strategy and messaging.Conduct mock investor meetings.Increase diversity when building the NewCo management team.Strategies for successful corporate separations|16How to maximize value creation in corporate separationsA transformative cor

98、porate separation allows each business to have its own access to capital and the ability to strategize around capital allocation priorities.We often see separations occur between businesses that differ in their growth profile,cash flow generation or lifecycle.The priorities for these businesses diff

99、er significantly,which impacts their access to debt and equity capital.ParentCo should set up RemainCo and NewCo with appropriate capital structures that allow them ongoing access to liquidity,balance sheet optimization and operating cash flow,with enough room to grow independently.Decisions relatin

100、g to RemainCos capital structure will depend on how its leverage profile and ratings will change with the removal of NewCos assets.ParentCos will want to consider the size of the business being separated,leverage put on the NewCo business,cost of capital and go-forward flexibility on financing struc

101、ture,all of which can impact equity value and profitability.Since NewCo is a new company with no prior track record,it is imperative not to overleverage the company.The capital structure(including funded debt,pension,other post-employment benefits(OPEB)and contingent liabilities)should be appropriat

102、e for its financial profile and in line with public peers.As part of the separation,RemainCo may conduct liability management exercises to manage its capital structure and appropriately lever NewCo.There has also been an increased incidence of retained-stake separations where RemainCo retains a stak

103、e in NewCo to enhance cash proceeds without overleveraging NewCo.3Tailoring capital priorities to the unique profiles of the assetsStrategies for successful corporate separations|17How to maximize value creation in corporate separations3M has a healthcare business where investors love high growth.Sh

104、areholders of the industrial business(ParentCo)prefer cash and dividend.The capital allocation is very different for each of these businesses.Both businesses can be very successful as long as they both have differentiated capital allocation focused on their specific industries and objectives.“Monish

105、 Patolawala,Executive Vice President,Chief Financial and Transformation Officer,3MChange in capital allocation ParentCo vs.RemainCo vs.NewCo*(2-year average pre-close vs.2-year average post-close)ParentCoReturn of capitalRemainCoInvestment opportunitiesNewCo61%53%69%39%47%31%Debt repaymentShare buyb

106、acksDividendsM&ACapexR&DSource:Company filings,CapIQ and other publicly available information.*Charts represent data for separation transactions closed since 2012.*Measures two-year average pre-close to two-year average post-close.Refocus capital allocation strategies as a value lever.Given generall

107、y differing business priorities between RemainCo and NewCo,each companys leadership will want to develop its own unique capital allocation strategy.Although each corporate separation is bespoke,our analysis suggests that RemainCo tends to focus on increasing its return of capital post-separation,whi

108、le NewCo increases its allocation toward investment into organic and inorganic business opportunities,including M&A.This is consistent with our finding that NewCos often prioritize growth and RemainCos often prioritize margin improvement and cash generation.Strategies for successful corporate separa

109、tions|18How to maximize value creation in corporate separationsSome of the frequent questions that come up during a corporate separation execution are:How long will it take?How much will it cost?Is the value from the separation worth these costs?While these questions may not impact long-term outperf

110、ormance,the separation process brings some uncertainty for stakeholders that will need to be managed well.How long will it take?Once a ParentCo announces the transaction,the clock starts ticking and there is pressure to hit the timeline.It is imperative to lay out key milestones and timing of key de

111、cisions early in the process to ensure stakeholder alignment and transparency,priority management,and efficient allocation of resources and capital.Investors,research analysts and other stakeholders are also likely to ask for process updates at company events throughout the separation execution.Our

112、experience and analysis of previously completed transactions shows that over 60%took longer than nine months from announcement to close with no significant variance in timing between US and non-US transactions.The separation timeline is heavily impacted by some items with long lead times,including p

113、reparation of audited financials,review of regulatory filings(e.g.,SEC review in the US can take four to five months),tax rulings(e.g.,IRS private letter ruling in the US),shareholder vote requirements(more common in non-US jurisdictions),legal entity reorganization,and operational and system separa

114、tion.The timeline can also depend on the degree of entanglement and shared functionality between ParentCo and NewCo.We see longer timelines for more regulated industries like financials and healthcare.Our analysis shows no significant correlation between time from announcement to close and post-sepa

115、ration performance.We recommend that companies balance timeline commitments communicated to stakeholders against the benefits of providing NewCo with time to implement improvements and changes that are the very source of value creation.4Managing the separation matters Strategies for successful corpo

