Sum Of The Parts Valuation

---
name: sum-of-the-parts-valuation
description: Values a multi-segment business segment by segment and bridges to equity through corporate cost, net debt, and a stated holding-company discount, when a single group multiple hides where the value sits.
---

# Sum-Of-The-Parts Valuation Agent

## When to use
Use this when a target runs businesses a buyer would not value the same way: a conglomerate, a fast-growing division inside a slow group, or a company facing break-up or activist pressure. Reach for it when a blended multiple on group EBITDA would average away the answer, or when the question is which piece carries the company.

## What it does
It produces a segment-by-segment valuation: each segment valued on its own peers and basis, summed to a gross value, then bridged to equity through unallocated corporate cost, net debt and debt-like items, and a stated holding-company discount, with a read on which segment carries the value.

## Method
1. Cut the company into segments. Split where the economics differ.
   - Use reported segments only if they match how a buyer would buy the business; otherwise recut by end market, margin, and growth, and say what you changed.

2. Rebuild the segment financials. Get to EBITDA before corporate.
   - Push allocated corporate charges back out so each segment shows standalone revenue, EBITDA, and capex, and flag arbitrary allocations.

3. Pick a peer set per segment. Value the segment, not the group.
   - Screen pure-play comparables per segment; the whole point is that a controls business and a distribution business do not clear at the same multiple.

4. Value each segment on its proper basis. Match method to asset.
   - Multiples where a clean peer set exists, a discounted cash flow where the cash profile diverges from peers, net asset value for appraised real estate, and market value for listed stakes.

5. Capitalize the unallocated corporate cost. Charge the stub honestly.
   - Take the residual head-office cost that would survive a break-up, capitalize it at a blended multiple, and carry it as negative value.
   - Stranded cost is where this analysis is usually cheated: assuming the head office disappears on separation is the commonest way to inflate the answer.

6. Bridge to equity. Remove everything senior to shareholders.
   - Subtract net debt, pension deficits, lease liabilities not already in EBITDA, and minority interests; add associates at carrying value.

7. State the holding-company discount. Put a number on it and defend it.
   - Name the discount and its basis: complexity, a controlling shareholder, tax leakage on disposal, or the absence of a separation catalyst.
   - A discount asserted without a catalyst discussion is a plug; if the market applies a wider one, explain the difference rather than ignore it.

8. Name the value carrier. Say which segment is the company.
   - Express each segment's share of gross value against its share of EBITDA so the mismatch is visible, then sensitize on the one or two multiples that move the answer.

## Inputs
- Segment revenue, EBITDA, and capex, before corporate allocation
- The corporate allocation policy and the true head-office run-rate
- Peer candidates per segment, or permission to propose them
- Net debt, pensions, leases, minorities, associates, and listed stakes
- Appraised asset values or recent disposal evidence
- Current market capitalization, where the group is listed

## Output format
- A segment-by-segment section: metric, multiple or method, and implied value, in prose
- A gross segment value before corporate cost, and the capitalized corporate stub
- An equity bridge listing every deduction and addition in order
- The holding-company discount as a percentage with its rationale
- A value-carrier read comparing each segment's share of value to its share of EBITDA
- Present all schedules in prose, never as markdown tables

## Example
For Aldergate Industries (fictional, illustrative): Industrial Controls at 11.0x EBITDA of 120 is worth 1,320; Building Products at 8.0x on 90 is 720; Legacy Distribution at 5.0x on 40 is 200. Gross segment value is 2,240 on segment EBITDA of 250. Unallocated corporate cost of 20, capitalized at 9.0x, carries minus 180, leaving enterprise value of 2,060. Less net debt of 460 and a pension deficit of 90, equity value is 1,510, and a 10 percent holding-company discount concludes at 1,360. Industrial Controls is 59 percent of gross value on 48 percent of EBITDA and Legacy Distribution 9 percent of value on 16 percent, so the group is a controls business with two attachments. The shares trade at 7.5x group EBITDA net of corporate cost of 230, implying enterprise value of 1,725 and equity of 1,175, a discount nearer 22 percent that the write-up attributes to the absence of any announced separation rather than to a valuation error.