Middleby Continues Its Acquisition Spree, Buying Viking Range Corporation

| About: The Middleby (MIDD)

Shares of The Middleby Corporation (MIDD) rose 2.2% on the final trading day of the year. The manufacturer, marketer and distributor of cooking and warming equipment announced the acquisition of Viking Range Corporation.

The Deal

The Middleby Corporation announced that it has agreed to acquire Viking in an all-cash transaction valuing the firm at $380 million.

Viking is a leading manufacturer of premium residential cooking equipment, ovens and other kitchen appliances and is based in Greenwood Mississippi. By combining both firms, Middleby expects to find meaningful cost reduction and production efficiencies and yield, improved design and performance.

CEO and Chairman Selim A. Bassoul commented on the deal, "This acquisition strategically positions Middleby as a leading manufacturer in the sector with a top brand. The acquisition of Viking allows us to integrate our own patented technologies that will have a huge appeal to consumers for their residential kitchens. These technologies include speed cooking, induction and truvection."

The press release states that Viking generates approximately $200 million in annual revenues. Based on the price tag of $380 million, the company is valued at roughly 1.9 times annual revenues.

Middleby is currently known for its brands TurboChef, Jade and MagiKitch'n and it plans to integrate these residential platforms with Viking.

The firm did not provide an expected closure date of the deal.


Middleby ended its third quarter with $35.1 million in cash and equivalents. The company operates with $269.3 million in short and long-term debt, for a net debt position of roughly $234 million.

For the first nine months of 2012, Middleby generated revenues of $746.6 million. The company net earned $82.9 million for the period, or $4.47 per diluted share. The company is on track to generate annual revenues around $1 billion on which it could earn $115-$120 million.

The market currently values Middleby at roughly $2.4 billion. This values the firm at approximately 2.4 times annual revenues and 20-21 times annual earnings.

Middleby does not currently pay a dividend.

Some Historical Perspective

For the full year of 2012, shares of Middleby have risen some 35%. Shares traded around the $95 mark for most of the first half of 2012, before rallying to all-time highs around $134 per share earlier in December. Shares are currently exchanging hands around $128 per share.

Shares have seen a great run over the past couple of years. Trading in the low twenties at the start of 2009, shares have gradually moved upwards. Between 2008 and 2012, Middleby boosted its annual revenues by more than 50%, approaching $1 billion in 2012. Earnings grew even faster, almost doubling over the same period of time.

Investment Thesis

Shareholders of Middleby applaud the deal which the company made. The valuation at 1.9 times annual revenues seems fair in relationship to its own valuation of 2.4 times annual revenues. Unfortunately, Middleby did not provide more information regarding Viking's profitability in its press release, nor did the firm give a guidance on expected synergies as a result of the deal.

The acquisition of Viking is not the first deal of Middleby in 2012. Earlier in the year, Middleby bought Nieco Corporation and Steward Systems which combined generate annual revenues of approximately $50 million.

The deal with Viking will boost the net debt position of the firm to roughly $600 million. The debt position is significant, but manageable, and remains within acceptable ranges. Yet it is significant enough to put down the pace of the acquisition-based growth strategy.

The $2.4 billion valuation of Middleby values the firm at roughly 2.0 times annual revenues, given that the firm will generate annual revenues of $1.2 billion on a pro-forma basis. The pro-forma profitability will be hard to estimate given the lack of details about Viking's profitability and expected synergies, but is expected to come down as well.

I will look forward to the release of the fourth quarter report which might give clues about the pro forma profitability of the firm. If Viking reports similar profit margins compared to Middleby, and the firm could realize some real synergies, the earnings multiples on a pro forma basis could come down to 17-18 times annual earnings. This is certainly not cheap, but seems fair given the strong historical growth track record of the firm, driven by its string of acquisitions.

I remain on the sidelines at the moment, awaiting clues about the profitability of Viking and synergies related to the transaction, before considering initiating a position.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.