The market value of the components (lines of business, divisions, units, etc.) of a firm, assumed to be sold off individually and operated independently (from the main firm). In simple terms, the breakup value is what a firm (and its components) would be worth if theses components (assets) were sold off and the corresponding liabilities were settled. If the breakup value exceeds its respective share in the firm’s market capitalization, a spinoff of a component will make economic sense.

The breakup value (BUV) is the net asset value of a firm, assumed to be a “gone concern” rather than in operation with all its components (going concern). This value accounts for a sort of forced/ fire sale value of the assets (and settlement/ transfer of corresponding liabilities) under a hypothetical scenario (case of distress).

In calculation, breakup value is figured out as follows:

Breakup value = value of total assets – (total Liabilities + preferred shares + fair liquidation fees)

The resulting value is what a firm would be worth if its assets were sold off and its liabilities were paid off, either under normal or abnormal market conditions.

The breakup value is also known as a private market value, an intrinsic value, a net assets value, a gone concern value, a liquidation value, or a sum-of-the parts value.