Spinoff transactions—deals that involve the creation of independent companies through the sale or distribution of new shares of an existing line of business or an existing division of a parent company—are making news headlines and earning market favor amid the notable decrease in overall M&A activity. Despite the ongoing transactional doldrums, the number of spinoffs that have been announced so far this year is surprising, especially compared to past years’ spinoff deal counts.

Bloomberg data show that 57 spinoff transactions have been announced so far in 2023, more than in any of the last five years at the same point. 2018 had the second-highest spinoff count through March of that year, with 52. If 2023’s spinoff pace continues, this year’s annual count could surpass the five-year-highs seen in 2021 and 2022, both of which had annual deal counts of 238 spinoffs.

Note that the Bloomgerg data do not include other forms of corporate divestitures that have been seen with the recent banking crisis such as carve-outs or splitoffs. For example, there is a proposed divestiture of Silicon Valley Bank (SVB) involving the sale of assets that is not captured in the data above. Moreover, the spinoff transactions included in the data may not be optimal for companies that are in trouble, as spinoffs are often announced and planned over the span of many months.

But perhaps spinoffs will remain a popular deal structure in 2023 as parent companies seek to make new, independent companies that will be attractive to M&A activity in the future. And companies use spinoff transactions for a variety of reasons—including saving money, streamlining processes, pursuing new opportunities, responding to activist shareholder proposals, and combatting anticompetition or antitrust concerns—some of which have already been seen in deals, announcements, and other developments this year.

For example, following UBS Group AG‘s bank-saving acquisition of Credit Suisse Group AG, Swiss citizens and other companies expressed that they would like to see UBS spin off Credit Suisse in order to ease concerns about a decrease in competition for corporate banking services.

In other examples, diversified companies like Johnson & Johnson spun off their most profitable activities. Specifically, Johnson & Johnson spun off its consumer health business in January to focus on the pharmaceutical market. And Baxter International Inc. announced a plan on Jan. 6 to spin off its kidney care unit—the company’s biggest division by sales—which it said will simplify operations, save money, address supply chain issues, and permit it to focus on its other business divisions.

Meanwhile, Teck Resources Ltd., a Canadian mining group, announced in February the spinoffs of two independent, publicly listed companies—one that focuses on minerals for transitioning away from coal energy and a second that works with metallurgical coal assets—to simplify its share structure and transition away from fossil fuels. Similarly, Fidelity National Information Services Inc. said its February spinoffs aim to create two companies that can pursue tailored business strategies and have access to M&A opportunities as part of an effort to remake the financial technology company.

Other companies are reportedly setting themselves up for spinoffs later in 2023. Earlier in March, Uber Technologies Inc. was reported to have contemplated whether it should spin off its Uber Freight logistics division in order to streamline and focus on the company’s ride hailing and food delivery services. About one week later, Vale SA, a prominent Brazilian mining company, was reported to be considering a spinoff or initial public offering of its base metals business following the closing of a minority-stake sale to try to profit from a potential increase in the demand for battery metal as consumers move away from fossil fuels. And just this week, Alibaba Group Holding Ltd. announced that it plans to split its empire into six business units to allow those divisions to operate with more autonomy, and provide opportunities for future spinoffs and IPOs.

Regardless of their motivations, the number of companies entering into, announcing, or evaluating spinoffs illustrate that these transactions will be an area worth watching in 2023.

Bloomberg Law subscribers can find related content on our M&A Deal Analytics resource, as well as our Practical Guidance on Spinoff Transactions.

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