I’ve been involved in investing for over three decades, and I keep asking myself one key question: where’s the hidden value? In the past ten years, the answer has evolved. Initially, we were focused on products, then platforms, and now, it seems, technology has taken center stage. Anything that sounds innovative caught the market’s attention. In that environment, large corporations could thrive on their talk of synergy and overall reach. The market was surprisingly patient.
This year, that patience seems to have waned. With rising prices, the cost of waiting became too high, and debt levels increased significantly. Investors are moving away from stories lacking real substance. Now, markets are rewarding transparency, and they’re no longer willing to support businesses that don’t make sense. I’ve observed this trend building up for years, and it feels like we’re on the cusp of significant changes.
In the next couple of years, I believe we’re going to see more split companies. There’s already evidence of this, especially when looking at how the market reacted to company breakups in 2025. The concept of value didn’t just vanish; it was buried under unnecessary complexity that’s become unprofitable. I’ve pointed out many of these issues throughout this year. Historically, there have been various reasons for companies to separate. I remember back in 2008 feeling particularly negative about the financial sector.
Let’s consider a clear example: General Electric (GE). For years, GE pushed the idea of merging aviation, healthcare, and energy to create a strategic ecosystem—an intriguing narrative. However, it became increasingly difficult for investors to patiently wait for all these parts to shine. The resulting complexity weighed heavily on the overall valuation. Plus, the debt raised concerns regarding financial health. Each business segment had unique requirements, and navigating the entire company became quite the task.
Once GE began to break up its various segments, there was a noticeable shift. Investors could finally assess each unit without the fog of complication. The aviation sector gained breathing room, the medical field might find its own competition, and energy could work within its timelines. The stock reacted positively, not due to any marketing efforts but because the market could finally evaluate each part independently.
This is an essential point: breakups aren’t some magical solution. They can destroy value but more importantly, they unveil what was already present. If you take a closer look at GE, you’ll realize that its individual divisions were always stronger than the combined entity; it simply wasn’t evident to the market.
WD (WDC) and SanDisk (SNDK) had similar narratives. Although their split didn’t make major headlines in tech circles, the market’s response was significant. Stakeholders who kept a close eye on developments recognized aspects overlooked by the broader market. SNDK was a robust business constrained by a brand tied to hardware cycles and significant capital burdens. This separation allowed it to escape outdated perceptions and focus on growth and enhancing profitability.
Investors frequently forget the lessons learned from past cycles. The market is slow to let go of outdated narratives. It continues to value fragile entities that bundle strong companies. If you want to reap the benefits, starting early with structural changes is essential. Some say that breakups are simply part of a cyclical trend. They point to last year when activist investors pushed for spin-offs but little transpired. I have a different perspective; the current environment feels distinct.
Three contributing forces are at play:
- As financial metrics worsen, inefficient structures become problematic. Capital isn’t free anymore. Financing comes with a cost, and boards are starting to feel that pressure. Investors can now see through balance sheet tricks that once obscured weak performance. If a segment of a business can’t justify its capital, then the rest shouldn’t bear the burden.
- Passive investors have shifted roles. A decade ago, they were quiet observers. Today, they actively vote or at least influence vote outcomes. Governance firms are shaping expectations, and boards can’t ignore calls for clear separation and authenticity. If they do, the risks of stagnation grow.
- Activist investors are becoming more active again. I often find myself engaging with them, and we see ourselves as activists too. Recently, many have focused on narrative-driven trading, chasing popular themes—most ending in letdowns. Structural adjustments might not be trendy, but they yield lasting benefits. Promoting simplicity, separation, and accountability isn’t just a catchphrase; it redefines how companies can allocate capital and set conditions for growth.
This combination of forces is generating pressure. Investors are weary of excessive complexity. Boards will be left with fewer justifications. Management must demonstrate how all areas contribute to value, not just as part of the narrative.
Where will the next shifts occur? Look at companies where the individual segments don’t align. I won’t drop ticker symbols here, but if you understand this logic, you’ll identify them. These conglomerates emerged during times of inexpensive capital, but the cost of money has adjusted, while their structures haven’t.
Consider consumer brands that house bulk products alongside premium offerings. They seek market premiums for growth, but each segment might appeal to different buyers. You can also find industrial firms with a cash-generating services side running parallel to a cash-consuming manufacturing sector. The market punishes both configurations. Media enterprises that manage traditional assets alongside data initiatives shouldn’t be coupled under the same ticker. Their futures diverge too significantly. Investors quickly note when profit margins differ, and when that occurs, discussions around restructuring often begin.
From my experience, boards aren’t hesitant to change because they want to; they do so because they have to. The operational intricacies holding back performance will become increasingly apparent. If management clings too tightly to these complexities, the pressure will escalate. Ultimately, it’s investors who demand clarity. When that realization hits, a split might become unavoidable.
Investors frequently inquire how to position themselves for a breakup. My answer is consistent: seek out companies where the collective valuation doesn’t align with the implied worth of its parts. Precise figures aren’t necessary; you just need an understanding of internal friction. Watch how segments perform and how management discusses their divisions. Observe leadership changes and capital allocation. When executives highlight focus and strategy, it signals that significant changes are on the horizon.
Good split investments require patience, but the payoff is rewarding. In the case of WD, significant gains went to those who recognized SNDK’s hidden strengths. For GE, those who believed individual parts were more valuable ultimately saw their faith rewarded. These aren’t isolated occurrences; they form part of a broader trend that will persist so long as capital remains costly and boards are held accountable for every dollar spent. There’s another aspect that investors often miss: dissolutions can recalibrate management incentives. When leaders operate smaller businesses with clearer objectives, the distractions fade, and responsibility rises. If a business has potential, clarity brings it to light; if not, clarity will highlight that as well.
Investors don’t require perfection; they just need visibility. Many shrink from venturing into the unknown. Breakup strategies offer that visibility. Purchasing a business becomes easier once you identify its driving forces. Transparency distinguishes between enduring and fading companies. Separations provide the market with a chance to reward the former while dismissing the latter. The market often trends towards popular themes, which is acceptable, but real opportunities lie where investors fail to look. The coming years will favor companies opting for separation rather than just size. Those who are vigilant about structural tensions can stay ahead of potential revaluations. A revaluation isn’t guaranteed, but the market appears to be leaning that way again.
Alpha isn’t a thing of the past. It doesn’t sit waiting for the next big news. It’s been caught in complexity and has lost its clarity. Companies that shed what no longer serves them can unlock value. Investors who catch this trend early don’t need luck; they just need patience and the readiness to explore overlooked avenues. Corporate structures have been underestimated. That’ll soon change. Breakups occur when they must. Complexity’s time is up.
