Welcome to the HMS Networks press conference. During the questions and answer session, participants on the teleconference are able to ask questions by dialing star five on their telephone keypad. Participants following the webcast, you can write your questions in the box below. Now, I will hand the conference over to CEO Staffan Dahlström and CFO Joakim Nideborn. Please go ahead.
Thank you, operator. Good afternoon. Good morning from a sunny York, Pennsylvania. Staffan Dahlström here, together with Joakim Nideborn. We are very happy to give you this presentation about Red Lion, the acquisition that we signed yesterday, and I will start with doing some general presentations, then Joakim will move into the details. All right. So if you look on our strategic plan and the targets, this is in line when we talk about our growth, as we said on Capital Markets Day, we would like to keep on growing. Half of the growth should be our organic growth and half would be new M&As. And we have not been fully happy with the M&A side, haven't developed as we thought.
The last couple of years, it's been difficult and expensive, so we are very happy now that we can do an acquisition that really help us in taking some very important strategic steps. HMS, many of you know us. We are a leader in industrial information and communication technology. On one hand, a technology company, but also working with customers who really see a long life cycle of products. So we also have one foot in a quite conservative industry. Before the acquisition, we were 800 employees in 18 countries, and now we increase this with 50% to 1,200, and revenue before this acquisition was SEK 3 billion and profit 26%. We had a good traction of growth, primarily organic growth. 14% have been the organic growth per year, last 10 years.
We are working hard with our 2025 targets, planet, people, and growth, where we start with science-based targets. We're doing the application shortly to make sure we are more scientific in our approach to reduce our environmental impact and minimize CO2, but also helping our customers to minimize their effects, so we see good benefits for using our products and technologies. We believe that happy and high-performing employees generate loyal customers, so we focus on Net Promoter Scores, both with employee and customers. We also drive our diversity agenda with adding more female managers. We target 20-30% female managers, 2025. We talk about maintaining a good profit level at 25%. At Capital Markets Day, we released the Pi-Plus.
With SEK 3.14 billion , we aim to achieve that by our organic growth, and the plus was acquisitions. So that's make us extra happy today that we have some plus to talk about. When we look on the M&A strategy, we have three different categories. We have bolt-on to our existing business units. That's where we've been doing M&A the last couple of years. We also look for companies where we can expand our position in, within our playing field, but also we've been looking for bigger stuff, larger companies that really move the needle for us. And Red Lion is part of the two, the two areas for both expanding within our playing field and also bigger stuff. This makes us really, really happy, and we see synergies, we see integration, but we see a strong cultural fit between the two companies.
So, this has been ideal for us when we look on acquisitions. So let's take a look on the company, Red Lion, and the rationale. We know them since a long time. I wouldn't say we are competitors. We are peers in the same market, so we've been having good contacts over the years. Their key offering today have three different elements. The Access, where we have some product overlaps with industrial gateways, protocol converters, routers, and access points. This is the smaller portion of their business. They have a very interesting portion called Connect, which is Ethernet switches. This's been an area we've been looking for for some years. Ethernet switches is included in every installation today in industrial applications, and Red Lion is well established in this market and have good products here.
Thirdly, half of the business from Red Lion is to visualize human machine interfaces and panel meters, which is quite interesting when HMS move also into enable valuable data and insights, and with these products, our customers can do more data visualization, do more analyze of data. So we think this is a good step in the right direction. It's a well-established company, been in business for over 50 years. Headquarters here, where we are today, York, Pennsylvania. Big portion of their business in the U.S. Two development centers in the U.S., one in Germany, and one in India, and have a strong presence here in U.S., primarily driven from their strong distribution network.
Financially, Joakim will talk more about this, but $1.4 billion in revenue last twelve months, slightly lower gross margin than we have, 55%, but there we all see good potential to help them to improve that. And a good profit level, slightly under our targets of 25%, but it's, we're very happy to find customers with targets of acquisitions that have this high level of EBIT margins, and we see that we can probably help them to improve this a few percentage points going forward. The applications, they are in manufacturing where HMS have a strong position, but they also open some very interesting areas for us in water, wastewater, energy market, transportation, and also oil and gas.
So we're happy that we can move into new areas, but still within our existing playing field of manufacturing and industrial automation. Look more on the products, A ccess, 19% of their revenue. There we have some complementary products to our Anybus products and to our Ewon products. There we see that we can expand products, and the overlap is not more one-to-one. It's more like we have maybe 200 different gateways for within Anybus brand, and they have some other versions. So this is making our offer more complete. With Ewon, there's more product overlap in the remote access on machines, but they also have some interesting products for security, cybersecurity, that we think we can develop further.
