Deloitte said that there was a 71.4% rise in the number of de-mergers in the US technology sector between 2012 and 2014 and that it expects the trend to continue.
Expert in corporate financing arrangements in the technology sector Thilo Schneider of Pinsent Masons, the law firm behind Out-Law.com, said that technology companies 'spin off' parts of their business for a number of reasons.
"Technology is developing at a rapid pace and companies change and develop new ways of monetising which may don’t really fit their current way of doing business," Schneider said. "As a result, the new technology is sometimes more valuable as a separate business because it can act more flexibly and pursue the development of its own product."
"As companies look to remain profitable and focussed on growth, they are also looking to divest themselves of non-core business units which may lock up capital and talent that can be otherwise employed," he said.
Schneider said the de-merger trend can also be attributed in part to "the flipside of the upturn in acquisitions we have seen over the last few years by some of the big tech companies".
According to the Deloitte report (16-page / 1.26MB PDF), technology companies look to spin off parts of their company to "spur growth, maximise shareholder value, and position the company for future success". It said there are attractions for companies to split into two, including enabling the separated businesses to better align to specific markets and respond faster to "marketplace opportunities and threats specific to their sphere of activity".
There are "financial drivers" prompting spin offs too, Deloitte said.
"Some technology company executives have recognised that their cost structure is bloated; due, perhaps, to overhang from prior acquisitions where synergies haven’t been fully captured," the report said. "Or they conclude that it doesn’t make sense to have two very different business models within one company. In these cases, a spin-off can help to right-size a company and provide a trigger point for large-scale transformation."
Deloitte said that technology company spin offs can prompt "strategic acquisitions" and enabled more targeted growth of those businesses.
"By spinning-off a 'higher tech' portion of the business to form two smaller, independent organisations, and following that spin with one or more strategic acquisitions, a corporation may be able to quickly 'build' the capabilities and/or product sets it needs to increase revenue and market share," Deloitte said. "In short, separating parts of a large business through a spin-off can drive enhancements that may lead to a better, more focused strategy, and an ability to more astutely address challenges like buy-versus-build."
Earlier this week, telecoms giant Qualcomm rejected a call from an investor to break-up the company. The investor, Jana Partners, believes separating Qualcomm's microchip-making business from its patent licensing business could spur a future merger between that business and other chip manufacturers and boost value for shareholders, according to a report by the Financial Times.