The hottest trend in M&A isn’t about combining businesses but breaking them up.
This year, several prominent companies have announced plans to split apart. Kraft Heinz is offloading its grocery division, Keurig Dr Pepper will separate its coffee and soda businesses and Unilever is scooping out its entire ice cream arm. And it’s not just consumer-goods giants: Smiths Group is preparing to spin off its baggage-screening unit, Santander is separating its motor-finance business and Warner Bros. Discovery is splitting in two.
Bigger, it appears, is not always better. Since its merger in 2015, Kraft Heinz’s stock has fallen nearly 70% owing to weak sales, leading shareholders to push for simplification.
Value is often lost in the ambiguity and disruption that follows a break-up
Activist investors are helping to fuel this trend, challenging oversized corporate giants whose high-growth divisions have been held back by slower performing ones. Meanwhile, much-touted synergies from several massive mergers have failed to materialise. Demands for business sales or spin-offs featured in 33% of global activist campaigns in the first half of the year, according to Barclay’s H1 2025 Review of Shareholder Activism – and analysts expect an uptick in the second half.
Bloated empires are no longer economically viable, observes Dave Graham, a corporate finance partner at Dow Scholfield Watts, an advisory firm. “When borrowing is cheaper, it’s easier to finance big deals. But when rates are high, the cost of financing skyrockets, reducing the appeal of large, highly leveraged acquisitions. Meanwhile, rising inflation makes it harder to justify keeping businesses together – particularly if the combined entity is not generating the returns that were originally planned.”
Break-ups are part of the circle of corporate life. “At some point, you either have to scale up or split up,” Graham says. But how can business leaders set their firm up for success after a separation?
Do spin-offs pay off?
Under the right conditions, spin-offs can thrive independently, sometimes surpassing the performance of their parent companies. One notable example is PayPal, which was spun out from eBay in 2015 and has grown significantly since.
Spin-offs succeed in many cases because their business is fundamentally sound. Their struggles as part of a larger corporation often result from misalignment, which can be corrected with time, attention and effort. Changing the CEO can reshape company incentives or direction, while bringing in new investors can force sharper capital discipline and drive operational efficiencies that had been ignored.
In the US, spin-offs have been shown to outperform the S&P 500 by about 10% in the 18 to 24 months after a split, according to data compiled by Trivariate Research. But further evidence suggests that those early gains don’t always hold up. The S&P US Spin-Off Index, which tracks S&P 500 companies worth more than $1bn (£748m) that have been spun off in the past four years, has lagged behind the main S&P 500 Index.
“Performance can suffer when long-term value is neglected in favour of efficiency and reduced costs,” says Graham. “Operating independently means spin-offs can lose the value and goodwill built under the original brand. That has a knock-on effect on customer and supplier relationships.”
Parent companies may fare better. A recent report from EY and Goldman Sachs found that parent companies tend to outperform their relevant indexes by 2.1% on the day the business split is announced, and by 6% in the two years following the deal close.
Divide and conqueror
Demergers offer the resulting companies a second chance to redefine their strategies independently and reconnect with their markets – but success hinges on careful planning and execution. Graham warns leadership teams preparing for a corporate separation not to underestimate the cost and complexity of detangling their businesses. “They should be asking: what will this brand look like in three, four or five years? Who will be the likely buyer? And do we have the right management team to execute this strategy?”
Spin-offs can lose the value and goodwill built under the original brand
Rob Dellow, a partner advising on corporate break-ups at Atkins Dellow, a law firm, says early planning is essential. “Value is often lost in the ambiguity and disruption that follows a breakup,” he notes. Leaders must establish a standalone operating model, remove parent dependencies and identify key contractual obligations, employment liabilities and regulatory approvals long before agreeing a separation.
The most common point of failure is governance. Without clear protocols for executive decision-making and day-to-day operations, staff may become disengaged and potential buyers discouraged. “Establishing independent boards, conflict management policies and reporting lines from day one is critical to building investor confidence,” Dellow says. “Regulators, investors and employees must be kept informed of every stage of the separation. Failure to manage this can trigger delays or reputational risk, undermining shareholder value.”
Firms may also struggle to divide intellectual property (IP) and proprietary systems. As more companies rely on data, software and AI to compete, IP has become central to their success following a break-up. A clear legal framework governing IP ownership, licensing and transitional service agreements is vital to preserving commercial value post-separation
Timing can significantly impact the success of a business separation. “Market appetite for certain sectors changes over time,” Graham says. CFOs, in particular, must understand the complexities and potential downsides of a demerger at any given period, he adds. “This is where real conviction and discipline count.”
Focus over scale
The break-up boom marks a decisive shift in corporate strategy, from the pursuit of scale to the pursuit of focus. In an age where complexity breeds inefficiency and capital is no longer cheap, sprawling empires are giving way to leaner, sharper businesses that are better aligned with market realities.
But spin-offs are not guaranteed for success. While they offer a rare opportunity to unlock trapped value and reset strategic direction, they also demand rigour, foresight and discipline. Without a clear vision for the operations and leadership post-separation, the promise of independence can quickly turn into fragmentation and confusion.
The hottest trend in M&A isn’t about combining businesses but breaking them up.
This year, several prominent companies have announced plans to split apart. Kraft Heinz is offloading its grocery division, Keurig Dr Pepper will separate its coffee and soda businesses and Unilever is scooping out its entire ice cream arm. And it’s not just consumer-goods giants: Smiths Group is preparing to spin off its baggage-screening unit, Santander is separating its motor-finance business and Warner Bros. Discovery is splitting in two.
Bigger, it appears, is not always better. Since its merger in 2015, Kraft Heinz's stock has fallen nearly 70% owing to weak sales, leading shareholders to push for simplification.
