ADI Global Distribution (ADIG): Greenblatt-Style Spinoff Coming With an AI Angle
Boring business, one-time GAAP losses, inherited leverage, ~$1.5bn market cap with a significant self-improvement path already in progress in part driven by AI
ADIG begins when-issued trading July 29 and regular-way August 4. The embedded price today is $17.62, half of Resideo’s tape. Our one-year target is $30. Our three-year target is $58. Our modeled one-year downside is $8. The screen sees a junk-rated money loser. The filings show a distribution toll road with a bad haircut, and the sellers are not allowed to look.
The pitch
On August 4, every Resideo (REZI) holder receives shares in North America’s largest security-products distributor.
ADIG will debut trading with a $261M loss last year and 3.0x leverage, rated BB minus. Index funds and many active managers will punt the stock - a classic Greenblatt-style spinoff.
Losses and the leverage were both inherited from REZI - they are the result of REZI’s 2018 Honeywell indemnity that it received upon spin. Operating profit grew every year underneath both.
Management plan calls for EBITDA compounding from 2025 depressed $295M toward $500M as a result of finally getting hold of the strategy with initiatives that have largely been in the works for a year already.
Even the bear grows EBITDA every year and sweeps debt below $100M by 2030, so the business survives but the multiple wobbles.
Why this setup exists
Forced sellers: REZI holders own a products story. Index funds must sell what no index includes. Nobody will cover the stock for some time, potentially quite a while.
Optics: $364M charge, junk ratings, and three different EBITDA figures likely to give many pause.
Neglect: The business spent 30 years as a segment inside Honeywell, then Resideo, and it has never been managed for its own benefit.
The business in 60 seconds
ADIG is the middleman between roughly 1,000 electronics manufacturers and 100,000 security and AV installers. When a two-truck alarm contractor needs a camera, a panel, and a spool of cable today, on credit, they go to ADI. He also needs someone at the counter who knows which transformer fits. ADI runs 200 counters, 20 distribution centers, and 500,000 products to answer that need. Revenue is $4.8B. Gross margin is 22.3%. EBITDA margin is 6.2% standalone, against 10% to 13% for the best distributors. That gap is the whole investment. Security and fire are 65% of revenue, AV is 30%, data-comm is 5%.
Three straight years of growth through an ERP conversion and a housing trough, then three paths forward. Management’s own 2030 floor sits just below our base case.
The real pitch is the distressed print
To be clear about what we are actually interested in here, when mechanical selling starts on August 4 we believe the trough could bring a very attractive risk:reward. And few will have done the deep work to understand the opportunity they aim to execute against over the years to come. CD&R owns roughly 20% as-converted. Open-market common purchases from management would validate the equity.