ITT Inc. (ITT) Earnings Call Transcript & Summary

Good morning, and welcome to ITT's conference call and webcast to discuss the company's announced agreement to acquire SPX FLOW. [Operator Instructions] It is now my pleasure to turn the floor over to Phil Terrigno, Executive Director, Global Communications. You may begin.

Thank you, Liz, and good morning. Joining me in Stanford today are Luca Savi, ITT's Chief Executive Officer and President; Emmanuel Caprais, Chief Financial Officer; and Bartek Makowiecki, Chief Strategy Officer and President, Industrial Process. Today's call will cover ITT's definitive agreement to acquire SPX FLOW, which we announced this morning. Please refer to Slide 2 of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties. The materials we published this morning and reconciliations of certain non-GAAP measures are available on our website. With that, it is now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Phil, and good morning, and thank you all for joining ITT today. I'm honored and humbled to present the strategic acquisition of SPX FLOW, a milestone in ITT's value creation journey. This acquisition checks all the boxes from a strategic point of view. It checks all the boxes from a financial point of view, and it accelerates our 2030 vision. Before we get into the details on SPX FLOW, let me spend a few moments on ITT's 2030 vision. In May 2025 at our Capital Markets Day, we shared ITT's vision. The strategy was simple, scaling while shifting towards high-growth, high-margin businesses, making the portfolio more resilient and making automotive exposure roughly 20% of the total portfolio by 2030. The pillars of this strategy are value creation through organic growth and margin expansion compounded with M&A. In the last 2 years, we have been growing organically and expanding our margin whilst being active on the M&A front with the highly successful acquisitions of Svanehøj and kSARIA. And today, we are communicating the strategic acquisition of SPX FLOW, a company we have been courting for the last 3 years. This is an incredible achievement if you think that it took me 10 years to convince my wife to say maybe, when I proposed. Let me now share the rationale behind this acquisition. As I shared earlier, SPX FLOW checks all the boxes strategically. It delivers strong financial benefits, and it accelerates our 2030 vision. Let's go deeper into the strategic fit. SPX FLOW adds to our core in pumps and valves premier brands with market-leading position, such as Waukesha Cherry-Burrell. It also adds adjacent flow technologies in end markets where ITT does not currently play, such as Nutrition & Health and personal care. Other premier brands like Lightnin and Bran + Luebbe enhance ITT's ability to solve complex challenges for our customers at an even greater scale. SPX FLOW strengthens ITT's leadership in existing core markets such as chemical, energy and mining. This acquisition expands our total addressable market with an opportunity of more than $60 billion across its 4 verticals. Notably, SPX delivered approximately $1.3 billion in the trailing 12 months, a 42% gross margin and 43% aftermarket revenue that will double industrial process aftermarket sales. And last but not least, it accelerates ITT's portfolio reshaping. For ITT, SPX is with no doubt on strategy. Now let me turn the call over to Emmanuel to walk through the transaction details.

Thank you, Luca, and good morning. We are acquiring SPX FLOW from Lone Star funds for $4.775 billion in cash and equity. This equates to 14.2x SPX's forecasted full year 2026 EBITDA or 11.5x, including expected cost synergies. We expect the transaction to be immediately accretive to gross margin and adjusted EBITDA margin with adjusted EPS accretion in 2026 and double-digit EPS accretion in 2027, excluding the amortization of intangibles. The cash portion of the transaction will be funded through debt and equity, and we expect the transaction to close by Q1 2026. Now let's turn to Slide 6. We are planning to maintain our investment-grade balance sheet with this transaction. We have secured a fully committed financing facility and at the request of Lone Star, the consideration will include $700 million in ITT common stock to Lone Star. We expect the projected net leverage of less than 3 turns of debt-to-EBITDA, and we expect to be below 2 turns within 18 months. Let me hand the call over back to Luca on Slide 7.

