Module II· Sum-of-the-PartsIntermediate
Question
How do you identify business segments for an SOTP?
Answer
Typical segmentation:
- Reported segments (IFRS 8 segment reporting) — the officially disclosed divisions.
- Business-line logic (e.g. Henkel: Beauty / Laundry / Adhesives).
- Geographic segments (e.g. Bayer: Pharma Europe / US / Asia).
- Asset type (e.g. a real estate holding with Office / Logistics / Residential). Granularity: 3–6 segments is typical — too few and SOTP adds nothing over a single group valuation, too many and it becomes unwieldy.
Important
Segment EBITDA must be clearly delineable — inter-segment eliminations, allocation assumptions for corporate overhead.
Deep diveShow more details
Pitch tip
Document the segmentation logic in the pitch — 'segments per IFRS 8 reporting; corporate overhead allocated pro-rata to revenue'.