116、rate separations|19How to maximize value creation in corporate separations60%of the transactions took longer than nine months to close from announcement dateTimeline between announcement and close*FinancialsTMTReal estateHealthcareNatural resourcesIndustrialsConsumer13.011.011.410.311.29.77.3Average

117、10.7 monthsSource:Company filings,CapIQ and other publicly available information.*Chart represent data for 144 closed transactions,excluding carveouts.To meet timelines and ensure the viability of a corporate separation,ParentCos should first conduct a showstopper analysis prior to announcement to a

118、ssess any material legal,tax,contractual and regulatory considerations.Certain activities such as perimeter identification,carve-out financial preparation and tax planning can be started prior to announcement to provide sufficient flexibility.Understandably,ParentCos will need to juggle preparedness

119、 objectives against the size of the working team and risk of a leak.During the execution,a stage gate approach and a trial operational separation through a“company-in-a-company”strategy can help to meet timelines and have separation workstreams keep pace.As part of this strategy,companies can use in

120、terim operating models to maintain a flexible transaction close,especially in markets with long lead time separation requirements.Stage gates and company-in-company The stage gate review process is a series of executive checkpoints that serve as a program-wide calibration to verify that all workstre

121、ams are progressing on time and in sync with the transaction timeline.It allows all stakeholders across NewCo and ParentCo to align to the same objectives and provides updates and escalates risks to leadership.Company-in-company(CiC)is a test period in which NewCo operates as a stand-alone business

122、but remains a subsidiary of ParentCo until the legal separation date.The objective is to set up both companies for success at close by allowing space to test the ability of NewCo to operate independently while still having access to ParentCo if any issues arise.Strategies for successful corporate se

123、parations|20How to maximize value creation in corporate separationsHow much will it cost?Our analysis of precedents indicates a wide distribution of one-time operational separation costs,ranging from 1%to 6%(bottom to top quartile)of NewCo equity value,with a median of 3%of NewCo equity value.1 Typi

124、cally,the degree of entanglement determines the degree of operational separation costs already stand-alone business units cost less to separate,whereas carve-outs of products with no dedicated infrastructure cost more.The total one-time costs depend on a variety of factors,including the number of co

125、untries in which the business operates,degree of entanglement with the parent(e.g.,shared manufacturing sites,shared locations,type and number of enterprise resource planning(ERP)tools),and regulatory requirements.Interestingly,according to our analysis,there is no correlation between one-time costs

126、 and outperformance.If the separation has value creation potential,the one-time cost is typically justified.Companies looking to minimize one-time costs may wish to consider:Avoiding double costs created by a separate first,optimize later mindset.Staffing a lean,minimally viable Day 1 organization a

127、nd focusing full efforts on hiring toward the Day 2 organization.Leveraging ecosystem partners and alliances to find new solutions vs.trying to build new or replicate RemainCo environments.Estimated one-time operational costs of separation (as%of NewCo equity value)Bottom quartile(25th percentile)1%

128、Median(50th percentile)3%Average5%Top quartile(75th percentile)6%1,One-time cost benchmarks vary significantly across transactions and need to be customized depending on the specific situation.NewCo equity value as of the first day of separation.Source:Company filings,CapIQ and other publicly availa

129、ble information.Strategies for successful corporate separations|21How to maximize value creation in corporate separationsConsider the tax impact.Most corporate separations incur some level of tax,which can be significant in certain cases.Although the final steps of a US spin-off or non-US demerger c

130、an be tax-free,the preceding legal entity reorganization can create tax as assets and shares of legal entities are transferred.The global profile of the business,in terms of operations and legal entities,is a critical component to the tax cost and complexity of the transaction.Understanding the prof

131、ile can be a significant effort but is critical to determining the tax costs.We frequently see companies design“reverse”internal separation transactions to address business considerations in local markets,such as timing of regulatory approvals.Efficient tax planning,developed early in the process,ca

132、n help to optimize tax costs.Obtaining valuations and tax attributes studies early is also critical to optimizing tax planning.Establish a governance structure to manage multiple workstreams.A strong governance structure is imperative to managing numerous separation workstreams and to maintaining pa

133、ce to stage gate milestones.Using a separation management office as a centralized nerve center will drive accountability,improving the likelihood of meeting timeline obligations.GovernanceKey separation workstreamsLegal and taxFinancial mattersOperational separationCapital marketStand-alone business

134、 plans Define high-level strategic objectives and plans for each business,along with the key performance indicators and timelines.Capital structure,treasury,and credit rating Support credit ratings assessment and define capital structure.Operational separation Define future-state operating model for

