{"id":23769,"date":"2021-07-16T19:46:15","date_gmt":"2021-07-17T00:46:15","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/biws\/?post_type=biws_kb&#038;p=23769"},"modified":"2024-09-25T18:02:14","modified_gmt":"2024-09-25T23:02:14","slug":"sum-of-the-parts-valuation","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/valuation\/sum-of-the-parts-valuation\/","title":{"rendered":"Video Tutorial: Sum of the Parts (SOTP) Valuation, With Excel Example"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-flat ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Video Tutorial: Sum of the Parts (SOTP) Valuation, With Excel Example<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/sum-of-the-parts-valuation\/#SunPower_and_Maxeon_Rationale_for_the_Sum_of_the_Parts_Valuation\">SunPower and Maxeon: Rationale for the Sum of the Parts Valuation<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/sum-of-the-parts-valuation\/#The_Step-by-Step_Process_for_a_Sum_of_the_Parts_Valuation\">The Step-by-Step Process for a Sum of the Parts Valuation<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/sum-of-the-parts-valuation\/#Putting_Together_the_Segment_Results_in_a_Sum_of_the_Parts_Valuation\">Putting Together the Segment Results in a Sum of the Parts Valuation<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/sum-of-the-parts-valuation\/#Sum_of_the_Parts_Valuation_Conclusions_for_SunPower_and_Maxeon\">Sum of the Parts Valuation: Conclusions for SunPower and Maxeon<\/a><\/li><\/ul><\/nav><\/div>\n\n<blockquote><p><strong>Sum of the Parts Valuation Definition:<\/strong> In a Sum of the Parts Valuation (also called SOTP Valuation), you analyze each segment of a company\u2019s business separately and add together each segment\u2019s implied value to determine what the entire company should be worth.<\/p><\/blockquote>\n<div class='code-block code-block-2' style='margin: 8px 0; clear: both;'>\n<div class=\"kb-adinsert-modal\">\n    <div class=\"kb-adinsert-top\">\n      <div class=\"media\">\n          <img decoding=\"async\" class=\"alignnone size-full wp-image-28448\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/04\/24164120\/adv-fm-tile.png\" alt=\"PowerPoint Pro\" width=\"128\" height=\"128\" \/>\n      <\/div>\n      <div class=\"content\">\n          <h3>Master Financial Modeling for Investment Banking With <strong>BIWS Core Financial Modeling<\/strong><\/h3>\n      <\/div>\n    <\/div>\n    \n    <div class=\"full_text\">\n    \t<ul>\n        \t<li>\n            \t<h4>Become a financial modeling pro<\/h4>\n              <p>158 videos, detailed written guides, Excel files, quizzes, and more<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Complete 10+ detailed global case studies<\/h4>\n            <p>These include both the theory and the practical applications<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Prepare for your internship or full-time job<\/h4>\n            <p>Gain the skills you need to \u201chit the ground running\u201d on Day 1\n\n<\/p>\n\t\t\t  <\/li>\n      <\/ul>\n        \n      <a class=\"cta-link orange-button-medium\" href=\"https:\/\/breakingintowallstreet.com\/core-financial-modeling\/\" target=\"_blank\">Full Details<\/a>\n      \n      <a class=\"cta-link orange-button-medium bg-blue\" href=\"https:\/\/biws-support.s3.us-east-1.amazonaws.com\/Course-Outlines\/Core-Financial-Modeling-Course-Outline.pdf\" target=\"_blank\" rel=\"noopener\">Short Outline<\/a>\n    <\/div>\n<\/div><\/div>\n\n<p>The Sum of the Parts Valuation is useful for answering several questions:<\/p>\n<p>1) If a large company is considering a <strong>spin-off or <a href=\"https:\/\/breakingintowallstreet.com\/kb\/ma-and-merger-models\/divestitures\/\" target=\"_blank\" rel=\"noopener\">divestiture<\/a><\/strong> of one division, how much might this division be worth? And could the large company\u2019s market valuation <em>increase <\/em>after the sale?<\/p>\n<p>2) Is a <strong>conglomerate-style company<\/strong>, such as Siemens or General Electric, currently being undervalued by the market because its segments are worth more separately than they are together?<\/p>\n<p>3) Would it make sense for one company to <strong>split into two separate entities<\/strong> if shareholders of the original company could significantly increase the value of their shares?