Make Room! Make Room! A Note on Sequential Spinoffs and Acquisitions

Emilie Feldman, Assistant Professor of Management, The Wharton School, and Victor Bennett, Duke University

Strategy Science, Volume 2, Issue 2

Abstract: In this study, we identify a novel pattern of deal-making activity—spinoffs followed by acquisitions—that has yet to be analyzed in the corporate strategy literature. We present a set of descriptive results showing that firms undertake spinoffs followed by acquisitions at a rate that is too high to be attributable to random chance. We also find that the acquired businesses are typically more closely related to these companies’ remaining operations than are the spun-off subsidiaries, a pattern that is common across companies with different characteristics. Together, these results suggest that firms may use sequential spinoffs and acquisitions to achieve ongoing synergies and improve the allocation of managerial attention within their organizations. We conclude by discussing how our work contributes to ongoing conversations in corporate strategy about patterns of acquisitions and divestitures, resource redeployment, reconfiguration, and firm scope.

Read the paper here.