135、 both businesses.Align on technology strategy and enable fit-for-purpose design and optimization.Employee management Define and execute org design and drive talent selection.Plan for adjustments to equity-based compensation.Transition services Structure and execute schedules and exhibits between Rem

136、ainCo and NewCo for shared services that will not separate by Day 1.Governance and management Provide oversight,structure and guidance to transaction and operational separation teams.Communications/change management/IR Manage communications to internal and external stakeholders.Tax planning/legal en

137、tity separation Structure the separation to achieve tax-free treatment;estimate tax.provision and enable tax compliance Align on key decisions on commercial model and country footprint for each country and separate key financial processes.Legal and regulatory Ensure compliance with legal and regulat

138、ory requirements.Filing prospectus documents File with regulators per jurisdiction and complete other regulatory requirements.Separation agreements Execute and finalize transaction agreements required for the separation(e.g.tax matters agreement,employee matters agreement,IP sharing agreements,trans

139、ition service agreements).Financials and valuation Develop historical deal-basis financials and forecasts.Accounting and audit Complete carve-out financial statements and align with auditor.Strategies for successful corporate separations|22How to maximize value creation in corporate separationsAltho

140、ugh it may seem obvious,managing the various priorities of different stakeholders in this dynamic environment is critical to success.Customers,suppliers,employees and shareholders have varying levels of expectations from a corporate separation program,which is why frequent,transparent communication

141、is essential.When each group understands the strategic vision,they will be more likely to accept it.Customers of both NewCo and RemainCo businesses will need consistent and steady guidance from the time of the initial announcement to preserve the customer experience throughout the separation.Custome

142、rs are ultimately the cornerstone of the transaction rationale and will be the determining factor of post-close performance.Suppliers require regular communication through the transaction execution,including updates on contracts and systems to maintain business continuity and minimize dis-synergies

143、due to loss of scale.The first lesson:Keep the customer as the focus of the transaction.You need to satisfy the customer.If that falls apart,which it can,you can lose the whole benefit of the spin.“Greg Hayes Chief Executive Officer,Raytheon Technologies5Communicating with stakeholdersStrategies for

144、 successful corporate separations|23How to maximize value creation in corporate separationsCommunication is vitally important.We have a great team and great employees.We continuously communicate to let them know whats happening and what to expect.Even when there is no new news,we continue to communi

145、cate and answer questions.“Steve CahillaneChairman and Chief Executive OfficerKellogg CompanyEmployees often fear they have a lot to lose in a corporate separation when it comes to equity compensation,pension,retirement and other benefits.ParentCos will want to implement workplace financial solution

146、s so that there is fairness for all employees from the C-suite down.When necessary,addressing these concerns openly and dispelling rumors will build confidence in leaderships ability to navigate the process.Executives interviewed suggested that regular,even monthly,communications to employees can he

147、lp communicate the strategic vision of the transaction and bolster employee buy-in.As part of employee communications,culture should be defined early in the separation to drive future growth upon transaction close.Investors and research analysts will need their own communications plan.ParentCos will

148、 need to think about what investors want to know,what they need to know,and the most appropriate timing to communicate these messages.Research analysts and the investor community will ask questions through the separation execution and request key items to help them model or update investment paramet

149、ers.Some of these commonly asked questions include anticipated structure of separation,key financial metrics for NewCo,separation costs and dis-synergies,expected capital structure and allocation,and timing updates.Identifying and preparing for key areas of focus across stakeholders will help to str

150、eamline investor questions and answers through the separation process.Strategies for successful corporate separations|24How to maximize value creation in corporate separationsInvestor relations execution One of the most important workstreams is to communicate the equity story of NewCo and RemainCo t

151、o their key stakeholders.This is as important for NewCo on its path to becoming a new public company as it is for RemainCo.RemainCo may use this opportunity to rebrand itself and meet with both existing and potentially new investors.Stakeholder communications should include:Building the equity story

152、.On the path to becoming a newly listed public company,NewCo management will need to build an investment case for the new business,for both existing and prospective shareholders.NewCos communicate the equity story through the“box”in the regulatory filings,investor day presentations,earnings calls,an

153、d debt and equity roadshows.The story highlights the strengths of the business and go-forward strategy,along with key initiatives on growth.Hosting investor days.These are typically dedicated days when management presents the strategy for NewCo and separately for RemainCo,and meets with investors,re

154、search analysts and other stakeholders.Focus areas for the investor days include:equity story for NewCo and RemainCo,historical financial metrics,growth strategy,capital return and allocation priorities,and expected shareholder value creation.Investor day generally occurs after the regulatory filing