Thank you, Emmanuel. Let's go deeper into SPX FLOW. We have always admired SPX FLOW's brands. After the acquisition by Lone Star, the company has shed noncore businesses. And today, a more focused, streamlined SPX FLOW is a perfect fit for ITT, with the brands, with a leadership position and with the market they're exposed to. Well done to Lone Star, Marc and to the SPX leadership team. Today SPX is superior engineering company with great products, pumps, valves, mixer, heat exchanger to name a few. They are leaders in the market where they play in, be it chemical, Nutrition & Health or industrial. SPX has strong global presence with well-organized and lean production plans, whether it is in Wisconsin, China or Poland, where Bartek, Emmanuel and I spent time with the local teams during the last 3 years. Thanks to the work that SPX leadership team has done, their financial performance is top class, with 42% gross margin, 22% adjusted EBITDA, which we expect to increase above 27% after synergies, already above ITT's 2030 long-term target. And because of the critical nature of SPX's applications, the quality and reliability of their products, SPX customers are loyal. This loyalty translates into a healthy recurring and sticky aftermarket, made even better by the great service SPX FLOW provides. Let me now share how they are organized today on Slide 8. There are 4 businesses. First, the Hygienic Pumps where Waukesha Cherry-Burrell is the #1 brand in North America for Nutrition & Health. This is a world-class brand that is very close to ITT's score. IP distributors will love to put their hands on it and sell. Then Industrial Pumps with the Bran + Luebbe and Johnson brands, playing in markets that are very familiar to us, such as chemical, general industrial and energy. This is core for ITT. Here, we can leverage ITT's stronger industrial channel in regions like Latin America and Saudi for further market penetration. Third, mixers. A very close adjacency with the #1 brand like Lightnin recognized worldwide, and Philadelphia, another well-established brand in mixing with nearly 70 years of heavy-duty industry experience. Last but not least, Nutrition & Health Solutions, a component and project business that shares similar attributes to the project business we are running at IP. In summary, the deal is close to our core and adds strategic adjacent products. Now to Slide 9 to briefly look at the strategic fit. As you can see, with a very strong strategic fit with our Industrial Process business. We're expanding our product portfolio in core and closely adjacent markets. We are broadening our geographic coverage. We will leverage each other's respective channel strength, ITT's in industrial and SPX's in hygienic. And we will enhance our end market mix, making into attractive and growing markets, significantly growing our overall TAM. Another key strength of this deal is SPX's aftermarket presence on Slide 10. As previously shared, 43% of their business comes from aftermarket. SPX FLOW designs critical equipment for critical applications with the quality of their engineering and the service they provide, their blue chip customers are loyal, and this loyalty drives the recurring, healthy and sticky aftermarket. To top it off, this doubles IP's aftermarket revenue to approximately $1.2 billion. This deal also presents significant opportunities when it comes to cost synergies. Now to Slide 11. We have identified an $80 million run rate by end of year 3, 2/3 of which we expect to capture by the end of year 2. The first portion comes from G&A, where we will consolidate back office resources and optimize combined spend. On COGS, we will target quick wins in procurement by consolidating our spending in machining, for example. We will also leverage SPX footprint in Poland and China, where they have top-notch operations. Let me remind you that IP today has no low-cost country facilities in Europe and no real prices in China. As you can see, we have a clear line of sight into the cost synergies, and we will hit the ground running at closing. Also on the revenue side, we know what we must do. And whilst revenue synergies are not included in the model, we will nevertheless go after them with ITT's typical entrepreneurial spirit and hunger. We will expand SPX FLOW's brands in Latin America, a growth region where we have a strong presence. Not to mention Saudi Arabia, where we recently expanded our footprint and capabilities 2 weeks ago, just in time to have new products from SPX. And we will also share these products and leading brands in North America with our distributors. Last but not least, an area which people tend to underestimate during M&A, the cultural fit on Slide 12. Like Svanehøj and kSARIA, this is an outstanding cultural fit. At Capital Markets Day, you might have spoken to Søren, Johnny or Jacob from Svanehøj or Mike DiPoto from KSARIA. They sounded like ITTiers, bold, proud of their product and never satisfied. When you talk to them about the product application of projects or customers, they know it inside and out. This is ITT. And this is also SPX. I personally saw the same knowledge in everything they do. I could see it and I could feel the same passion. Both companies have a global perspective, the level of granularity that we are proud of at ITT was beautifully mirrored in the meetings that we had with Jaime, Peter and the business leaders. SPX is very analytical, and the visibility they have into their data is unmatched even better than ITT. With ITT focused on continuous improvement over and over and yes, over again, and we witnessed SPX's continuous improvement focus on the shop floor in all the plants we visited in the last 3 years. And believe me, we went to many of them. As you can see, very aligned cultures and very focused on delivering value for the customer and solving their most critical problems. Now to the new ITT, on Slide 13. With this beautiful addition, our revenue will be above $5 billion, and we will increase our gross margin by 110 basis points. It is an ITT portfolio with a larger, more structural resilient IP covering a larger TAM and an automotive business that is barely above 20% with an EBITDA margin of 22%, we expect EPS accretion in 2026 and a double-digit EPS accretion in 2027. No doubt, this acquisition is on strategy and is an acceleration towards our 2030 vision. Moving to Slide 14. This is a large deal for ITT. And let me share what we have here. We are fortunate to having one single company, many leading brands and businesses. They are #1 or #2 where they play. They're well run with a strong management team. They have a great reputation in the market and with their customers, and they have a very strong financial profile. Combining this with ITT strength in execution, will create value for our customers and our shareholders. At ITT in the last 4 years, we delivered 9% organic revenue CAGR, 170 basis points of margin expansion, 44% adjusted EPS growth, and our recent acquisitions are performing well, growing profitably and creating value. Bartek, the entire leadership team and I will focus on this deal, ensuring we create value for our shareholders, customers and people. Before wrapping up, let me reaffirm our full year guidance for 2025, reflecting our continued strong year-to-date performance, we continue to expect adjusted EPS of $6.62 to $6.68, representing growth of 13% to 14% for the full year after giving effect to the impacts of this transaction, including our expected financing activities. Now let's wrap it up. ITT's acquisition of SPX FLOW, as I said, checks all the boxes from a strategic point of view. It checks all the boxes on the financials and it accelerates our 2030 vision. Now what is left to do is just execute. And you can rest assured, we will work hard to serve our customers and deliver value for our shareholders. Thank you for joining us today. Liz, please open the line for Q&A.

