Good morning and welcome to ITT's conference call and webcast to discuss the company's announced agreement to acquire SPX FLOW. At this time, all participants are in a listen-only mode. After the prepared remarks, there will be a question-and-answer session. If you'd like to ask a question at that time, please press star one one on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star one one. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Phil Terranova, Executive Director, Global Communications. You may begin.
Thank you, Liz, and good morning. Joining me in Stamford 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 two of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our 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 three.
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 what's shifting towards high-growth, high-margin businesses, making the portfolio more resilient, and making our 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 two years, we have been growing organically and expanding our margin while being active on the M&A front, with the highly successful acquisitions of Svanehøj and Kesaria. And today, we're communicating the strategic acquisition of SPX FLOW, a company we have been courting for the last three 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 positions such as Waukesha Cherry-Burrell.
It also adds adjacent flow technologies in end markets where ITT does not currently play, such as nutrition and 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 four verticals. Notably, SBX 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. Last but not least, it accelerates ITT's portfolio reshaping. For ITT, SBX is, without a 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 four-year 2026 EBITDA, or 11.5 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 six. We're 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 a projected net leverage of less than three times debt to EBITDA, and we expect to be below two times within 18 months. Let me hand the call back over to Luca on slide seven.
Thank you, Emmanuel. Let's go deeper into SPX FLOW. We always admire SPX FLOW's brands. After the acquisition by Lone Star, the company has shed known core businesses, and today, a more focused, streamlined SPX FLOW is a perfect fit for ITT, with the brands, with their leadership position, and with the market they're exposed to. Well done to Lone Star, Mark, and to the SPX leadership team. Today, SPX is a superior engineering company with great products: pumps, valves, mixer, heat exchanger, to name a few. They're leaders in the market where they play in, be it chemical, nutrition, and health, or industrial. SPX has a strong global presence with well-organized and lean production plants, whether it is in Wisconsin, China, or Poland, where Bartek, Emmanuel, and I spent time with the local teams during the last three years.
Thanks to the work the 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're organized today on slide eight. There are four businesses. First, the hygienic pumps, where Waukesha Cherry-Burrell is the number one brand in North America for nutrition and health. This is a world-class brand that is very close to ITT's core. 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 Arabia for further market penetration. Third, mixers, a very close adjacency with a number one 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 and health solutions, a component and project business that shares similar attributes to the project business we are running at ITT. In summary, the deal is close to our core and adds strategic adjacent products. Now to slide nine to briefly look at the strategic fit. As you can see, we have a very strong strategic fit with our industrial process business.
We're expanding our product portfolio in core and closely adjacent markets. We're broadening our geographic coverage. We will leverage each other's respective channel strengths: ITT's in industrial and SPX's in hygienic, and we will enhance our end market mix, making it 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 ITT'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 three, two-thirds of which we expect to capture by the end of year two. 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's footprint in Poland and China, where they have top-notch operations. Let me remind you that ITT today has no low-cost country facilities in Europe and no real presence 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.
While 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 two weeks ago, just in time to house new products from SPX. 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 Kesaria, this is an outstanding cultural fit. At Capital Markets Day, you might have spoken to Søren, Johnny, or Jacob from Svanehøj, or Mike DiPoetto from Kesaria. They sounded like ITTers: bold, proud of their products, and never satisfied.
When you talk to them about the product application or project 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 Jamie, Peter, and the business leaders. SPX is very analytical, and the visibility they have into their data is unmatched, even better than ITT's. We at ITT focus on continuous improvement over and over, and yes, over again, and we witness SPX's continuous improvement focus on the shop floors in all the plants we visited in the last three 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 structured, 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 have in one single company many leading brands and businesses that are number one or number two where they play. They're well-run with a strong management team. They have a great reputation in the markets and with their customers, and they have a very strong financial profile. Combining this with ITT's strength in execution will create value for our customers and our shareholders. At ITT, in the last four 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-$6.68, representing growth of 13%-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.
Questions. At this time, if you have a question or comment, please press star one one on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star one one again. Again, we do ask that while you pose your question, you pick up the handset to provide optimal sound quality. Please limit your questions to one question and one follow-up. Thank you. Our first question comes from Andrew Obin at Bank of America.
Hi, yes, good morning. It's Andrew Obin. Can you hear me?
Hi, Andrew. Perfect. Thank you.
Hey, good morning, 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, some 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 so much.
Thank you, Andrew, for the question, and the straight answer is a little bit about everything that you just said. I think that one major aspect under the ownership of Lone Star is that Mark 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 four businesses, they are either very core pumps, valves, or very adjacent to what we do, mixers, or products in health and nutrition. So in short, streamlined, focused, leaner.
Do you want me to add something?
Please, yeah. 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 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 years 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.
