One of the more interesting (and attractive) attributes of spinoffs is that they don’t typically get a lot of attention from the media or ‘The Street’. Much rather talk about a birth (IPO) or a marriage (M&A) than a breakup. That has changed a bit over the past year though as several high profile companies announced spinoffs, which led the WSJ to highlight the break up trend as a major theme of 2011. Even with this sudden surge in popularity, the space is hardly popular, especially, as Stone Fox Capital points out in this article, when compared to IPO’s. While there are likely several reasons for this phenomenon, I would agree with the author that the overall lack of Wall Street fees definitely plays a major role.
I think that one of the examples mentioned in the article, TripAdvisor (TRIP), is particularly revealing. Without going too deep, the company is a ‘social media’ company with rapid growth, multiple avenues to grow even further and oh yeah, it’s actually profitable (read more about TRIP here). Given those facts, it is really hard to believe how little press this company received after all of the hoopla surrounding the likes of GroupOn (GRPN), Zynga (ZNGA), LinkedIn (LNKD) and Angie’s List (ANGI). No one could escape hearing about these companies.The lack of fees also contributes to the paucity of coverage by analysts of spinoff companies. While IPO’s often get favorable ratings from the banks which led the offering after a few months, that is not the case with spinoffs.
The truth is most of us realize that it doesn’t matter how much press or hype surrounds a company. In fact, it’s likely a positive when a company doesn’t get that much attention. Thanks to the current laws, much of the information an investor needs is publicly available on the company or SEC website. Uncovering undervalued opportunities and profiting from them is more important that getting hosed in the sexiest, overhyped and underfloated name. That is why although CNBC may not be blaring about a spin, one will often find numerous hedge funds and respected investors dominating the ranks of spinco shareholders. May the coming year bring many more ‘unheralded’ opportunities.
Disclosure: Author holds no position in any stock mentioned.