Several large industrials are breaking apart this year. Honeywell is splitting into three companies, DuPont spun off its electronics business, and Johnson & Johnson is carving out its orthopedics unit. While the strategies may differ slightly, the goal remains the same -- to unlock shareholder value.
Middleby (MIDD 2.55%) is running the same playbook. The company entered this year with three segments: commercial foodservice, food processing, and residential kitchen. It announced a tax-free spinoff of the food processing segment in February 2025, and sold 51% of the residential kitchen segment to 26North Partners for $540 million last month. What will remain is a commercial foodservice equipment maker with annual revenue of $2.4 billion.
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The serial acquirer tries to regain its youth
Middleby was built on acquisitions, not organic growth. The strategy was:
- Buy small, private equipment companies at roughly 7x to 10x earnings before interest, taxes, depreciation, and amortization (EBITDA).
- Fold them into the platform.
- Expand margins by an average of 15 percentage points.
- Let the acquired cash flow get revalued at Middleby's higher trading multiple.
That's how the commercial foodservice segment became the business it is today. Brands like TurboChef and Taylor, whose ventless ovens and automated grills cut cook times by more than half, are now standard equipment in chains such as McDonald's and Starbucks.
The food processing segment grew in the same way, from $3 million in revenue to over $800 million since 2005, building industrial production lines for processors like Tyson Foods.
NASDAQ: MIDD
Key Data Points
The spinoff gives food processing its own stock, and that's the whole point. A roll-up only works if the equity trades at a multiple rich enough to make the next deal accretive. As a stand-alone company with its own management and capital structure, the food processing segment becomes the primary acquisition vehicle, but at less than $1 billion in revenue, it will need to prove itself to earn a premium multiple.
Management has said it believes the combined stock is "significantly undervalued" and has pointed to the separation as one way to close that gap. Commercial foodservice, with steady margins, is the backbone and, given its larger cash-flow base, would likely carry the bulk of the $1.9 billion in net debt.
What the pieces might be worth
The Form 10 SEC filing that details the spinoff's financials, hasn't been filed yet, so how the debt splits between the two businesses is still unknown. But some back-of-the-envelope math gives a rough picture. Industrial machinery companies trade for roughly 16 times EBITDA, on average. At a conservative 14 times EBITDA of $809 million for both segments, the enterprise value lands at around $11.5 billion.
Back out the net debt, and the equity is worth roughly $9.6 billion against a current market cap of $8.5 billion. That gap is what the transactions are designed to close. That said, the valuation assumes food processing profitability normalizes after pressure from tariffs and soft international demand trimmed around 440 basis points from adjusted EBITDA margins so far in fiscal 2025.
Meanwhile, the company has cut its share count by 6.4% through the first three quarters of 2025, with the $540 million in proceeds from the residential segment sale reloading the buyback program. The spinoff is targeted for the second quarter of 2026, and management expects food processing margins to improve this year. Another quarter of results and the Form 10 details will tell us a lot.
