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Can anyone shed some light as to why companies might choose to spin out a division into a separate entity?

by razin 10y ago

amorphid 10y ago
Not a spin out expert, but a few reasons I can think of right now: - preparation for a sale - raising capital for the spin out, but not the parent company - the spin out is not part of the parent's core focus, and is something of a distraction - the parent is transitioning to more of a holding company, and looking to make further acquisitions that have nothing to do with the spinout - the spin out is an idea developed by a parent company team, and that team wants to leave the company to develop the idea, so they work out a deal where the company and the team both get a stake
ChuckMcM 10y ago
Every deal is different so this is all speculation. A common theme with a private equity buyout of company like Rackspace is to break it up into pieces that can be sold as a unit. Mailgun meets that criteria, it has all of the components of being a full 'company' or can get the ones it was missing, and it has a customer base, product, and revenue (and its profitable according to the post). So someone bought Mailgun and that owner is treating it like a separate company. Sometimes its the original founders that buy it back, sometimes it is another firm that thinks they can do a bit of work and then sell it or take it public. Other things that are typically sold off are real estate holdings, patents and other IP, trademarks, and sometime infrastructure contracts. So if for example Rackspace had a long term contract to host company X, they might sell that contract to another Colocation company like Equinex or Coresite. The idea is that you can sell off all the bits for more money than you paid originally and make a profit. It is not unlike buying a wrecked car and selling it off for parts.
bretpiatt 10y ago
CEO of Jungle Disk here, we spun out in Jan of 2016 from Rackspace. Reason they sold Jungle Disk is they're focusing on data center based apps sold to mid-market and enterprise buyers. Jungle Disk was a SMB data backup and online storage service for laptops, desktops, and servers (either on premise or cloud). Not a fit in the core sales and marketing machine inside Rackspace. My 2 cents on why for Mailgun? It is a developer focused service and while Mailgun may have customer overlap with Rackspace's overall base it is a different decision maker / buyer inside the company than the person who's choosing where to host the IT system or website, etc. So while you may have customer overlap you don't have sales and marketing buyer overlap.

Can anyone shed some light as to why companies might choose to spin out a division into a separate entity?

by razin 10y ago

Can anyone shed some light as to why companies might choose to spin out a division into a separate entity?

Not a spin out expert, but a few reasons I can think of right now: - preparation for a sale - raising capital for the spin out, but not the parent company - the spin out is not part of the parent's core focus, and is something of a distraction - the parent is transitioning to more of a holding company, and looking to make further acquisitions that have nothing to do with the spinout - the spin out is an idea developed by a parent company team, and that team wants to leave the company to develop the idea, so they work out a deal where the company and the team both get a stake

ChuckMcM 10y ago

Every deal is different so this is all speculation. A common theme with a private equity buyout of company like Rackspace is to break it up into pieces that can be sold as a unit. Mailgun meets that criteria, it has all of the components of being a full 'company' or can get the ones it was missing, and it has a customer base, product, and revenue (and its profitable according to the post). So someone bought Mailgun and that owner is treating it like a separate company. Sometimes its the original founders that buy it back, sometimes it is another firm that thinks they can do a bit of work and then sell it or take it public. Other things that are typically sold off are real estate holdings, patents and other IP, trademarks, and sometime infrastructure contracts. So if for example Rackspace had a long term contract to host company X, they might sell that contract to another Colocation company like Equinex or Coresite. The idea is that you can sell off all the bits for more money than you paid originally and make a profit. It is not unlike buying a wrecked car and selling it off for parts.

bretpiatt 10y ago

CEO of Jungle Disk here, we spun out in Jan of 2016 from Rackspace. Reason they sold Jungle Disk is they're focusing on data center based apps sold to mid-market and enterprise buyers. Jungle Disk was a SMB data backup and online storage service for laptops, desktops, and servers (either on premise or cloud). Not a fit in the core sales and marketing machine inside Rackspace. My 2 cents on why for Mailgun? It is a developer focused service and while Mailgun may have customer overlap with Rackspace's overall base it is a different decision maker / buyer inside the company than the person who's choosing where to host the IT system or website, etc. So while you may have customer overlap you don't have sales and marketing buyer overlap.