This year, some big industrial players are reshaping themselves. Honeywell plans to divide into three different companies, while DuPont has recently spun off its electronics sector. Johnson & Johnson is also separating its orthopedics division. Though each company has its own strategy, they all share a common aim: enhancing shareholder value.
Middleby (MIDD) is following a similar path. The company is known for its work in commercial foodservice, food processing, and residential kitchens. Coming up in February 2025, it will create a tax-free spinoff of its food processing unit. Recently, it sold 51% of its residential kitchen business to 26North Partners for $540 million. After these changes, Middleby will focus on its commercial foodservice segment, which generates about $2.4 billion annually.
Middleby historically grew through acquiring smaller companies rather than building organically. Here’s a quick look at their approach:
- Acquire small, private equipment firms, often valuing them at 7x to 10x EBITDA.
- Integrate them into its portfolio.
- Boost profit margins by approximately 15 percentage points.
- Benefit from higher valuations based on combined cash flow.
This method transformed its commercial foodservice division, integrating brands like TurboChef and Taylor. Their innovative equipment is now essential in eateries like McDonald’s and Starbucks.
In the food processing unit, revenue skyrocketed from $3 million to over $800 million since 2005. They’ve built extensive production lines for large clients like Tyson Foods. The upcoming spinoff promises to give food processing its own shares, emphasizing the need for companies to perform independently to attract investments.
Management believes their stock is “significantly undervalued” and sees this breakup as a chance to remedy that. The commercial foodservice division, with steady margins, will also manage the bulk of their $1.9 billion debt, making it crucial for maintaining financial stability.
In a recent report from PitchBook, the industrial machinery sector shows companies trading at around 16 times EBITDA on average. Analyzing Middleby’s figures, a combination of both segments might yield an enterprise value of approximately $11.5 billion. With their current net debt taken into account, a rough estimate values their equity at about $9.6 billion, slightly above their market cap of $8.5 billion. Closing that gap is essential for future growth.
The anticipation around the spinoff indicates that Middleby’s management expects better margins for food processing this year despite recent challenges like tariffs. As they continue to buy back shares—already reduced by 6.4% this year—investors are focusing on how this transition will unfold. With the expected spinoff in Q2 2026, more clarity will come with forthcoming financial results.