<\/p>\n<p>This tutorial will cover a Sum of the Parts Valuation for <a href=\"https:\/\/newsroom.sunpower.com\/2020-08-27-SunPower-and-Maxeon-Solar-Technologies-Close-Spin-Off-Transaction\" target=\"_blank\" rel=\"noopener\">SunPower\u2019s spin-off of Maxeon<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"SunPower_and_Maxeon_Rationale_for_the_Sum_of_the_Parts_Valuation\"><\/span><strong>SunPower and Maxeon: Rationale for the Sum of the Parts Valuation<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Before the spin-off, SunPower was a solar manufacturing, installation, and services company, but it had always traded at a <strong>significant discount<\/strong> to pure-play solar installation\/services companies.<\/p>\n<p>Its valuation multiples were closer to those of solar manufacturing companies, such as Canadian Solar and First Solar:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23770 size-full\" title=\"SunPower Valuation Multiples\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075128\/01-SunPower-Valuation-Multiples.jpg\" alt=\"SunPower Valuation Multiples\" width=\"1025\" height=\"395\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075128\/01-SunPower-Valuation-Multiples.jpg 1025w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075128\/01-SunPower-Valuation-Multiples-300x116.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075128\/01-SunPower-Valuation-Multiples-768x296.jpg 768w\" sizes=\"(max-width: 1025px) 100vw, 1025px\" \/><\/p>\n<p>But solar manufacturing accounted for only about half of SunPower\u2019s revenue, so management and investors felt the company was undervalued.<\/p>\n<p>The logic for this spin-off was simple: after splitting into separate entities, SunPower\u2019s manufacturing division might continue to trade at a 0.5 \u2013 1.0x revenue multiple\u2026<\/p>\n<p>\u2026but the installation and services segment could potentially trade at a much higher revenue multiple in the 4.0 \u2013 5.0x range, in-line with <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/comparable-company-analysis-cca\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">comparable companies<\/a> in that sector.<\/p>\n<p>As a result, the company as separate entities could be worth more than the company as a single entity.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Step-by-Step_Process_for_a_Sum_of_the_Parts_Valuation\"><\/span><strong>The Step-by-Step Process for a Sum of the Parts Valuation<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>To build a SOTP valuation, you complete the following steps:<\/p>\n<p><strong>Step 1:<\/strong> Find separate financial statements for each division and project them. This is often the most challenging part because not all companies break out their financials this way!<\/p>\n<p><strong>Step 2:<\/strong> Select separate sets of comparable public companies for each division (and sets of precedent transactions, if applicable).<\/p>\n<p><strong>Step 3:<\/strong> Build a <a href=\"https:\/\/www.mergersandinquisitions.com\/dcf-model\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">DCF model<\/a> or other intrinsic valuation, such as a NAV model or <a href=\"https:\/\/breakingintowallstreet.com\/kb\/bank-modeling\/dividend-discount-model-example-banks\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">dividend discount model<\/a>, for each division.<\/p>\n<p><strong>Step 4:<\/strong> Take the Implied Enterprise Values for all the divisions and add them together to determine the company\u2019s Implied Enterprise Value.<\/p>\n<p><strong>Step 5:<\/strong> Move from the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/equity-value-enterprise-value\/how-to-calculate-enterprise-value\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Implied Enterprise Value to the Implied Equity Value using the normal \u201cbridge,\u201d<\/a> based on the <em>entire company\u2019s<\/em> Balance Sheet.<\/p>\n<p><strong>Step 6:<\/strong> Then, divide by the company\u2019s share count to get its Implied Share Price and compare this number to its Current Share Price (if the company is public).<\/p>\n<p>In this SunPower \/ Maxeon example, a few steps are slightly different because it uses <strong>a real-life spin-off<\/strong> with proposed deal terms.<\/p>\n<h3><strong>Step 1: Find Separate Financial Statements for Each Division and Project Them<\/strong><\/h3>\n<p>This step was simple in this example because SunPower provided separate financial statements for Maxeon in its filings at the time of the spin-off.