[Operator Instructions] Our first question comes from Andrew Obin, Bank of America.

So on SPX, I think, some of us have seen the business in the prior iteration and it's just interesting to see how much better it looks coming out of private equity than going in. Maybe you can give us some background on history. What has changed inside SPX over the past several years? How much of the margin improvement that we're observing is volume, i.e., better fixed cost absorption? How much of it is shedding assets and what exactly has changed under the private equity ownership in terms of asset base? And finally, how much of it was sort of core operational improvement?

Thank you, Andrew, for the question. And the straight answer is a little bit above everything that you just said. I think that one major aspect under the ownership of Lone Star is Marc and the leadership team have really executed their plan in terms of streamlining the company. And therefore, now is much more focused. They've worked on leaning also on the plants. And therefore, what you have today is a much more profitable company, much more focused, and as I said, a perfect fit for ITT. If you look at all those 4 businesses are either very core, pumps, valves or very adjacent to what we do, mixers or projects in Health & Nutrition. So in short, streamlined, focused, leaner.

You want me to [ chime in ]?

Please, yes.

So maybe from my perspective, I think there's an element, there's a strong element also in terms of the way they operate. They pretty aggressively rolled it out, their 80/20 strategy, which focused them kind of in the right pockets in terms of markets, in terms of customers. But there is another very strong element in terms of aftermarket capture. As you know, they have very strong brands with very strong installed base that they have historically actually neglected to some extent. And so one of the things that they really drove over the last year is to recapture some of that wallet share and they've actually done that very effectively. So that drove a lot of the margin improvement.

Congratulations.

Next question comes from Amit Mehrotra with UBS.

