Bifurcation
Categories: Metrics
In general, bifurcation refers to a process that divides something into two. As in, "that chainsaw accident bifurcated my thumb."
Applying the term to finance, it typically involves a revamping of a company's structure, splitting from a larger organization into smaller, more targeted groups.
It's fairly common for large companies to break into two publicly traded entities. Usually the goal is to separate fast-growing businesses from ones that have already matured and are now showing more modest growth.
Just a few examples of the phenomena:
-In 2016, Xerox announced that it would split off its business services unit.
-In 2014, Hewlett-Packard decided that it would form two separate companies, one with its traditional computer/printer business and one with its technology services units.
-In 2012, News Corp. broke off its 21st Century Fox businesses.
The list could go on, but we'll quit there (mostly because we're getting bored of listing the deals).
The term "bifurcation" also comes up frequently in financial analysis. When drawing up an investment game plan, advisors will often run two theoretical scenarios to figure out the optimal strategy going into binary events. An example might be an upcoming election. An investment advisor might lay out a bifurcated plan: one based on what to do if one of the parties gets elected; the other based on what happens if the other party wins.
