Spin-Offs Outperform And Here’s How To Profit

“Spin-offs are an interesting place to look because there’s a natural constituency of sellers and there’s not a natural constituency of buyers” – Seth Klarman

Spin-offs always attract value investors because they tend to fly under the radar of most institutional investors. This creates a vacuum where sellers are trying to unload their position in the company following a successful value creating spin, but there is a lack of buyers as the number of investors who understand and can invest in the new corporation is small in comparison. With such a buy/sell imbalance the chance of a significant mispricing emerging is substantially increased.