Congrats on today's announcement. Maybe to start with -- just following up on Andrew's question a bit more quantitatively, can you just talk about the trajectory FLOW has been on the last few years in terms of organic growth? Offer just a bit more color on the aftermarket business, obviously, a significant percentage of the business, how the economics work, how the growth rate in that business compares to the OE portion of the business? Any color around kind of the through-cycle growth would be helpful.

Yes. Thank you, Amit. So when you look at the growth that SPX has experienced in the past few years, over the period '22 to '25, they grew overall by low to mid-single digits. The aftermarket was much higher by high single digits. So to the point of what Bartek was saying, they really worked on improving their aftermarket service. That now represents more than 40% of their total revenue. They really worked on cutting their lead times and improving the service to customers. And that's why they've been able to grow and also to make it really accretive from a margin standpoint.

Okay. And just maybe as a follow-up, I'd be curious to get your perspective on the competitive positioning of the products, whether on a stand-alone or the advantages that comes with by joining forces. I mean there's obviously companies like, I guess, Flowserve, Alfa Laval, Dover that have similar kind of types of business. Be curious to get your perspective on the competitive advantages of the products and the technology.

So let me talk about the joining forces and then Bartek, maybe you address on the power of the brands. I think that when you look at the joining forces, first of all, in -- as we said in prepared remarks, the revenue synergies are not in the model. But we are going to go after them. And just to give you a couple of examples, they are not very present in the Middle East. And we have a very strong presence in Saudi Arabia, where we actually opened the expansion just 2 weeks ago with 140 customers attending. So you can imagine how this could be a great opportunity for the Bran + Luebbe pumps, metering pumps or for the mixers. So that is just one example. We have a very strong presence in Latin America. In Argentina, in Brazil as well as in Chile and Peru. Once again, mixers will be great opportunity over in Latin America as well as their progressive cavity pumps. So those are from a geographic perspective and then also use each other distribution in terms of what our strength is in industrial distribution in North America, and this will be a great channel for some of their products. And also we have some hygienic pumps that we make in Bornemann that is by, you can say, by chance, is really something that they do not have in their product portfolio. So definitely a strength, we are going to be stronger together. But Bartek, why don't you talk about the power of the brands?

Look, I think Luca mentioned that in his opening remarks. I think the beauty of this acquisition really is that the vast majority of the brands that we're getting here are leading brands. And when I say leading, it's not like top 5, they're literally #1 in their space. If you look at Waukesha in the U.S., absolutely sort of the [ Kleenex ] in this category. You look at Lightnin in Philadelphia, same thing on the mixer side. And then you look at Bran+Luebbe metering pumps, same thing, very, very strong. So great fit for us because in the end, if you look at ITT, we're a family of brands, family of leading brands, so this fits beautifully into the portfolio.

Your next question comes from Scott Davis with Melius Research.

Congrats. It looks like a great deal for you guys. But I know you guys kind of walked around a little bit of the factory footprint. Could you be a little bit more explicit? How many factories do they have? And how many factories you think they need? Is there an opportunity for some consolidation within even your own facilities? Perhaps, just a little color on that.

Yes. So when you look at their production sites, they have around 15 production sites. And one thing that we were really encouraged when we visit them, is that they're very well capitalized. The equipment is new. As Luca said, they've implemented lean, but there are still more opportunities for us to do. And then also what's really interesting is that they bring low-cost country footprint. They are very -- they have a really large facility with a significant available space in Poland. They have also a top-notch operation in China. And so we intend to use those square footage to be able to expand and produce our products also there.

Another thing, Scott, that I wanted to share with you, we visited many of these factories. And actually, they are very well run. If you look at also our -- their Poland factory, actually, they have a very good expertise in importing production from other plants. So this will represent a further optimization in our cards when we look at the footprint of the 2 companies together. The SPX China plant that Bartek and I visited a couple of months ago is another great opportunity. We are not making any pumps in China, Scott. So if you talk about Bornemann, if you talk about RPG, if you talk about Goulds Pumps, zero. All right. Now we have a chance, and we have a good low cost country in Asia and a good low-cost country in Europe, great opportunity.

