Sum-of-Parts Valuation

Sum-of-Parts Valuation

Valuing a company by determining what its divisions would be worth if they were broken up and spun-off or acquired by another company.

Notes:

For example, you might hear that a young technology company is "worth more than the sum of its parts". This means that the value of its divisions could be worth more than they are presently if they were sold to other companies. In most cases, larger companies have the ability to take advantage of synergies and economies of scale unavailable to the smaller company's division, enabling them to maximize the division's profitability and unlocking value not yet realized.

See also: Acquisition, Acquisition Premium, Carve-out, Divestiture, Economies of Scale, Spin-off, Subsidiary, Synergy