DealLawyers.com Blog

I blogged last month about some of the reasons spin-offs might be an attractive alternative for public companies during periods of market turbulence.  This Sullivan & Cromwell memo says that the advantages of a spin-off aren’t limited to US companies, and that their European counterparts have also embraced them.  This excerpt provides some statistics:

Spin-offs are widely used as a method of disposing of business assets in a tax efficient manner. In a spin-off, the parent’s shareholders receive pro rata shares in the spun-out entity (“SpinCo”). In some cases of so-called partial spin-offs, which are common in France and Germany, a portion of the shares in the spun-out entity remains with the parent company (“Parent”).

While not a new phenomenon, spin-offs have become an increasingly popular tool in recent years, occurring in record-high numbers in 2021. This trend has continued in 2022. Despite the decline in global M&A activity, 78% of respondents to Aurelius’ eighth annual corporate carve-out survey said that they expect the volume of corporates divesting non-core European and UK businesses in 2023 to increase year over year and 84% of respondents believe that a need to refocus on core operations will be a key driver of divestment activity.

There were 127 spin-offs announced worldwide in 2022; and it is likely that this “spin-mania” – compared to the declining level of M&A activity – will continue in 2023.

The memo addresses some of the reasons that European companies find spin-offs to be an attractive alternative – which are similar to those that make these deals attractive to US companies.  It also discusses the factors that make these particularly challenging transactions on either side of the pond.

– John Jenkins