What is a sum-of-the-parts (SOTP) valuation and when do you use it?

Answer

SOTP values each business segment of a diversified company separately using the methodology most appropriate to that segment, then sums the values. , a tech segment might get 6x revenue, a manufacturing segment 8x EBITDA), then you add corporate cash, subtract corporate debt and pension obligations, and apply a conglomerate discount (typically 10-20%) to reflect management complexity.