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Spin-off Class: Perspective From a NeuGroup Member Pedaling Hard

By February 9, 2021No Comments

Spin-offs mean complex, time-consuming work on capital structure, bank accounts, credit facilities and more.
Spin-offs are huge strategic undertakings for corporations looking to part ways with a subsidiary or business. And finance teams, including treasury, do a lot of the heavy lifting to manage a complex process that can take years to complete.

  • At a recent NeuGroup meeting, one member in the midst of a spin-off described the process as an “all-consuming activity.”
  • Afterward, he agreed to share some insights and perspective he’s gained from experiencing a spin-off firsthand.

Treasury’s role in untangling. To the extent the to-be-spun business is highly entangled, treasury support will be required to establish new entities, new banking operations (accounts and services like pooling and trade finance), and supporting policies and procedures. 

  • New authorities will need to be delegated, new signatories identified and likely changed more than once as colleagues are selected to support the spin company.
  • Credit facilities will need to be split between companies prior to all information about the spin company’s capital structure and credit rating. 

Degree of difficulty. Among other factors, the difficulty in executing a spin-off will be driven by the degree of entanglement of the operations with the broader business. 

  • That entanglement includes systems, people and processes; and a decision must be taken on how those systems and processes will be established at the spin company.
  • You can simply “lift-and-shift” what’s required or create new or optimized systems and processes that may allow a greater degree of customization and refinement.  

Capital structure: critical. Establishing the right capital structure for the spin company is a critical step in ensuring the right operational and strategic flexibility post-spin. 

  • Projecting the cash flow generation of the spin company in the critical months leading up to and immediately after spin is a complicated exercise, but required to deliver that desired flexibility. 
  • This will likely require cash flow forecasting at the entity level for any significant operations around the globe.

Talent task. In attempting to find the right talent for the spin-off company’s treasury team, there are options along a continuum. You can choose to identify staff to move to the spin company or engage staff to understand interest and capabilities that will serve the spin company well. 

  • A mix of internal and external talent will likely be required, and finding the right mix of capabilities will affect the spin company’s ability to hit the ground running. 
  • Of course there are local labor laws that must be followed in establishing the new team, and striking the right balance between appointment and self-selection is a challenge given minimum required staffing levels and budgetary constraints. 
Justin Jones

Author Justin Jones

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