Although there have not been many major IPOs this year, listed entities are increasingly opting to distribute unwanted subsidiaries to shareholders via spin-offs rather than selling them to private equity buyers.

Earlier this year, Unilever announced its intention to sell off its ice cream business, for approximately €10-15 billion. The company engaged in discussions with several large PE funds, but interest appears to be lacklustre. Unilever noted that the division’s complex supply chain and high-ticket price has deterred PE funds. As a result, Unilever has decided to spin off its ice cream business into a separate entity.

In South Africa, grocery chain Pick n Pay announced that it will spin-off it’s crown jewel: Boxer, a low-cost grocery store chain. Pick n Pay’s share price has come under severe pressure, with the company struggling to grow market share and improve profitability. Boxer listed with a market capitalisation (“market cap”) 26% higher than the parent.

Another notable example is Transaction Capital’s recent spin off of a subsidiary, which achieved a day-one market cap of $500 million. The subsidiary’s market cap has since doubled over six months, while the parent is grappling with other underperforming subsidiaries and a market cap of just $100 million.

Whether due to costs, valuation challenges, or operational complexities, at Aalto Capital we are seeing that spin-offs have recently become a favoured strategy for listed entities looking to unlock shareholder value.