Spin-off Links – February 2021

Before we get into recent spin-off news, I just wanted to highlight that I’m offering a 25% off discount on annual subscriptions to my premium service until Friday, Feb 5 at 5pm ET. 

Enter code “save25” at checkout if the code doesn’t automatically populate. Sign up here

Now is a great time to sign up because I just published two deep dives for subscribers:

Constellation Software Spin-off (Topicus.com) Deep Dive

Verint Spin-off (Cognyte) Deep Dive


Recently Announced Spin-offs

TechNip FMC (FTI) announced that it is moving forward with a previously delayed spin-off. The spin-off co will be an engineering and construction company focused on the liquid natural gas market (they construct liquid natural gas floating processing facilities both onshore and floating). This company generates around $6bn in sales. The remainco, an offshore oil and gas services provider, currently generates around $7bn in sales. Ultimately, I don’t think this is an especially interesting situation. Both businesses have low margins, are in a heavily cyclical industry, and are companies very similar in size (no indiscriminate selling likely). However, of the two, I think the spin-off will be more interesting given its exposure to the growing liquid natural gas market. The spin-off is going to be capitalized with $2.7BN of net cash which is quite significant all things considered. 

You can access my notes here.

Bluebird bio (BLUE) has announced its intent to spin-off its oncology business. It is expected to occur this year. The remaining company is a rare disease treatment portfolio, which the company believes will be easier to focus on if the two businesses are separate. There is a belief by management that as one company, the assets or cash may not be enough to sustain multiple companies. On an unaudited basis, the cash, cash equivalents, and marketable securities have a balance of $1.3bn. While it is true that there may not be many synergies between an oncology and rare disease business, I don’t necessarily agree with this view. However, the situation does not seem very actionable. I don’t have an edge on this field and the company’s pipeline. The spin-off will at least allow investors to pick and choose what biopharma field that interests them and the companies will not have to decide how to allocate capital. 

Bluebird is a $1.9 EV company with $250mm of sales. The company generates operational losses as they have struggled to commercialize one of their rare genetic disease treatments. Nick Leschly, the current CEO, will head the spin-off co. 

My notes can be accessed here.


Recent Spin-offs

Constellation Software (TSX: CSU) announced back in September that it would spin-off Topicus.com (recent acquisition merged with TSS division). Regular way trading began on February 2, 2021 in Canada under the ticker TOI.

Constellation Software is a Canadian software company that grows by acquisition that has a great track record of returning value to shareholders. Constellation is primarily involved with vertical market software businesses that provide mission-critical software solutions. Topicus was originally acquired in May 2020 by Constellation. As part of the acquisition, it was agreed that Topicus.com (€101M in annual revenue) would be merged with TSS (subsidiary of Constellation) and that a public listing would be explored. The rationale for the public listing is that the founders of Topicus.com didn’t want “their legacy disappearing into the craw of an omnivorous conglomerate.” Under, the spin-off, provides software for banks, healthcare institutions, and education.

Topicus.com has 4,250 employees in Europe split among 85 software business units. The spin-off has $464MM of annualized revenue  (9% of total Constellation revenue) and ~$56MM of annualized net income. 

In initial trading the spin-off looks a little pricey for me (11.5x annualized revenue), but it’s a great company and I will be watching it closely. Here is my deep dive (paywall).

On February 1, 2021, Verint Systems (VRNT) spun off its Cyber Intelligence business segment, Cognyte (CGNT), into its own, separately traded public company.

Cognyte has already experienced a wave of selling pressure and looks attractive. It’s trading at 3.0x revenue versus its closest comp FireEye at 5.1x revenue. Or you could comp it to Palantir at 50x sales!

The remainco (Verint) looks interesting too. It’s trading at ~5.0x revenue,a discount to its closest comp NICE which trades at 8.0x. Further, Apax Partners (well regarding PE shop) will be investing another $200MM into the company (they already invested $200MM in 2019) and so shareholder alignment will be high.

You can access my deep dive here (paywall).


Upcoming Spin-offs

DuPont (DD) is in the process of separating  its Nutrition and Bioscience division and simultaneously merging it with International Flavors & Fragrances (IFF) through a split off transaction. 

There was an odd lot arbitrage opportunity that we recommended to subscribers that has generated a nice ~$400 profit or more for those that didn’t hedge out IFF exposure.

IFF has rallied recently due to short covering. At current prices it still looks reasonable trading at 

By my math, IFF is trading at 16.0x normalized EBITDA versus peers (Givaudan and Symrise) that trade at 20.0x or higher. I would have trouble owning IFF for the long term as it isn’t a high growth business and is relatively expensive on an absolute basis. 

Here is a link to my notes on IFF.


More Spin-off Links

Top Picks for 2021

Thryv (THRY): Buy A Melting Iceberg; Get A SaaS Business For Free

Vimeo raises $300MM at $6BN Valuation

Qualtrics IPO (SAP Spin-off) Notes

Theo Epstein to Arctos Sports Partners (buying minority stakes in pro sports teams)

Nielsen: A Compelling Relative Value Play