Middleby has three business units, Commercial, Food Processing and Residential. The Residential business unit includes their grill brands, like Kamado Joe, Masterbuilt, and Char-Griller. Their core business unit is Commercial though with 63% of total company revenue.

With Middleby’s earnings lagging, and a new activist investor involved in the business, they’re evaluating options to deliver more value to shareholders. It was announced today that the strategy work to identify if they’re better off separating their Food Processing and Residential business units from the company is in its advanced stages.

…today confirmed that, as part of its Board of Directors’ ongoing efforts to maximize shareholder value, the Company has been conducting a strategic review of its business portfolio, which started last year. The Board, with the assistance of outside financial and legal advisors, is considering a broad range of strategic options including a potential separation of its Food Processing and/or its Residential Kitchen business units, among other alternatives.

The Board and management team believe that there is unrealized value in the Company’s business portfolio and have been evaluating a wide range of options and the optimal timing to unlock that value. The Company is in advanced stages of this review and expects to reach a conclusion within the next few months.

Middleby Press Release Dated January 27, 2025

Although we thought it was unlikely, given the discount they’d have to take to sell their residential brands, it’s scenario that we laid out in our previous article on the investor activism at Middleby. Their statement makes this option much more likely.

Why Middleby Would Divest their Business Units

Ignoring if Middleby feels they can get better returns by investing cash in Commercial versus Residential, they may believe their market valuation is being dragged down by the different business units. In simple, made-up numbers, imagine if Commercial was 50% of their business and comparable commercial food service businesses were trading at 10 times earnings on the market. At the same time, Residential was the other half, and comparable companies were trading at 5 times earnings. Logically the whole company should trade at 7.5 times earnings.

That often isn’t the case though. In that scenario, if the whole company was trading at 6 times earnings, there would be value for shareholders unlocked by separating the company into two different companies. This is exact scenario that led Vista Outdoor to split their business into a shooting business and an outdoor products business.

Possible Separation Scenarios

There are a couple different options that Middleby is likely exploring to separate their Residential business unit from the rest of the company. The first, is they could explore what Vista Outdoor initially planned to do, divest it into a separate publicly traded company. They would likely realize what Vista did though, that public valuations will fall short of what they can receive through a private sale.

I think the most likely option is they sell their Residential business to another company or an investment firm. While the valuations will certainly be lower than they would have been three years ago, they should fetch a decent multiple given the strength of their brands and proforma earnings.

They also are probably considering separating the outdoor cooking brands from their kitchen brands to optimize value in a sale. Much like the public valuation scenario I laid out above, the grill brands could depress the overall value of the whole Kitchen business unit in a sale, where they would maximize value by breaking them up.

As a whole, the grill brands don’t offer much strategic value to the larger grill companies. Weber is going through their own transaction with Blackstone currently, so they likely are off the table for another large transaction. W.C. Bradley Co.’s existing portfolio may have too much overlap with Masterbuilt and Char-Griller that they aren’t a likely suitor – though Kamado Joe could offer them some value. That leaves Middleby shopping their brands to investment firms.