The Connect line, 34% of their revenue, something we've been looking for, to find an established play in this market. Here we see good growth opportunities going forward, and, since Ethernet is the backbone of most systems, this is a key product in many installation. And then Visualize, the biggest portion, almost half of their revenue, is interesting because these products allow us to visualize data and, make more valuable applications for our customers. So all over here, we see good complementary products, we see similar customer groups and good cross-selling, opportunities. So this is a good fit. Look on the geography, that's been also a key thing for us. Red Lion have a very strong presence in the North America.
HMS, we have most of our business today in Europe, so we see that our 20% that we used to have in Americas, there we feel that we have been under-penetrating. The market in Americas is larger from a worldwide point of view, so this is a good step in the right direction to grow in Americas. Europe will still be the largest portion of our business, but as you see, we almost double our size in Americas with this. So this is super exciting, and this will really help us to have a new platform for future growth in US and North America in general. All right, Joakim, should we move into the numbers?
Let's do that. Thanks, Staffan, and good morning, and good afternoon, everyone on the call. So let's, let's have a look on how this will trade within HMS. So first we have here showing the last twelve months numbers from Q3 for HMS, just about SEK 3 billion in sales and SEK 776 million EBIT, and these are just as reported. Then we have the Red Lion numbers, which is just short of SEK 1.4 billion in revenues and SEK 288 million in adjusted EBIT. And I just want to be clear to say this is unaudited IFRS numbers, it does not include any amortization from potential intangibles that's going to come from the acquisition. There are no transaction costs or integration costs in those numbers.
And also we have adjusted slightly to show how this will be trading within HMS with that SEK 288 million in EBIT. The main adjustments we have, we've made there is we've removed the management fee from the owner company, Spectris, which is not a real cost, and then we also added back management's incentive program that's been handled outside the target company. And those are the main adjustments. So we think that's a pretty round and good number that you have, we're showing here. So together, the growth group would be, again, on a preliminary basis, SEK 4.4 billion in sales and a little bit above SEK 1 billion in EBIT, and the margin, adjusted margin would be about 24%.
I think just to summarize what Staffan said, looking at the organic side, we're now becoming more global, more diversified, in the key markets. Really glad to see the expansion in North America, and on the offer side, adding, especially the Ethernet switches and data visualization, specifically with a strong presence in Americas. We're getting a more complete industrial ICT offer and taking a further step into that market. On the numbers, I just want to comment one more thing, and, in terms of trading pattern, I think Red Lion has been very similar to HMS's American business. And, I think this is maybe important to note, during the year, in those last twelve months numbers, we expect that we have about SEK 100 million of that SEK 1.4 billion within Red Lion.
That is boosted because of component shortage, customer stocking up. So about 100 million in that boost effect that we cannot expect to come back. The EBIT impact from that is about SEK 10 million. And the reason it's not larger is because Red Lion also had a significant COGS inflation, bought a lot of things on the spot market also for the last 12 months, through brokers and so on. So I think that would make sense to adjust for looking at the potential going forward. Let's go over to just some quick highlights on the acquisition. As I'm sure you've already seen, we're paying an enterprise value of $345 million, which is about three point six million Swede- sorry, SEK 3.6 billion, given the current FX rate.
This will, of course, be determined exactly on closing, what the SEK equivalent will be. There's no earn-out. Of course, there will be small adjustments from net debt and working capital adjustments. We expect those adjustments to be rather low, so we think we will be looking on this $345 million in that range that we will actually pay on closing. We also expect this to be accretive to the earnings per share, and I think you have enough information in the press release to come up with your own ideas of what that will be. We do not want to set an exact number on that at the time being.
In terms of integrating this within HMS, we want to do that, and we're just looking at about SEK 100 million in terms of integration spend. Seventy million of that will be CapEx, and we have two main activities that we have identified during the due diligence and discussion with management. That would be to invest to strengthen the manufacturing facilities, to make that a bit more modern, which we hope in the longer run will also be able to drive the gross margin slightly. We also are planning to integrate Red Lion into our ERP system. I think we've been reporting over the last couple of quarters that we're working on a rollout into a new ERP. Red Lion is also in a position where that needs to be done.
They need to change ERP, so we think it's pretty good timing to take that within the same as HMS is running. And then we expect to have some SEK 30 million in operating costs, and there we just have a rough plan, but there are a couple of things we would like to do to the businesses to realize those synergies, but that we need to come back to exactly where that ends up. Transaction costs will be roughly SEK 40 million, and that also includes the cost for the directed share issue that I'm going to talk more about in a second. In terms of closing of the acquisition, we are making now an antitrust filing and a so-called CFIUS filing to get approval for an ownership in the United States.