<\/p>\n<p>We projected both companies\u2019 financials based on drivers such as the Megawatts (MW) of power installed and the Price per Watt:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23771 size-full\" title=\"Maxeon Financial Projections\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/02-Maxeon-Financial-Projections.jpg\" alt=\"Maxeon Financial Projections\" width=\"925\" height=\"411\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/02-Maxeon-Financial-Projections.jpg 925w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/02-Maxeon-Financial-Projections-300x133.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/02-Maxeon-Financial-Projections-768x341.jpg 768w\" sizes=\"(max-width: 925px) 100vw, 925px\" \/><\/p>\n<p>We also adjusted SunPower\u2019s financial statements in the projected period by removing Maxeon\u2019s revenue and expenses and reallocating some corporate overhead, interest, and D&amp;A:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23772 size-full\" title=\"SunPower Adjusted Statements\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/03-SunPower-Adjusted-Statements.jpg\" alt=\"SunPower Adjusted Statements\" width=\"852\" height=\"741\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/03-SunPower-Adjusted-Statements.jpg 852w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/03-SunPower-Adjusted-Statements-300x261.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075127\/03-SunPower-Adjusted-Statements-768x668.jpg 768w\" sizes=\"(max-width: 852px) 100vw, 852px\" \/><\/p>\n<p>Maxeon\u2019s separate statements required fewer adjustments, but we modified them to reflect higher expenses following the separation:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23773 size-full\" title=\"Maxeon Adjusted Statements\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075126\/04-Maxeon-Adjusted-Statements.jpg\" alt=\"Maxeon Adjusted Statements\" width=\"831\" height=\"614\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075126\/04-Maxeon-Adjusted-Statements.jpg 831w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075126\/04-Maxeon-Adjusted-Statements-300x222.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075126\/04-Maxeon-Adjusted-Statements-768x567.jpg 768w\" sizes=\"(max-width: 831px) 100vw, 831px\" \/><\/p>\n<h3><strong>Step 2: Select Comparable Public Companies for Each Division<\/strong><\/h3>\n<p>For SunPower, we selected the two public, pure-play solar service\/installation companies at the time of this transaction: Sunrun and Vivint Solar.<\/p>\n<p>They traded at revenue multiples that were far higher than SunPower\u2019s:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23774 size-large\" title=\"Sunrun and Vivint Revenue Multiples\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/05-Sunrun-Vivint-Multiples-1024x296.jpg\" alt=\"Sunrun and Vivint Revenue Multiples\" width=\"1024\" height=\"296\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/05-Sunrun-Vivint-Multiples-1024x296.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/05-Sunrun-Vivint-Multiples-300x87.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/05-Sunrun-Vivint-Multiples-768x222.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/05-Sunrun-Vivint-Multiples.jpg 1074w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p>For Maxeon, we selected a mix of Chinese and North American solar manufacturers, with median revenue multiples between 0.5x and 1.0x:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23775 size-full\" title=\"Maxeon Public Comps\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/06-Maxeon-Public-Comps.jpg\" alt=\"Maxeon Public Comps\" width=\"1020\" height=\"365\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/06-Maxeon-Public-Comps.jpg 1020w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/06-Maxeon-Public-Comps-300x107.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075125\/06-Maxeon-Public-Comps-768x275.jpg 768w\" sizes=\"(max-width: 1020px) 100vw, 1020px\" \/><\/p>\n<p>We do not <em>do<\/em> anything with these multiples at this point.<\/p>\n<p>There\u2019s no point backing into an Implied Share Price based on this <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/comparable-company-analysis-cca\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">comparable company analysis<\/a> because we want the Implied Share Price for <em>the entire company<\/em>.<\/p>\n<h3><strong>Step 3: Build a DCF Model for Each Division<\/strong><\/h3>\n<p>The DCF model for each company is standard: Revenue, EBIT, and <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/nopat\/\" target=\"_blank\" rel=\"noopener\">NOPAT<\/a>, add D&amp;A, add\/subtract the Change in Working Capital, and subtract CapEx in <a href=\"https:\/\/breakingintowallstreet.com\/kb\/discounted-cash-flow-analysis-dcf\/unlevered-free-cash-flow\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">the Unlevered FCF calculations<\/a>.