Module II· Sum-of-the-PartsAdvanced
Question
How do you reflect standalone costs in a spinoff SOTP?
Answer
Mechanics
A spinoff creates costs that are absent in the integrated group:
- Its own corporate functions (CEO, CFO, treasury, legal, IR) — typically 0.3–0.8% of revenue.
- IT-systems duplication.
- Audit, compliance, regulatory.
- Real estate (its own HQ).
Modeling
```
Standalone margin = reported margin − standalone cost increase
```
Deep diveShow more details
Example — standalone margin in a spinoff
Inputs:
- Reported segment EBITDA margin: 18%
- Pure-play standalone benchmark margin: 16%
Calculation:
```
Standalone margin ≈ 16.5%
(between the pure-play anchor of 16% and the reported 18%, closer to the pure-play)
```
Consequence
run the SOTP valuation on the reduced standalone EBITDA, not on reported EBITDA.
Pitch tip
'Segment standalone EBITDA $260m (post $40m standalone cost) vs. as-reported $300m; SOTP at $2.1bn vs. naive $2.4bn.'