Sum-of-parts valuation

Sum-of-parts valuation values each division of a diversified group separately, aggregates the totals, and deducts central costs and net debt. It reveals value hidden when a single multiple is applied to a conglomerate's blended earnings.

ByHoang TruongUpdated July 3, 2026

FrameworkRelative valuation

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A diversified group's three divisions are valued separately at €600m, €450m and €300m, summing to €1,350m in enterprise value. Subtracting €150m of capitalised central costs and €200m of net debt leaves a sum-of-parts equity value of €1,000m. If the group's actual market capitalisation sits below that figure, the shortfall is the conglomerate discount the market applies to complex structures.

Where it fits

SubjectCorporate FinanceAdvancedTopicBusiness Valuation & DCFAdvanced

The formula

LaTeX

\text{Equity value} = \sum_{i} EV_i - \frac{C_{\text{central}}}{r} - \text{Net debt}

Variables

$E V_{i}$: enterprise value of segment i, estimated using the most appropriate method for that segment
$C_{c} e n t r a l$: annual unallocated group-level overhead (capitalised as a perpetuity)
$r$: discount rate used to capitalise the central costs
$N e t d e b t$: total financial debt minus cash and equivalents at group level

The perpetuity capitalisation assumes central costs are permanent; replace with a DCF projection if not. Unfunded pension deficits should also be deducted. When the sum exceeds group market capitalisation, the gap is the conglomerate discount.

Check yourself

PracticeCORE

An analyst values a conglomerate's two divisions separately: Division 1 at €400m and Division 2 at €300m. Unallocated central overhead is capitalised at €50m. Net debt is €120m. What is the equity value under the sum-of-parts approach?

Select an answer to check your understanding.