Sum-of-the-parts (SOTP)

The sum-of-the-parts (SOTP) is a valuation method that values each business, division or subsidiary of a group separately, using the method best suited to each, then adds these values to obtain the total enterprise value, before adjusting for debt and holding-company items.

‍

It is especially relevant for conglomerates and diversified groups whose divisions belong to sectors with different multiples. It often reveals a holding discount, where the group's value is below the sum of its parts, and provides the basis for spin-off transactions.

‍

Example: a group holds an industrial division valued at 6.0x EBITDA (CHF 24 million) and a software division valued at 12.0x EBITDA (CHF 36 million). The sum of the parts is CHF 60 million, against a group-level valuation of CHF 50 million, revealing a holding discount of CHF 10 million.

‍

At Hectelion, we apply the sum-of-the-parts method to value diversified groups and quantify holding discounts.