<\/p>\n<p>We calculate the Terminal Value with the Multiples Method and Perpetuity Growth Rate Method.<\/p>\n<p>There are two differences worth noting;<\/p>\n<p><strong>1) Net Operating Losses<\/strong> \u2013 Since both companies have significant <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/net-operating-losses\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Net Operating Loss balances<\/a>, we project the NOL creation and usage in the explicit forecast period and their possible contributions to the Implied Enterprise Values at the end.<\/p>\n<p><strong>2) 15-Year Projection Period<\/strong> \u2013 Since Maxeon, the lower-margin manufacturing company, will take years to become profitable, we extend the projections to 15 years rather than the normal period of 5-10 years.<\/p>\n<p>You can see part of the DCF for Maxeon below:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23776 size-full\" title=\"Maxeon DCF Model\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/07-Maxeon-DCF-Model.jpg\" alt=\"Maxeon DCF Model\" width=\"894\" height=\"676\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/07-Maxeon-DCF-Model.jpg 894w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/07-Maxeon-DCF-Model-300x227.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/07-Maxeon-DCF-Model-768x581.jpg 768w\" sizes=\"(max-width: 894px) 100vw, 894px\" \/><\/p>\n<p>We build sensitivity tables based on the Discount Rate, Terminal Growth Rate, and Terminal Multiple to determine the range of Implied Enterprise Values for each division.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Putting_Together_the_Segment_Results_in_a_Sum_of_the_Parts_Valuation\"><\/span><strong>Putting Together the Segment Results in a Sum of the Parts Valuation<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Once we have all these individual pieces, we can put them together to estimate the value to shareholders if this spin-off proceeds as planned.<\/p>\n<h3><strong>Step 4: Determine the Entire Company\u2019s Implied Enterprise Value<\/strong><\/h3>\n<p>Since both divisions have negative <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/ebit-vs-ebitda\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">EBIT and EBITDA<\/a> currently, we focus on the revenue multiples and the DCF output in this part:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23777 size-full\" title=\"Sum of the Parts Revenue Multiples\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/08-Sum-of-the-Parts-Revenue-Multiples.jpg\" alt=\"Sum of the Parts Revenue Multiples\" width=\"758\" height=\"617\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/08-Sum-of-the-Parts-Revenue-Multiples.jpg 758w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/08-Sum-of-the-Parts-Revenue-Multiples-300x244.jpg 300w\" sizes=\"(max-width: 758px) 100vw, 758px\" \/><\/p>\n<p>In a normal Sum of the Parts Valuation, we might also make an adjustment for corporate overhead here.<\/p>\n<p>One problem with analyzing the divisions separately is that they often need services\u00a0that the larger parent company provides.<\/p>\n<p>And if the expenses for these services are <strong>not<\/strong> included in the separate financial statements, each division\u2019s profitability might be overstated.<\/p>\n<p>For example, if neither division has an Accounting team but instead depends on \u201ccorporate headquarters\u201d for this function, we need to subtract the capitalized version of that expense.<\/p>\n<p>We skip this adjustment here because:<\/p>\n<p>1) We\u2019ve already re-allocated corporate overhead costs appropriately in the separate models.<\/p>\n<p>2) We\u2019ve assumed \u201cdis-synergies\u201d for Maxeon in the separate model, so its Operating Income is already lower as a result of having to pay for expenses that the parent previously covered.<\/p>\n<p>3) SunPower is already a self-sufficient company, and it will keep all its non-Maxeon divisions after the spin-off. There are no additional expenses to subtract because SunPower already has teams to handle functions such as accounting, IT, and HR.