According to Zhitong Financial, a report from Trivariate Research shows that by 2025, the pace of spin-offs among USA companies will accelerate, and historically, newly established companies will bring substantial returns to investors. Data compiled by Trivariate indicates that the stocks of companies spun off from existing companies tend to outperform the average of the S&P 500 Index by 10% in the following 18-24 months. Meanwhile, according to a report released last month, in the second year after the completion of a spin-off, the remaining entity's performance aligns with the S&P 500 Index.

Several factors are expected to further drive this trend this year: a recent series of successful spin-offs, increasing pressure from activist investors, andmergers and acquisitions.increased activity may require spin-offs to meet the expectations of regulators. FedEx (FDX.US) has already announced plans to divest its freight division within the next 18 months.

Adam Parker, founder of Trivariate Research, stated, "The strong performance of spun-off companies can serve as a barometer for management teams seeking successful ways to unlock value."

There is ample evidence supporting the advantages of this initiative. The Bloomberg US Spinoff Index rose by 62% last year and consists of companies that were spun off in the last three years. Data shows that although spin-off trades underperform so-called remaining companies in the first five trading days post-completion, they outperform remaining companies by an average of 12% over the next 400 trading days.

Last year, the USA completed eight spin-offs, including GE Vernova (GEV.US) being separated from General Electric (now GE Aerospace (GE.US)). Since the spin-off was completed, the stock price of GE Vernova has achieved a 163% ROI, while the stock price of GE Aerospace has risen by 27%.

Another example is Atmus Filtration Technologies (ATMU.US), which achieved a 51% ROI after being spun off from Cummins (CMI.US), while Cummins' stock price has risen by 33% since the closing date after the spin-off.

Pressure from activist shareholders.

According to Jim Osman, founder and CEO of special situations research firm Edge Group, one of the biggest driving factors may be the increasing pressure from activist investors. Osman wrote in an email: 'As activist investors step up their investment, we anticipate a significant increase in the number of corporate spin-offs in 2025. This trend will not only reshape the industry but will also create substantial value for proactive investors who know where to look.'

Honeywell (HON.US) is a strong example. This industrial conglomerate is exploring the spin-off of its aviation business, following calls for separation from Elliott Investment Management. Bloomberg Analyst Karen Ubelhart wrote: 'If Honeywell spins off its aerospace division as proposed by activist shareholder Elliott Investment Management, the company's enterprise value could rise by up to 32 billion dollars.'

According to Trivariate, the industries most commonly seeking spin-offs are Industry, Technology Hardware, and Energy. The performance after the spin-off also depends on the quality of the parent company. Researchers define the quality of the parent company as having high profit margins,free cash flowgrowth, low debt, and low short-selling rates. Interestingly, Trivariate found that so far, the remaining entities involved in spin-offs with the highest quality have performed the worst, averaging 15% behind the market in the first year.