Debitoor's accounting dictionary

Unbundling - What is unbundling?

Unbundling in business refers to the process of a business with multiple arms selling off certain lines of the business in order to focus on fewer, more focused lines of the business

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Unbundling occurs when a company sells off lines of their business including assets, subsidiaries, etc. This process separates the income from each different branch, thereby allowing the business to focus on the core.

Why unbundling occurs

Companies choose to undertake unbundling for a variety of reasons. A common reason can be when a business acquires another company with multiple business lines due to a specific aspect of that company.

The unbundling would then occur when the purchasing business splits or sells off the various arms of the acquired company that are not needed, or in which they’re not interested.

Unbundling can also happen when a business finds that they need to cut down on costs and so splits or sells off the non-essential parts of the company in order to better optimise the main operations.

If a larger, publicly traded company has stock that is not performing well, the shareholders might ask for an unbundling in order to strengthen the business and therefore the stock.

How unbundling changes a company

A company that has undergone unbundling does not necessarily mean that the company sells off the unbundled arms. It can simply split the different operations into separate businesses, but still maintain a controlling share of those businesses.

This type of unbundling, however, only occurs when the purchasing company has reason to believe that the unbundled arms they’ve retained a controlling share of have potential for future success.

This also allows employees to stay on in their roles, while still allowing the original company to pare down to the core business.

Unbundling and accounting

When unbundling occurs in a business, the finances are divided as appropriate to the relevant arms of the business that are sold off. The process of unbundling stretches across all aspects of the business, including the accounting.

It can be a complex process to unbundle the accounting side of a business if several arms are sold off, but comes with the ultimate aim of establishing more reliable income and steadier finances.

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