Yes. Helpful. Just switching gears, I imagine you may not have an explicit answer for this, but any sense of the holding period for Lone Star with the stake that they're taking on you guys?

No. I think that this is something that probably is not for this call.

Our next question comes from Mike Halloran with Baird.

So just a couple of questions here. First, just to be clear, the 3% to 5%, Emmanuel, you mentioned earlier is the growth rate the last few years. Is that the expectation on a forward basis? It feels like maybe you're expecting a little bit of acceleration there. I know you're not explicitly including revenue synergies, but I get the sense that you think that the growth rate might have a little optionality.

Sure. Thanks, Mike. First of all, SPX FLOW operates in solid markets, which are less cyclical. So if you look at the market, those markets are growing mid-single digits, right? Now in these markets, they are exposed to areas that are growing high single digits, like, for example, protein ingredients. So it's almost like the example of Svanehøj, right? Are you getting excited about marine? No. Are you getting excited about energy transition in marine? Absolutely. And you see, for example, what is happening in Svanehøj. Protein ingredient is a high single-digit growth, and this is where they play. And then as you said, we will go after revenue synergies and we will apply the ITT playbook of outperforming in the market play in. And these will lead to the high single-digit growth. On top of that, during the due diligence, we have been very thorough. The level of granularity that you will expect from ITT from us. And therefore, we are very comfortable with the backlog and the visibility that we have for 2026 and 2027.

That makes sense here. And then could you just walk and bridge the financing for us? I think I'm struggling, there might be a gap in them, maybe you need to do a different level of issuance. But with the $700 million of capital that Lone Star's -- equity capital that Lone Star is taking on by putting an extra 2.5 turns on. There's a gap there. So maybe just kind of help me understand how you get to the financing for the $4.775 billion.

Yes, Mike. So as we discussed and as we mentioned in the press release, we intend to fund the cash portion of the transaction consideration through a combination of debt and equity. We may in the future, to the extent market conditions warrant, raise funds through debt and equity financing. And also what's really important for us is that we work on deleveraging the balance sheet as quickly as possible. So at closing, we will be less than 3 turns, and then we work very quickly so that by end of 2027, we are less than 2 turns.

Congrats.

Our next question comes from Jeff Hammond with KeyBanc.

Congrats on the deal. Just a couple more on the deal financing. Can you talk about what you're thinking on interest cost? And then I know you've gotten this question before as you start to do deals, but just as you do this deal, how are you thinking about GAAP earnings versus ex amort earnings going forward?

I think that, Jeff, we have a committed financing. And as we said, is debt and equity. So what we have is the flexibility in terms of the debt to repay in terms of as soon as we are generating the cash. And so we are trying to retain that flexibility as the market and the rates might move in a favorable direction. So this is what we are trying to do on that front.

And then, I think, it wasn't exactly clear, but I think you talked about the adjusted EPS changes. So we expect that on closing, we'll adjust our EPS definition and remove intangible amortization.

Okay. Perfect. And then just back on the growth rate. So I think at the Analyst Day, you said 5 to 7 for IP. Is that -- we should think about as you pull SPX flow in that, that's still kind of a long-term target organic growth rate for this segment?

I think the long-term targets for the segment have not changed, Jeff. But as we said, when we look at this target, we will work really to deliver in terms of the high single-digit growth for SPX.

Our next question comes from Joe Giordano with TD Cowen.

Can you talk about what -- how much of this business has been like either walked away from or divested? I know there was one like divestment of [ Ingersoll ]. But like when this went private, I think, the revenue was something like $1.5 billion, give or take, in 2021, and now we're talking $1.3 billion. So just -- can you bridge the gap between the organic and how much has been eliminated here?

So they sold essentially 2 businesses. They sold air treatment and hydraulic tools. They were both between $150 million and $200 million in sales -- at sale.