<\/p>\n<h3><strong>Step 5: Cross the Bridge to Implied Equity Value<\/strong><\/h3>\n<p>Once we have the range of Implied Enterprise Value figures, we can add non-operating Assets and subtract Liability and Equity line items that represent other investor groups to get the range of Implied Equity Values:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-23778 size-full\" title=\"Sum of the Parts Valuation - Enterprise Value Bridge\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/09-Sum-of-the-Parts-Valuation-Enterprise-Value-Bridge.jpg\" alt=\"Sum of the Parts Valuation - Enterprise Value Bridge\" width=\"751\" height=\"356\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/09-Sum-of-the-Parts-Valuation-Enterprise-Value-Bridge.jpg 751w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075124\/09-Sum-of-the-Parts-Valuation-Enterprise-Value-Bridge-300x142.jpg 300w\" sizes=\"(max-width: 751px) 100vw, 751px\" \/><\/p>\n<p>Even though the items in this bridge will change slightly following the spin-off, we\u2019re still using the pre-spin-off numbers here because we\u2019re looking at the entire company.<\/p>\n<h3><strong>Step 6: Calculate the Implied Share Price (If Applicable)<\/strong><\/h3>\n<p>You might skip this step for private companies because share prices are less meaningful there.<\/p>\n<p>In a normal Sum of the Parts Valuation, this step would be a simple matter of dividing the Implied Equity Value by the company\u2019s share count (with support for a circular calculation for the diluted shares, if required).<\/p>\n<p>Here, we divide by the <em>combined<\/em> share count of SunPower and Maxeon:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter size-full wp-image-23780\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075123\/10-Sum-of-the-Parts-Valuation-Implied-Share-Price-1.jpg\" alt=\"Sum of the Parts Valuation - Implied Share Price Calculation\" width=\"756\" height=\"564\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075123\/10-Sum-of-the-Parts-Valuation-Implied-Share-Price-1.jpg 756w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2021\/07\/19075123\/10-Sum-of-the-Parts-Valuation-Implied-Share-Price-1-300x224.jpg 300w\" sizes=\"(max-width: 756px) 100vw, 756px\" \/><\/p>\n<p>Since this is a spin-off that happened in real life, we want to reflect that SunPower shareholders received 0.125 Maxeon shares for each 1 SunPower share.<\/p>\n<p>By completing this spin-off, in other words, the <em>total share count<\/em> increased.<\/p>\n<p>Some would disagree with this adjustment and say that we should use only SunPower\u2019s pre-spin-off share count.<\/p>\n<p>If you changed the model to reflect that, the results wouldn&#8217;t change much (there\u2019s a ~5-10% difference).<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Sum_of_the_Parts_Valuation_Conclusions_for_SunPower_and_Maxeon\"><\/span><strong>Sum of the Parts Valuation: Conclusions for SunPower and Maxeon<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The overall conclusion is that if this spin-off is even slightly successful, the SunPower shareholders should see a big increase in the value of their shares.<\/p>\n<p>The share price may not increase by 200-300%, as suggested above, but if the pure-play services\/installation division (SunPower) trades at a revenue multiple that\u2019s even <em>slightly closer <\/em>to the multiples of Sunrun and Vivint, it will be a win for the shareholders.<\/p>\n<p>The operational logic is more difficult to justify because we don\u2019t know the true benefits of spinning off the manufacturing division.<\/p>\n<p>SunPower claims that it can reduce costs more effectively to compete with the Chinese solar PV companies that way, but we don\u2019t have enough information to say for sure.<\/p>\n<p><em><strong>This tutorial is a small taste of the knowledge you&#8217;ll gain in our paid courses. <\/strong><\/em><strong>Breaking Into Wall Street<\/strong><em><strong> uses real-life modeling tests and interview case studies to prepare you for investment banking and private equity interviews \u2013 and a leg up once you win your offer and start working. Find out more about our advanced training by via the button below:<\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this lesson, you&#8217;ll learn how to build a Sum of the Parts valuation based on the financial statements for two separate divisions at a company (SunPower) and a proposed spin-off of its Maxeon manufacturing segment.<\/p>\n","protected":false},"featured_media":29334,"template":"","class_list":["post-23769","biws_kb","type-biws_kb","status-publish","has-post-thumbnail","hentry","kb_category-valuation"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/23769","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media\/29334"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=23769"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}