Thanks so much. Congratulations.
Thank you, Andrew.
Question comes from Amit Mehrotra with UBS.
Morning, Amit.
Thanks, operator. Hi, everybody. Congrats on today's announcement. Maybe to start with, just following up on Andrew's question, but 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. Thank you.
Yeah, thank you, Amit. So when you look at the growth that SPX has experienced in the past few years, over the period 2022- 2025, they grew overall by low to mid-single digits. 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 standalone or the advantages that come with by joining forces.
I mean, there's obviously companies like, I guess, Flowserve, also 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. Thank you.
So let me talk about the joining forces, and then Bartek, maybe you address on the power of the brand. I think that when you look at the joining forces, first of all, 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 two weeks ago with 140 customers attending. So you can imagine how this could be a great opportunity for the Bran+Luebbe pumps, Lightnin 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 a 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's distribution in terms of strength 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, 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 five. They're literally number one in their space. 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.
All right. Sounds great, guys. Thank you. Congrats, Tim.
Thank you.
The next question comes from Scott Davis with Melius Research.
Morning, Scott.
Hey, good morning, guys. Congrats.
Thank you.
Yeah, it looks like a great deal for you guys. But hey, 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 do you think they need? Is there an opportunity for some consolidation within even your own facilities? Perhaps just a little color on that.
Yeah. So when you look at their production sites, they have around 15 production sites. And one thing that we were really encouraged when we visited 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 have a really large facility with 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. Actually, they are very well-run. If you look at also the Bydgoszcz, Poland factory, actually, they have a very good expertise in importing production from other plants. So these will represent a further optimization in our cards when we look at the footprint of the two 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.
Yeah, 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 in you guys?
No, I think that this is something that probably is not for this call.
Okay. Fair enough. I'll pass it on. Thank you, guys.
Thank you, Scott.
Our next question comes from Mike Halloran with Baird.
Hey, good morning, everyone.
Hi, Mike.
Hey, Mike.
So just a couple of questions here. First, just to be clear, the 3%-5% organic you mentioned earlier as a 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. 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 digit, right? Now, in these markets, they are exposed to areas that are growing high single digit, 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 we 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 there. Maybe you need to do a different level of issuance. But with the $700 million of capital that Lone Star's equity capital, what Lone Star's taking on, I put an extra two and a half 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.
Yeah, 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 three turns. And then we work very quickly so that by end of 2027, we are less than two turns.
Really appreciate it, everyone. Congrats.
Thank you. Thank you, Mike.
Our next question comes from Jeff Hammond with KeyBanc.
Hi, good morning, guys. Congrats on the deal.
Thank you.
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 started to do deals, but just as you do this deal, how are you thinking about GAAP earnings versus adjusted earnings going forward? Thanks.
I think that, Jack, we have the committed financing. And as we said, it's 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.
I think it wasn't exactly clear, but I think you talked about the adjusted EPS changes. We expect that on closing, we'll adjust our EPS definition and remove intangible amortization.
Okay, perfect. And just back on the growth rate. So I think at the analyst day, you said five to seven for IP. We should think about, as you pull SPX FLOW in, that that's still kind of the long-term target, organic growth rate for the segment.
I think the long-term targets for the segments 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.
Okay. Thanks so much. Appreciate it.
Thanks, Jack.
Our next question comes from Joe Giordano with TD Cowen.
Hey, good morning, guys.
Hi, Joe.
Can you talk about how much of this business has been either walked away from or divested? I know there was one divestment to Ingersoll, but 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 can you bridge the gap between the organic and how much has been eliminated here?
So they sold essentially two businesses. They sold Air Treatment and Hydraulic Tools. They were both between $150 million and $200 million in sales and 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, 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 four years. 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 the ability to pull out an increasing rate of synergies on top of a business that already kind of went through this?
Yeah. So in terms of synergies, as you can tell, we have a very grounded plan. We have identified all the DNA procurement and footprint synergies. With Clear and Ironsight, 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're talking about back office rationalization, combined spending efficiencies. And then there will be also the most immediate synergies. And then once we go into year two and we get more than two-thirds of those synergies implemented, this is when the procurement and the footprint kick in. And so we have sourcing, logistics, best-of-country sourcing, volume pooling as well, and of course, utilizing their facilities in Poland and China.
Emmanuel, can I just.
Go ahead.
Sorry about that.
I just wanted to clarify one thing.
Sorry, guys.
It's okay.
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 and the $4.07 billion, the cash portion, are you saying that some of that $4.07 billion can also be equity? I just want to make sure because the math doesn't work out unless it's part equity that I think.
Yeah. So yeah, we're considering a range of financing means, and we'll make an announcement 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.
Got it.
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 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 for these. So 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 build-up behind it.