Okay. Perfect. Now when they went private again, they were talking something about $75-ish million of synergies being taken out at that time. And now we're talking another $80 million. So it's even a higher percentage on a lower revenue base. And arguably, a revenue base that's been more optimized over the last 4 years. So -- and you talked about 80/20 already kind of having been put through at least in the early stages of that. So can you talk about like the ability to pull out like an increasing rate of synergies on top of a business that already kind of went through this?

Yes. So in terms of synergies, as you can tell, we have a very grounded plan. We have identified all the G&A, procurement and footprint synergies. With clear light on sight, we feel confident about our ability to execute. Overall, they represent roughly 6% of the target's revenue. So it's a very good number. The large majority of the synergies are going to come from G&A. So we talk about back-office rationalization, combined spending efficiencies. And then there will be also the most immediate synergies. And then once we go into year 2 and we get more than 2/3 of those synergies implemented, this is when the procurement and the footprint kick in. And so we have sourcing, logistics, best cost country sourcing, volume pooling as well and, of course, utilizing their facilities in Poland and China.

Emmanuel, can I just clarify one thing -- sorry, if I could just clarify one thing on the financing, and then I'll let you, if you have another point on that, you can jump in. But the $700 million going to Lone Star, the $4.07 billion (sic) [ $4.775 billion ] the cash portion. Are you saying that some of that $4.07 billion (sic) [ $4.775 billion ] can also be equity? I just want to make -- because the math doesn't work out unless it's part equity there, I think...

So yes, we're considering a range of financing means, and we'll make announcements at the appropriate time. The size of any potential offering will depend on a range of factors, including market condition at the time. So we'll get back to you on that.

And then my only addition here on synergies is, I think, you've been around our name for long enough, so you know that we don't sort of -- we don't take flyers and we don't take chances, right? So all the synergies are very, very well grounded and bottoms up. So we have specific initiatives study. This isn't like a percentage of sales kind of approach. On G&A, we know on footprint specific moves that we want to make and on procurement, the same thing. So there's a very detailed buildup behind it.

Our next question comes from Joe Ritchie with Goldman Sachs.

Luca, I think, I'm still laughing at your 10-year comment, we're going to have to explore that one day offline. Why it took so long to close the deal, but anyhow. The -- just maybe just, my one question is just really on those synergies. So I know that you guys are detailed. I know that historically through some of the deals that you've done, you have under-promised overdelivered. When you do take a look at this, as a percentage of revenues, it's only about 6%, really kind of towards the lower end of what we typically see for deals of this size. Just talk a little bit about like the maybe conservatism that exists in the synergies? Or is this just a really well-run business and so maybe it is at the lower end because it is already a well-run business today?

I think what I'd like to stress is the last point you're making is a very valid point in terms of -- it's very well run. Marc and the team have improved the profitability of this business. And if you look at their EBITDA and their margin is -- they're really good. Now if you look at the EBIT -- SPX's EBITDA percentage after applying these synergies, you will end up with EBITDA, which is higher than 27%, which is higher than ITT long-term targets that we shared at the Capital Markets Day. So I think that those $80 million of synergies are getting to a very good, very well run, very healthy business. Now this $80 million, as Bartek said, is very granular. So what we have communicated here is really the synergies that we have identified that we build, and we will hit the ground running when we close at the end of the quarter. What are not included here, Joe and I want to emphasize, are the commercial synergies because we, as an approach, tend to discount those completely. And in this case, we have put 0. Now as you can imagine, we will go after them from day 1, and those are not included.

Our next question comes from Vladimir Bystricky with Citi.

Congratulations on the deal. Luca, you mentioned backlog at SPX and how that gives you some visibility into '26 and '27. So can you just talk a little bit more about sort of the short cycle versus longer cycle mix in the portfolio here? And how much of annual revenues comes from backlog?

