Conglomerates get a bad rap with the market. But what’s the alternative? Companies don’t like having to sell businesses which still have lots of juice. And spin-offs, which in theory should close the valuation gap, often do nothing of the sort. Smiths Group, the UK engineer, shows that sometimes it is better to hold on to one’s sprawl — for a time at least.
The last of the big UK industrial conglomerates on Friday sold its Interconnect connectors business for a better than expected £1.3bn, supporting the argument that assets are undervalued when bundled into a conglomerate. Yet the decision by Smiths to hold out until now speaks to the value that can be wrung when units have the support of bigger groups.
When Smiths began slimming in 2021, offloading its medical devices business, then boss Paul Keel resisted pressure to go further — even as American stalwarts GE and J&J split themselves up. In this, he went against prevailing market theory.