Thanks, guys.
Thanks, Joe.
Our next question comes from Joe Ritchie with Goldman Sachs.
Morning, Joe.
Hi, Joe.
Hey. Hey, thanks. Good morning, guys. Luca, I think I'm still laughing at your 10-year comment. We're going to have to explore that one day offline. That's why it took so long to close the deal. But anyhow, maybe just 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, over-delivered. 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 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 just stressed is the last point you are making is a very valid point in terms of it's very well-run. Mark and the team have improved the profitability of this business. And if you look at their EBITDA and their margin, they're really good. Now, if you look at the SPX 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 share 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 built, 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 zero. Now, as you can imagine, we will go after them from day one, and those are not included.
That makes sense. That's all for me. Thanks, guys.
Thank you, Joe.
Our next question comes from Vlad Bystricky with Citi.
Good morning, guys.
Hi, Luca.
Good morning. Thanks for taking my questions and congratulations on the deal. Luca, you mentioned backlog at SPX and how that gives you some visibility into 2026 and 2027. 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 and $300 million, which is a project. And therefore, those give you a very good visibility in terms of 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 project, they have a very good customer intimacy with some of their major customers that they know of, etc. And therefore, they're building the customers' CapEx together with them. And we have a very good visibility on that long term and that project business.
And then, Vlad, also, I wanted to highlight the fact that they are entering 2026 with a record backlog. And so from a system standpoint, more than two-thirds 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 ITT business.
That's really helpful color, guys, and then maybe just you mentioned that you've been courting them for three 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 Mark and the SPX team remember our very first meeting, which was December 2022 in the city three years ago. It has been a long courting, which has enabled us to know each other better. In these three 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 two to tango. Now, two 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 is good right now, two years later, is also, I would say, better for ITT because we built some muscle after the successful acquisitions of Kesaria and Svanehøj. And therefore, what you have to think about here in this deal is practically four different businesses, four different Svanehøjs. So that is a little bit of background. But if I can take one minute more, I want to congratulate Bartek and the team because of the way that this deal was prepared, cultivated, and 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, the rigor for three 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.
Really helpful color, Luca. Appreciate it. Congratulations, Ken.
Thank you.
Our next question comes from Nathan Jones with Stifel.
Good morning, everyone.
Hi, Nathan.
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+ 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 here 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.
Yeah. 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 Q&A around where the margin improvement came from. And obviously, we would be more concerned if this was a blip and sort of a flash in the pan and they just have one year and one good year. But the good news is that they have been operating at the level of profitability that we reported here for the last three 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.
If I can add that, as Emmanuel said, when we visit the plant, it's not that the plants are there waiting for capital. The plants 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%-5% kind of organic growth rate they've seen over the last few years, I think given the pricing that's likely gone through due to inflationary pressures, would imply that volume has been 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 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? Thanks very much for taking the questions. Thank you.
Sure. What you described on the 2020 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 segments 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 a track record of outperforming our markets and gaining share. I think that probably one 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 peripheral markets.
But let's not forget those revenue, those commercial synergies because those opportunities, Nathan, are real. And we list them, we have them, and we will go after them.
Thank you, Nathan.
The next question comes from Brad Hewitt with Wolfe.
Hi, Brad.
Hey, good morning, guys. Good morning, guys. Thanks for taking my questions.
Thank you.
So 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.
Yeah, sure. As I said, number one priority is for ITT, 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 leverage 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, on the M&A front, what will happen is that we will keep on cultivating deals, right? If you think about it, this deal, I mean, it's been in the making for three years. If you look at all our deals, we've been able to cultivate in 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. Thank you. 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. Thank you.
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 the mix and the margin differential between us and ITT. 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.
Great. Thank you.
Thanks, Brad.
Our last question comes from Matt Summerville with D.A. Davidson.
Morning, Matt.
Hi, Matt.
Morning.
Just a couple of quick ones. Is the aftermarket content similar across the four sort of verticals you highlight on slide eight of the deck? And similarly, has the company executed upon all of the kind of incremental aftermarket capture, or is there still some runway there? I mean, you talked about how maybe that was a 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? I'm going to have a quick follow-up.
I think on the first question, I think, yes, a lot of these businesses are rich in aftermarket, right? They're solid in that front. Yes, there is continued opportunity to regain wallet share. It's actually fairly significant from what we can tell.
Then in the follow-up, Luca, you've spoken highly about the management team here, running the business. Is the idea to keep them aboard here? Is Mark going to continue to run the SPX organization, or how should we be thinking about leadership transition and/or evolution? Thank you.
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 Mark 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 run these businesses within IP, and IP will be led by Bartek Makowiecki, who is here right now with us.
Sure. Understood. Thank you, guys.
Thank you, Matt.
This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.