# Sum of Parts Model Build a sum-of-the-parts model to value diversified companies by segment. Model conglomerate discounts, corporate overhead allocation, and non-core assets to identify hidden value or divestiture opportunities. - Canonical: https://finamodel.com/templates/sum-of-parts-model - Excel download: https://finamodel.com/templates/sum-of-parts.xlsx - Category: Corporate Finance - Model type: Valuation - Difficulty: Advanced - Audiences: Investors & analysts, Bankers & advisors, Equity analysts, Corporate strategists, M&A advisors, Private equity investors - Tags: valuation, segments, SOTP, discount, breakup ## Overview Value a diversified multi-segment conglomerate by valuing each business segment independently using DCF or trading multiples, then applying a conglomerate discount to account for inefficient capital allocation. Segment-level revenue, EBITDA, and margins are projected separately with segment-specific valuation multiples (EV/EBITDA, P/E) or individual DCF models. Holding company overhead is allocated to segments; the sum of segment values less corporate costs produces enterprise value. The workbook builds a segment detail tab for each major business unit, aggregates into a Summary Valuation sheet, and produces a per-share bridge showing how each segment contributes to total equity value. Conglomerate discount (typically 10–30% in practice) is applied as either a fixed percentage or a dynamic WACC adjustment. Terminal values are stressed across multiple exit multiples to show valuation sensitivity. This approach reveals which segments are value-accretive and identifies candidates for divestiture. Typical diversified companies (conglomerates, industrial multi-divisions) trade at a 15–25% discount to sum-of-parts due to capital misallocation and complexity discount. ## What's included - Up to five independent business segment valuations - Multiple-based and DCF-based segment valuation options - Corporate overhead and tax allocation logic - Equity value bridge covering minority interests, JVs, and pension liabilities - Conglomerate discount sensitivity analysis - Segment-level revenue, EBITDA, and margin assumptions - Segment-specific valuation multiples (EV/EBITDA, P/E) or DCF models - Holding company cost allocation and overhead allocation - Conglomerate discount or premium application - Enterprise value and per-share value bridge - Sensitivity analysis on segment multiples and discount rate ## Sum of Parts Model: Segment Valuation and Equity Bridge Explained This sum of parts model values a diversified group by projecting five reporting segments, valuing each with three methods, and bridging to a per-share equity value after a conglomerate discount. It shows where segment-specific capital costs and corporate adjustments shape the result. ### How segment-level operating drivers shape the valuation The group is split into five reporting segments, each with its own revenue history and five-year growth path. Margins, D&A, capital expenditure intensity and working-capital needs are set per segment, so the forecast reflects different business economics rather than a single blended average. - Crucially, each segment carries its own WACC and terminal growth rate, because a sum-of-the-parts premise is that segments do not share a cost of capital. A corporate overhead line is capitalised as a perpetuity at the value-weighted average of those segment WACCs, not a simple mean. - These drivers flow directly into each valuation method. ### Calculation flow: three valuation methods and the common equity bridge Every segment is projected from three historical years into a five-year forecast, then valued three ways. The EV/EBITDA method applies low, mid and high peer multiples to forward segment EBITDA. - The DCF uses segment unlevered free cash flow, mid-year discounting and a normalised terminal year with segment-specific WACC and terminal growth. The P/E method taxes segment EBIT after allocated interest and applies peer P/E multiples. - All three then pass through the same equity bridge: less corporate overhead, net debt, minorities, plus associates. A conglomerate discount is applied at the equity level so the per-share outputs are like-for-like. The P/E bridge does not subtract net debt because its multiple already charges allocated interest. ### Outputs: dashboard, football field and sensitivity views The model produces a dashboard with KPI cards, a segment valuation summary, equity value by method, trend charts and a waterfall from segment enterprise value to equity value. A summary sheet presents segment valuation by method, a football field chart and implied range. - Sensitivity analysis explores the conglomerate discount against a multiple factor, an illustrative growth and margin grid, and a scenario summary. The football field lays the three per-share outputs against the current trading price, making it easy to see the range. - All outputs are linked to the same underlying assumptions, so changes in segment drivers or corporate items flow through consistently. ### Practical use for evaluating diversified companies and hidden value This model is useful for anyone assessing whether a diversified group is worth more than the sum of its parts. By valuing each segment separately and then applying a conglomerate discount, it highlights potential hidden value or divestiture opportunities. - The scenario toggle allows users to switch between bear, base and bull cases with different growth and multiple assumptions, supporting a range-based view. The football field output helps compare the implied value range with the current share price. - However, the public download is a values-only preview, not a live formula workbook, so it serves as a structured reference rather than a real-time tool. The model clearly documents its assumptions and scope. ## Built for break-up valuation Use this model when a diversified company's segments have different growth profiles, risk characteristics, and comparable peer sets that justify independent valuation. ## Handles overhead and cross-segment complexity A proper SOTP model allocates unassigned corporate costs and tax attributes across segments while eliminating inter-company revenues and costs. ## Useful for activist and corporate strategy work Construct a break-up value thesis, evaluate potential spin-offs, and identify which business units are creating or destroying value within the group. ## Built for break-up valuation Use this model when a diversified company's segments have different growth profiles, risk characteristics, and comparable peer sets that justify independent valuation. ## Handles overhead and cross-segment complexity A proper SOTP model allocates unassigned corporate costs and tax attributes across segments while eliminating inter-company revenues and costs. ## Useful for activist and corporate strategy work Construct a break-up value thesis, evaluate potential spin-offs, and identify which business units are creating or destroying value within the group. ## Features - **Segment-specific drivers:** Each segment has its own growth rate, margin profile, and multiple range so valuations reflect true business drivers, not blended averages. - **Discount rate flexibility:** Apply segment-specific cost of capital based on risk profile, then apply corporate-level WACC to holding company costs. - **Bridge to market cap:** Reconcile SOTP value to current share price and identify valuation gaps by segment, highlighting which business is most mispriced. ## Use cases - **Investment thesis development:** Identify which segments are overvalued or undervalued relative to peers and build a thesis around portfolio rebalancing or divestiture. - **Breakup analysis:** Model the value creation from spinning off a segment, including tax impacts and standalone costs post-separation. - **Corporate strategy and capital allocation:** Determine optimal portfolio composition and target valuations for each segment to maximize total shareholder value. ## Frequently asked questions ### What is a sum-of-the-parts model? It is a valuation framework that values each business segment of a diversified company independently, then aggregates the results and adjusts for corporate-level items to arrive at total equity value. ### Who uses SOTP models? Equity research analysts, corporate development teams, activist investors, and M&A advisers use them when a company operates across materially different industries or growth profiles. ### What should an SOTP model include? It should include independent segment valuations, corporate overhead allocation, inter-segment eliminations, and an equity value bridge covering non-operating items. ### Can I value segments using different methods? Yes. The model supports linking segment valuations to separate DCF analysis for high-growth divisions alongside multiple-based valuations for mature segments. ### How does it handle the conglomerate discount? The model includes sensitivity analysis for applying a conglomerate discount, reflecting the market tendency to value diversified firms below the sum of their standalone parts. ## Related templates - [DCF Model](https://finamodel.com/templates/dcf-model) - [Comparable Companies Analysis](https://finamodel.com/templates/comparable-company-analysis) - [M&A Modeling & Valuation](https://finamodel.com/templates/ma-model)