Sum-of-the-Parts (SOTP)
Definition
Sum-of-the-parts is a valuation method that values each of a company’s business lines separately and adds them up, often revealing that the pieces are worth more than the market price of the whole. The gap is called the conglomerate discount.
In practice
SOTP analysis is the intellectual engine of breakups and activist campaigns. KKR’s Beatrice buyout was a pure sum-of-the-parts trade: buy the discounted conglomerate, sell the fairly priced divisions, keep the spread.