When I first started paying attention to spinoffs, I quickly realized that some of the best lessons come from studying real examples of success. Spinoffs have a unique way of unlocking value, and it’s through these case studies that I’ve learned what makes them truly work. Today, I want to share a few of those real-world examples that have not only shaped my own approach but can help you spot opportunities in the future.
Case Study 1: PayPal and eBay
One of the most iconic spinoffs I’ve followed was the separation of PayPal from eBay back in 2015. Before the split, PayPal was growing rapidly, but its potential was somewhat stifled under eBay’s umbrella. Once it became an independent company, PayPal could pursue partnerships that it couldn’t before, and it wasn't long until the stock began to take off.
The market quickly recognized that an independent PayPal had a lot more room to grow. Within the first year of trading, PayPal’s stock rose nearly 75% as it established itself as a leader in digital payments. Today, PayPal has a market cap far greater than eBay, which is a testament to how much value can be unlocked when a company is given room to focus and expand its reach. I remember seeing how initially, there was skepticism in the market, but those who understood PayPal’s business saw significant returns by betting on its potential.
Case Study 2: Trane Technologies and Ingersoll Rand
Another memorable example is Trane Technologies, spun off from Ingersoll Rand in 2020. At first, many investors were unsure of the newly independent climate control company’s future, and the stock traded at a discount. However, I saw this as a classic case of a business with a strong focus and the right market trends in its favor.
Trane was perfectly positioned to capitalize on the growing demand for energy-efficient HVAC systems, a trend driven by the push for sustainability in both residential and commercial spaces. The initial hesitation among investors led to a period of undervaluation, and I was able to get in while the price was still attractive. Since the spinoff, Trane Technologies’ stock price has risen more than 100% as the company continues to focus on climate innovation, energy efficiency, and sustainable solutions. This is a great example of how a well-positioned spinoff, aligned with a broader industry trend, can yield significant returns.
Case Study 3: Siemens AG and Siemens Energy
A more recent spinoff that caught my attention was Siemens Energy, spun off from Siemens AG in 2020. Siemens Energy took on the legacy energy and renewable power assets, allowing Siemens AG to focus on industrial automation, healthcare technology, and digitalization. Initially, the market was skeptical, as the energy sector was facing challenges related to transitioning to cleaner sources.
However, Siemens Energy began to gain traction, particularly because of its commitment to renewable energy projects. By separating from the conglomerate, Siemens Energy could make decisions solely focused on transforming the energy landscape. In its first year, Siemens Energy saw a 20% rise in stock price as it positioned itself to take advantage of the global push towards renewable energy. The parent company, Siemens AG, also benefited from the spinoff, becoming leaner and more efficient, which led to improved investor confidence and stock performance.
Common Themes Behind Successful Spinoffs
Looking at these case studies, a few common themes emerge. First, focused management makes a huge difference. Each of these spinoffs was able to thrive because they had a leadership team dedicated to a singular goal without the distractions of a larger conglomerate. Trane Technologies could focus on climate innovation, PayPal on digital payments, and Siemens Energy on transforming energy—each management team had one clear mission.
Secondly, there’s often a period of indiscriminate selling right after the spinoff. In each of these cases, institutional investors were forced to sell shares of the newly spun-off companies because they didn’t fit their portfolio criteria, which created temporary mispricing. This is often when I find the best opportunities—when the market is unsure, and the price doesn’t yet reflect the underlying value of the business.
Practical Takeaways for Investors
Look for Industry Trends: Successful spinoffs are often aligned with broader industry trends. Trane Technologies benefited from the sustainability movement, Siemens Energy from the transition to renewables, and PayPal from the rise of digital payments. Aligning your investments with these macro trends can improve the odds of success.
Focused Leadership Matters: When evaluating a spinoff, check if the management team has a clear strategic focus and the freedom to execute. PayPal’s leadership, once separated from eBay, was able to make decisions that directly impacted its growth and partnerships, which would have been difficult as part of a larger company.
Take Advantage of Initial Selling: Don’t be discouraged by early selling pressure. Spinoffs are often misunderstood in the beginning, which can lead to opportunities for those willing to do their research. When institutional investors sell for reasons unrelated to the business's fundamentals, it often creates a buying opportunity.
Conclusion
Spinoffs are a unique way to find value in the market, and real-world case studies like PayPal, Trane Technologies, and Siemens Energy illustrate just how profitable these opportunities can be. By focusing on companies that benefit from focused management, aligning with industry trends, and taking advantage of mispricing, you can find hidden gems in the market. These lessons have shaped my approach, and I hope they can help you find the next spinoff success story.