Spin-offs are divisions of companies or organizations that then become independent businesses with assets, employees,
intellectual property,
technology, or existing products that are taken from the
parent company. Shareholders of the parent company receive equivalent
shares in the new company to compensate for the loss of equity in the original
stocks. However, shareholders may then buy and sell stocks from either company independently; this potentially makes investment in the companies more attractive, as potential share purchasers can invest narrowly in the portion of the business they think will have the most growth. In contrast,
divestment can also sever one business from another, but the assets are sold off rather than retained under a renamed corporate entity. Many times, the
management team of the new company is from the same parent organization. Often, a spin-off offers the opportunity for a division to be backed by the company but not be affected by the parent company's
image or history, giving potential to take existing ideas that had been languishing in an old environment and help them grow in a new environment. Spin-offs also allow high-growth divisions, once separated from other low-growth divisions, to command higher valuation multiples. In most cases, the parent company or organization offers support in one or more of the following: • Investing
equity in the new firm • Being the first customer of the spin-off that helps create
cash flow • Providing incubation space (desk, chairs, phones,
Internet access, etc.) • Providing legal, finance, or technology services All the support from the parent company is provided with the only purpose of helping the spin-off grow. One of the most critical antecedents of corporate spin off or corporate entrepreneurship rests upon its CEO's ability to cleanly deliver a powerful vision that can strengthen emotional bonds within the top of the management team, helping to foster corporate spin-offs or corporate entrepreneurship.
U.S. Securities and Exchange Commission The
United States Securities and Exchange Commission's (SEC) definition of "spin-off" is more precise. Spin-offs occur when the equity owners of the parent company receive equity stakes in the newly spun-off company. For example, when
Agilent Technologies was spun off from
Hewlett-Packard (HP) in 1999, the stockholders of HP received Agilent stock. A company not considered a spin-off in the SEC's definition (but considered by the SEC as a technology transfer or licensing of technology to the new company) may also be called a spin-off in common usage.
Other definitions A second definition of a spin-out is a firm formed when an employee or group of employees leaves an existing entity to establish an independent start-up. The prior employer can be a firm, a university, or another organization. Spin-outs typically operate at
arm's length from the previous organizations and have independent sources of financing, products, services, customers, and other assets. In some cases, the spin-out may license technology from the parent or supply the parent with products or services; conversely, they may become competitors. Such spin-outs are important sources of
technological diffusion in high-tech industries. Terms such as hive-up, hive down, or hive across are sometimes used for transferring a business to a parent company, a
subsidiary company, or a fellow subsidiary. ==Reasons for spin-offs==