Module II· Sum-of-the-PartsBasic
Question
What is a Sum-of-the-Parts (SOTP) valuation, and when do you use it?
Answer
SOTP
Values a diversified company segment by segment, then aggregates.
```
EV(group) = Σ EV(segments) − holding costs
```
When to use
- Conglomerates (Siemens, Henkel)
- Spinoff valuation
- Holding companies (EXOR, Berkshire)
- 'Conglomerate discount' cases
Logic
Different divisions have different risk and growth profiles — and therefore different WACCs and multiples.
Pitch tip
SOTP often reveals 'hidden value' — activist investors use it to argue for spinoffs.