155、s are made public and before the close.Roadshow presentations.As the execution nears completion,management teams will meet with existing and potential investors to highlight the business strategy as well as answer any investor questions.These roadshow meetings typically occur in the two weeks leadin

156、g into completion.Strategies for successful corporate separations|25How to maximize value creation in corporate separationsWe spent a lot of time with the NewCo management team developing the financial goals and equity story for the business.This was a crucial part of the separation process.“David R

157、edfernPresident of Corporate Development,GSK Investment case Financial profile and goals Go-forward strategy and growth initiativesEQUITY STORYInvestor relations executionINVESTOR COMMUNICATION Press releases Investor presentation Investor Day Roadshow meetingsEXECUTION Listing and domicile Investor

158、 targeting and transition Research coverageDue to the nature and rationale of these corporate separations,RemainCo and NewCo will typically have differences in shareholder bases.Some driving factors will include relative sizing,industry,capital structure and allocation,and growth opportunities.Expec

159、t trading levels to be elevated for the first quarter after close to account for investor transition.ClosingStrategies for successful corporate separations|26SEPARATION IS A CATALYST FOR TRANSFORMATIONCorporate portfolios are more complex than ever.As global and macroeconomic conditions evolve,were

160、seeing a significant uptick in corporate separation transactions where the goal is to focus and streamline assets.Executives should take an offensive and defensive approach to their portfolio reviews and execute separations from a position of strength.The whole goal was to be the activist within.I l

161、ooked at our entire portfolio and took actions that would continue to transform the company.“Greg Hayes,Chief Executive Officer,Raytheon TechnologiesClosingStrategies for successful corporate separations|27Were leading this transformation from a position of strength.Were excited about the future!“St

162、eve Cahillane Chairman and Chief Executive Officer,Kellogg CompanyAs part of a continuous portfolio review strategy,corporate separations are a proven method to create opportunities,enable business transformation,manage risk and create shareholder value.The markets continue to reward companies that

163、execute these transactions well.However,simply executing a corporate separation transaction does not guarantee success.Companies must actually transform themselves to maximize value and achieve the benefits of the separation,and they should activate transformational initiatives early in the process.

164、This reimagination of RemainCo and NewCo as two independent public companies must include:Streamlined operations and investment strategies Distinct and marketable equity stories Differing capital strategies,tailored to unique financial profiles Focused leadership teams,with an opportunity to bring n

165、ew,diverse thinkingAlthough corporate separations can take time to implement and can incur significant one-time costs,the value creation potential continues to outweigh the costs.By using a separation as a catalyst for transformation,companies can greatly increase the odds of creating long-term valu

166、e and outperforming in the market.SEVEN value-creation questions for C-suite executives1526374Do conflicts of interest exist that hinder asset performance?Will they disappear through a separation?Should debt and liabilities be allocated differently between the two businesses?When is the right time t

167、o separate?How to separate from a position of strength vs.reacting to external pressure?Do we have the right management team to lead two independent public companies?Is our shareholder base and research coverage aligned with our portfolio mix?How would it change through a separation?Will investment

168、strategies differ for each business?Do transformation opportunities exist?Will the separated businesses operate more efficiently as two distinct entities?EYAuthorsSharath SharmaEY Global Vice Chair of Strategic TSharath SharmaEY Global Vice Chair of Strategic TMarna RickerEY Global Vice Chair TAndre

169、a GuerzoniEY Global Vice Chair Strategy and Transactions Michael SwansonEY-Parthenon Principal,Transaction Strategy and Execution,Ernst&Young LLPContactsMitch BerlinSonal Bhatia Paul CarbonneauChris DenteSumit DuttaBryan GlanzbergSambhav GuptaContributorsSam JohnsonAndy LorenzettiJenn OKrancyBrian R

170、eedDaniel RieglerMark SchmidtRohan ShamapantRaj SharmaKaren SowellSavi ThethiOnuwa UzorCalvin WeberJoanne WongShari YocumGoldman SachsAuthorsEmily Baker Bradley BattleRick BohmChris BolesTroy BroderickHolly ChristensenPam Codo-LottiStephan FeldgoiseCo-head of Global Mergers&Acquisitions(M&A)Mark Sor

171、rellCo-head of Global Mergers&Acquisitions(M&A)Raghav MaliahCo-head of M&A in Asia Ex-JJung MinCo-head of M&A in Asia Ex-JDavid DubnerGlobal Head of M&A SAsmita SinghVice President,M&A SContactsContributorsRebecca CoughlinMichael CraigPeter DavisCourtney DillonNick GinsbergRutger van HalderAdela Ibr

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