Okay. So when you look at the project business that you have in SPX FLOW. You're talking about anything between $200 million and $250 million, $300 million, which is the project. And therefore, those gives you a very good visibility in terms of the -- on the long term. And I think that what was also good to see is that thanks to the service they provide, the quality of their product and how they manage the projects, they have a very good customer intimacy with some of their major customers, the known of this world, et cetera. And therefore, they are building the CapEx -- of their customers' CapEx together with them, and we have a very good visibility on that long term and the project business.

And then Vlad, also, I wanted to highlight the fact that they have -- they are entering 2026 with a record backlog. And so from a system standpoint, rough -- more than 2/3 of their 2026 revenue is covered by backlog. And obviously, for the rest, the short-cycle stuff, it's a much more reduced number around 30%, and that's very similar to what we see in our IP business.

Okay. That's really helpful color, guys. And then maybe just -- you mentioned that you've been courting them for 3 years, and you've visited many of the plants over that time period. So can you give us any color on just the background and the process here? Was this a bilaterally negotiated deal? Just any more color on how this came to fruition.

Sure. Thanks, Vlad. As I said, it took some time. I'm sure that Marc and the SPX team remember, our very first meeting, which was December 2022 in the city 3 years ago. It has been a long courting, which has enabled us to know each other better. In these 3 years, we visited many plants, met many people and at different levels of the organization. The leadership of the plants and the people reporting to them in many countries, from Poland to the U.S. to China, you name it. Now we were very close to a deal in 2023, but we couldn't agree on the valuation. As you know, it takes 2 to tango. Now 2 years later, we met and we found a good agreement for both parties and the fact also that Lone Star decided to stay in the game is a good sign, I would say, for us, for ITT. And I think that it's good right now, 2 years later, is also, I would say, better for ITT, because we built some muscle after the successful acquisitions of kSARIA and Svanehøj. And therefore, what you have to think about here in this deal is practically 4 different businesses, 4 different Svanehøjs. So that's a little bit of background. But if I can take 1 minute more, I want to congratulate Bartek and the team because of the way that this deal was prepared, cultivated, negotiated. The Capital Markets Day, we shared the differentiation through execution innovation. We also said differentiation through M&A. And Bartek went through how we differentiate in the M&A in the cultivation being there early on, all of us, Emmanuel, myself, the granularity going into the plants. So the deep cultivation early involvement, rigor for 3 years, the granularity, the cultural fit. And once again, Bartek and the team were able to get into an exclusive situation. So here, all of those differentiation in M&A in action.

Our next question comes from Nathan Jones with Stifel.

A couple of follow-ups. I'd just like to start off on SPX's margins. I mean when they went private, they were in the very low teens, and it looks like 200-plus basis points a year of margin expansion that they've put in there. Just any commentary you can give us on the due diligence process and your comfort with the sustainability of those margins? And I guess the angle I'm coming at this year is it wouldn't be the first time a private equity business was dressed up for sale, but it does sound like you've been through a lot of due diligence here. But just any commentary you can give us on how you think the sustainability of those margins is.

Yes. No, that's a good question. And you can imagine, right? For the same reasons you outlined, we come at these things with the right degree of skepticism. And so yes, we've done very thorough diligence around where the margin improvement came from. And obviously, we would be more concerned if this was a blip and a sort of a flash in the pan and they just have 1 year and 1 good year, but the good news is that they have been operating at the level of profitability that we reported here for the last 3 years. And so they've been at this level for a while. So we were able to look at 2025, 2024, and 2023. And so again, I think you saw that step change relatively early on. And then Emmanuel, I think, outlined where it came from. So it wasn't just cost rip-out. A lot of it was actually initiatives around regaining aftermarket, around 80/20. So no, we feel actually very comfortable that, that is a sustainable margin level and really don't have any concerns around that.

And if I can add to that, as Emmanuel said, when we visit the plants, it's not that the plants are there waiting for capital the plans are all very well capitalized. So that will not require capital. This is a capital-light model with already well-capitalized plants.

