Valuation: Sum-of-parts

What it is

You break the target into its constituent businesses or asset classes, value each separately against pure-play peer multiples, sum the parts, deduct net debt and friction, and divide by share count.

The most-used valuation framework in activist decks — the dominant choice when the thesis is breakup, REIT conversion, or hidden-asset reveal.

When to use

✅ Multi-segment business with distinct economics per segment
✅ Conglomerate with separable real estate, royalty stream, or franchise component
✅ Holding company with non-consolidated stakes
✅ The thesis is theses/breakup-spinoff.md or includes it
❌ Single-segment focused operators
❌ Highly integrated businesses where peer pure-play multiples don't apply

Methodology

Identify segments — 2–5 distinct businesses (more becomes a spreadsheet exercise that loses force)
For each segment, source standalone financials from 10-K segment reporting
Select peer set of 3–7 pure-play public comparables
Pick multiple type per segment:
- EV/EBITDA — most common
- EV/Revenue — high-growth or pre-profit segments
- P/E — steady compounders
- P/NAV — REITs, BDCs
- $/asset — natural resources, real estate
Apply peer median (not max — show range in sensitivity)
Sum to enterprise value
Deduct net debt at parent level
Deduct separation friction (typically 5–10% of equity value)
Divide by share count
Compare to current share price

Friction items to model explicitly

Stranded overhead at OpCo / parent
Tax leakage if not Section 355 qualified
Transaction costs (legal, banker, advisory)
Debt make-whole if existing notes need redemption
Financing costs of new capital structure at NewCo

Convention: subtract 5–7% of equity value for friction. Pre-empts management's "you ignored separation costs" rebuttal.

Sensitivity tables

Always show range: bear (low multiple) / base (median) / bull (high multiple) per segment. Reader anchors on base; sensitivity proves you considered downside.

                  Bear    Base    Bull
Segment A (×)      9.0    11.5   14.0
Segment B (×)     14.0    16.5   19.0
─────────────────────────────────────
Per share         $42     $54    $66
Vs. current $40   +5%    +35%   +65%

Exemplars

Pershing Square · McDonald's (Nov 2005) — 3-segment SoP (PropCo, FranCo, McOpCo); $46bn real estate, $45–50/share unlock
Starboard · Darden (Sep 2014) — restaurant + REIT SoP; $67–86 vs. $48
Trian · DuPont (Feb 2015) — 6-segment industrial SoP
Trian · PepsiCo (Jul 2013) — snacks/beverages SoP
Elliott · BHP Billiton (Apr 2017) — DLC + petroleum SoP
Elliott · Phillips 66 (2025) — refining/midstream/CPChem/JET 4-segment SoP, $183/share

Full list: examples/by_valuation.json → sum_of_parts

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