This is something that could take some time. We hear that that could take up to 4-6 months, could also be faster. So we, we can't really tell you, it's not in our hands. We're going to work as fast as we can, and then it's up to the government, in the U.S., and we think somewhere between March first and June first, that's as clear as we can be on, on, timing for closing. What we have seen so far in our investigations, we don't expect any major problems with those filings, but that always need to work through. And then looking at the financing and, what we need from, from our shareholders to make this work.
We have secured debt financing of some $225 million, which will consisting of a term loan and a revolving credit facility. That leaves us with about $120 million left to get to the $345 million. Here we have secured a bridge financing in the meantime, and I'm sure you've already seen that we are expecting to call for an extra general meeting on January 26th to authorize the board to resolve on a share issue. Our intention is to go with a directed share issue. Of course, we need to see what the market conditions will be like at the time being. This will be done after closing, as soon as possible after closing, is the idea to have this done.
So far, we can say that in terms of voting for the authorization for the board, Latour, Staffan Dahlström, and AMF Fonder, together representing 47.7% of the votes, have agreed to vote in favor. Looking at the directed issue, Latour has committed to be part of that, and AMF has also declared its intention to be part of that. Together, that would represent 34.7% of the shares and votes in the company. Then finally, looking at what will happen to our balance sheets with this acquisition. So, if you listened to the capital markets day, you've seen that we have a target to have net debt to adjust the EBITDA of less than 2.5 over time.
Now, as of September 2023, if we removed, looking at the pre-IFRS 16 basis, also removing debt related to share options, that's not interest-bearing. We're looking at a sort of interest-bearing net debt, if you can call it that, of, actually cash position of SEK 30 million. So net debt to EBITDA of zero, basically. And now after the acquisition and after the share issue is completed, we expect to be trading on approximately 2x EBITDA in net debt. So we think that's a healthy level to be at, and we think it's also responsible to not push it further than that at this point in time. I think that is what we plan to cover in this discussion.
As always, I let you read the disclaimer yourself, and I'm going to ask operator to open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Viktor Högberg from Danske Bank. Please go ahead.
Hi, so maybe you could talk a bit about the historical growth rate and the margin expansion historically in Red Lion. So from a Spectris presentation from 2021, it seems the market growth rate is 4%-6% and 5%-8% for its exposure. Mid-single digit, is that what's this exposure is growing versus HMS 10%, and this is before cross-sales, of course, but just on historical and what to expect, that would be great.
... So, Viktor, this since we are making this acquisition from another listed company and they do not show this separately, it's a bit sensitive to talk about what historic growth rate has been for this company. I think what we can say is what we look for in the future. I think you're in the right range, some mid-single digits between 5%-10% growth is what we expect for the business going forward.
Okay, fair enough. Could you say something about the growth per segment, the recent years? Is that something that you could disclose?
Unfortunately, not.
Okay. Oh, fair enough. And on the financing side, is this set up with the share-directed issue, and the size of that, is that fully set? Because the way I look at it makes more sense from a relationship and acquisition point of view to issue more shares than the 120 million. Will that depend on where the share price is and the market sentiment this spring when it happens, or is that fully set already, the size of the issue?
So I think what's been discussed in the board is to have the issue and the size of the bridge facility of the $120 million ultimately will come down to the board, and I guess the shareholders on the mandate. So right now there are no plans to do something else to that $120 million equivalent in US dollars.
Okay. On this synergy potential, last question for me. On the gross margin side, what could help you lift that? If you could disclose anything on your high-level thoughts, once integrated with the HMS.
Maybe I can take that. I think we are very happy that we have a North American manufacturing facility. We think this is very important going forward, but we also see that when doing investments going forward to modernize some of the process we have there, we will drive efficiency. We also believe that there must be cost synergies on the purchasing, where we and the Red Lion together represent a quite significant amount of electronic components. So we see that both purchasing and efficiency should be improved going forward. But, you know, it will take some time to realize these kind of synergies, but we believe that the gross margin could grow going forward.
Maybe it's important just to add, Viktor, on the synergy side, this is not primarily a cost synergy case. It's more a top-line synergy case, where we see that we have great presence in the different markets and complementing offers that we could easily cross-sell. So I think that's been the main rationale, but of course, we're happy to do something on the cost side as well.
Okay, thanks. That's it for me for now. Thank you.
Thanks, Viktor.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you. All right, thanks for attending this presentation. We are just packing up here to go out and meet the staff at Red Lion, so we have an exciting day here. Please stay tuned with HMS, and we look forward to present more details after closing during first half of year 2024. Until then, look forward to see you in the next call. Thank you. Goodbye!