I think last time I was in the Bydgoszcz plant, they were just starting to get the first of the automated welding machines in there. The 3% to 5% kind of organic growth rates they've seen over the last few years, I think would -- given the pricing that's likely gone through due to inflationary pressures, would imply that volume has stayed maybe relatively flat during that period. Can you comment on maybe the impact of 80/20 taking out some of the lower margin revenue. I know there was a very wide range of margin profiles in SPX's portfolio. When they went private and maybe some of that -- the lower-margin stuff has been walked away from. Any commentary you can provide on that and maybe where they are in the process of working through taking out some of that lower margin revenue?

Sure. What you described on 80/20 is exactly what has happened with SPX FLOW, which have definitely improved in terms of the profitability. I would say, when you look at the future, I think that we expect to be in the high single digit in terms of growing of this business. And this is coming from segment that are really growing higher than the market. We were talking about the protein fortification. And I will keep on stressing as well is the ITT and the IP playbook. We have track record of outperforming our markets and gaining share. I think that probably 1 area that might be a little bit different is also maybe we tend to run probably more decentralized and that probably might benefit the growth in some of the more periphery markets. But let's not forget those revenue, those commercial synergies because those opportunities, Nathan are really -- are real, and we [ lease ] them, we have them and we will go after them.

The next question comes from Brad Hewitt with Wolfe.

How would you describe your appetite for additional deals over the next 12 months, both from a financial perspective and from a resourcing perspective? And curious if the focus for future M&A shifts a little bit more towards connectors in the medium term, just given this provides a significant amount of scale and flow already?

Yes, sure. As I said in the prepared remarks, #1 priority is for Bartek, for myself for the entire ITT leadership team is to execute and deliver on this deal, is to achieve the synergies, to enable the growth and to deleverage as fast as possible. So no additional deals of this size. There is nothing like that. As we said, less than 1.7 leverage in 18 months. Now when on the M&A front, what will happen is that we will keep on cultivating deals, right? If you think about this deal, I mean, it's been in the making for 3 years. If you look at all our deals, we've been able to cultivate them being granular and be able to differentiate and be in an exclusive position when then we will close. So we will keep on cultivating the M&A pipeline. But the focus now is synergy, growth, deleverage, get it down as soon as possible to 1.7.

Great. And then -- is there a good way to think about the margin differential between the 43% of the SPX FLOW business that's aftermarket versus the remaining 57%. Just trying to think about the impact of that continued mix shift on the margin expansion algorithm for SPX FLOW.

So of course, aftermarket is much more profitable than the OE business, but that's also the case at ITT. So we don't see much difference between what is the mix and the margin differential between us and IT, remember -- between us and SPX. Remember, these are very similar businesses than us. They provide spare parts as well as services. So we expect to actually benefit from their aftermarket, especially in terms of footprint. They have a lot of service sites where we could also provide service for our pumps. So overall, very synergistic and very similar aftermarket businesses and mix.

Our last question comes from Matt Summerville with D.A. Davidson.

Just a couple of quick ones. Is the aftermarket content similar across the 4 sort of verticals you highlight on Slide 8 of the deck? And similarly, has the company executed upon all of the kind of incremental aftermarket capture? Or is still -- is there still some runway there? I mean you talked about how maybe thousand piece of the business that for a period of time was sort of ignored. That's no longer the case. Has that been fully executed at this point? Or is there still some to be had? And then I have a quick follow-up.

So I think on the first question, I think, yes, a lot of these businesses are -- all the businesses are rich in aftermarket, right? So they're solid in that front. And yes, there is continued opportunity to regain wallet share. And it's actually fairly significant from what we can tell.

And then as a follow-up, Luca, you've spoken highly about the management team here running the business. Is the idea to keep them -- the Board here, is Marc going to continue to run the SPX organization? Or how should we be thinking about leadership transition and/or evolution?

Sure. Thanks. Listen, they have a very deep bench and a lot of talent at the level of running the businesses. Obviously, these will be integrated into IP. So Marc and part of the leadership team will be key in supporting the deal and on an initial transition, but it's mainly the leadership in the businesses that will be -- that will run these businesses within IP. And IP will be led by Bartek Makowiecki, who's here right now with us.

This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.