Most corporate spin-offs are announced with the goal of unlocking value for shareholders. Yet Bain & Company’s long-term research has consistently shown that many fall short of this goal. For 305 large global spin-offs announced in the past quarter century, the average combined total shareholder return (TSR) for the spun-off entity and parent company was 5.6% three years post-separation, compared with an average total return of about 9% for the S&P 500. And roughly 40% of the spins we studied ended up destroying value three years out.

So, what do value-creating spins do differently?

We analyzed 126 US-listed spin-offs that created value after three years—generating positive combined TSR—to determine what they have in common. All made at least one of four moves. The vast majority, about 90%, took steps to improve the P&L by inflecting revenue growth, expanding EBITDA margins, or both (see Figure 1). Of the remaining spin-offs, most delivered balance-sheet improvements, either through lowering debt ratios or by returning capital to shareholders. Three other spins participated in major M&A events, either as target or acquirer, that fundamentally transformed the business.

Figure 1

This data underscores the point that you don’t get multiple expansion for free in a separation. Companies need to pull one or more of these value levers to unlock enough growth to compensate for the dis-synergies and other inherent costs of separating. And they still need to rigorously plan for—and articulate—how the remaining company will benefit from its independence.

We’ll look at these approaches one by one.

Reshaping the P&L

Path 1: Inflect revenue growth. Unlocking growth is a common pillar of spin-off equity stories. Delivering the growth is what matters. About 60% of the US-listed value-creating spins in our study achieved increased revenue growth for the combined business.

When GE spun off GE Vernova as a standalone business in 2024, it reasoned that the new company had strong prospects as an energy transition pure-play focused on electrification, power, and wind. GE Vernova accelerated to over 10% revenue growth two years out, and EBITDA margins rose as the company rode the AI/data center power-demand cycle. Over the same period, combined TSR reached 65%.

Path 2: Expand EBITDA margins. A second major lever for value creators, often paired with revenue growth, involves rigorous cost discipline. Winners set a clear investment posture across functions and identify cost-saving opportunities in both selling, general, and administrative (SG&A) expenses and cost of goods sold.

JDS Uniphase spun off its communications and commercial optics business into Lumentum in 2015 and executed a plan to increase margins for both the new company and the remaining company, renamed Viavi. Lumentum focused on higher-margin products while Viavi restructured and also rotated toward a higher-margin segment. Their combined EBITDA margin had risen by about 11 percentage points three years after the spin.

Making balance sheet moves

Path 3: Drive down net debt. Some companies create value by using the separation as a catalyst to restructure the balance sheet. They deleverage aggressively and let the equity value accrue. While transferring debt at spin from one entity to another is a common technique, the businesses that relied on this lever reduced overall combined debt ratios. And many top-performing spins also made one or both of the P&L moves above to drive shareholder return.

Path 4: Return capital through buybacks and dividends. A final path is returning more cash to shareholders in the form of increased buybacks or dividends. This is a rare move as a singular value driver in a spin-off. The approach is most suitable for mature businesses with solid cash generation and an investor base looking for high yield.  

Questions every board must answer

Is a spin the right transaction type for us? When it comes to separating business units, companies need a distinct reason for choosing a spin-off over other divestiture options. Companies typically go the spin-off route when a large part of the business is being considered for separation, both businesses are viable as independent public companies, the tax structure favors it, the board wants to retain value for existing shareholders, and—critically—the equity stories for both companies are clear and distinct. By contrast, it may make more sense to sell the unit when it’s a subscale business, buyer synergies exceed the standalone value, the business needs investment that the parent company can’t provide, or the control premium exceeds the expected standalone total shareholder return.  

Problems surface when the CEO and board opt for a spin-off for the wrong reasons. They may assume that they’ll be rewarded with multiple expansion for free, simply by separating the business and creating a pure play. Or that since they’re already behind the market, anything they do will improve their multiples. Or that separating an underperforming business will somehow result in the market rewarding the better-performing remaining business.

How much incremental growth can we sign up for as separate entities? It’s critical to determine how many points of revenue CAGR improvement each business can achieve post-spin and what will drive that growth. If you can’t quantify the uplift and tie it to specific initiatives, the thesis is incomplete. And “management focus will accelerate growth” is not an answer.

How much margin improvement can we commit to? Companies need to be able to specify where and how they’ll capture cost savings. They should quantify the dis-synergies and develop a plan for offsetting them. It’s also important to determine the structural cost advantages created by independence. The equity story must contain detailed margin targets, not vague aspirational language about operational efficiency.

How would we allocate capital differently? This is a question that separates a real spin thesis from a sum-of-parts whiteboard exercise. Think about it: If both businesses would allocate capital the same way after separation as they did before, what is the point of separating? Look for different reinvestment rates, leverage targets, M&A strategies, and return-of-capital profiles. Capital allocation discipline is a leading indicator of value creation. Top-quartile spin-offs in our research kept debt in check; bottom-quartile ones saw ratios expand.

Can we get these benefits in a holding company structure? This may be the hardest question (and the one companies most often skip). CEOs and boards might assume that the advantages of a spin-off could theoretically be achieved within the existing structure. But the reality is that businesses with different investor bases often need different capital structures. There might be regulatory constraints. The conglomerate discount could be so severe that operational improvements fail to translate into a higher valuation. And a holding company structure may do little to alleviate the constraints on management bandwidth that are often cited as a reason to separate.

CEOs and boards choosing the holding company path need to be confident that the businesses’ strategies and investment priorities are sufficiently aligned. They also must be able to articulate the unique value the parent company brings to each business.

And if you cannot answer?

If you can’t fully answer these questions, pause further spin-off planning until you can. Ultimately, the difference between creating value and destroying value is not if you separate but if you’ve done the work to earn multiple expansion. Without clear and credible plans to inflect revenue growth, improve margins, or deliver balance sheet and capital structure benefits, you run the risk of executing one of the 40% of spins that destroys shareholder value in the first three years.