Smiths Group plc SMIN
Smiths' four-segment conglomerate structure masks a ~50-60% SOTP discount; the Board should launch a strategic review to sell the company or spin John Crane into a U.S. listing.
Thesis
Engine Capital, holding ~2% of Smiths Group, argues the U.K.-listed industrial conglomerate is structurally unable to close its valuation gap despite strong operating execution — organic growth, EPS, ROCE and margins all tracking to or above 2022 Capital Markets Day targets. Smiths trades at ~9.5x 2025E EBITDA versus 12-16x for divisional peers (Flowserve, ITT, Dover, TE Connectivity, OSI Systems, Omega Flex) and recent transactions (SPX Flow at 16.8x, kSARIA at ~13x). Goldman's SOTP analysis implies 2,596p per share, ~50% upside, rising to ~60% after corporate cost elimination. Engine demands the Board announce a strategic alternatives process: either sell the company in whole or parts, or spin John Crane — the crown jewel with 71% aftermarket mix — via a U.S. listing (à la Ferguson, CRH) while divesting Detection, Interconnect and Flex-Tek.
SCQA
Smiths Group is a UK-listed four-segment industrial conglomerate (John Crane, Flex-Tek, Smiths Detection, Smiths Interconnect) with capital-light, cash-generative businesses and strong operating execution under new CEO Roland Carter.
Despite hitting 2022 Capital Markets targets on growth, EPS, ROCE and margins, Smiths trades at ~9.5x EBITDA — near 10-year lows — because its four segments lack pure-play peers, span different cycles, and sit behind a UK listing discount.
The Board must announce a strategic alternatives process: sell the company in whole or in pieces, or spin John Crane into a U.S. listing while divesting Detection, Interconnect and Flex-Tek — and halt any medium or large acquisitions.
Goldman's SOTP values Smiths at 2,596 pence (~50% premium to the current 1,556p); eliminating corporate costs adds another ~200p for ~60% total upside, plus a U.S. re-rating premium on John Crane at 13-14x EBITDA.
The three reasons
- 1
Smiths trades at ~9.5x EBITDA vs. 12-16x for divisional peers — a persistent conglomerate discount
- 2
Goldman SOTP values Smiths at 2,596p (~50% premium); ~60% with corporate cost elimination
- 3
Operating gains haven't closed the gap; TSR lags peers by 46-104% over 5 years
Primary demands
- Announce a strategic alternatives process to maximize shareholder value
- Sell the company in whole or in pieces (Option 1)
- Alternatively, spin off John Crane with a U.S. listing and sell the three other businesses (Option 2)
- Avoid medium or large acquisitions at 12-14x EBITDA multiples given Smiths trades sub-10x
- Prioritize share repurchases using balance sheet capacity over M&A
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- General Electric breakup
- DowDuPont breakup
- United Technologies breakup
- Honeywell aerospace separation consideration (2024)
- SPX Flow sale to Lone Star (April 2022, 16.8x EBITDA)
- kSARIA acquired by ITT (~13x EBITDA)
- CIT acquired by Amphenol
- Ferguson U.S. relisting (March 2021, +64% TSR)
- CRH plc U.S. relisting (September 2023, +71% TSR)
Notable slides (4)
Notes
Standard institutional activist letter — Word/Arial body text with embedded charts and tables (no slide-deck production). Co-signed by Arnaud Ajdler (Managing Partner) and Brad Favreau (Partner); Ajdler is the primary named author. Engine explicitly positions this as 'constructive engagement' (cites placing 42 directors on 26 boards) rather than a proxy-fight opener, hence analytical/collaborative tone. The letter quotes former CEO Paul Keel's 2021 Analyst Day claim that better performance would erase the conglomerate discount, then uses subsequent outperformance to refute it — classic CEO-quote-contradiction setup. Peer-gap evidence appears as a TSR table (p.3) rather than a chart. Goldman SOTP table on p.5 is reproduced directly (not Engine-authored visualization). Minor typo in the letter dates 13 November 2025 (should be 2024). Campaign phase marked initial_thesis as this is the first public letter to the Board.