Thank you, and welcome to all of you for listening in to this call, where we're gonna give some flavor and talk a little bit more of the acquisition we have signed to acquire Minnesota Rubber and Plastics from KKR. I mean, in this presentation, we have a few slides supporting this call, and then at the end of the call, as always, when we do this kind of presentations, we will open up for Q&A. The slides on our webpage, and I refer you to them, and going to page one, where we have the heading New Horizons for Trelleborg. As you are well aware, we have signed an agreement to sell the Trelleborg Wheel Systems to Yokohama, and that is kind of in the making for the closing.
Expect that to be closed here by year-end. This is then opening up New Horizons, and that is why we feel this agreement to acquire Minnesota is moving us exactly in the right direction. Turning to page two, I mean, this is a way to what we call accelerating our journey towards, let's say, a focus company in engineered polymer solutions, and therefore, we are very happy to add, let's say, a major pace to Trelleborg Sealing Solutions, which is kind of, as you know, the most profitable part of Trelleborg and also the best precision part of Trelleborg in total. This is really creating what we call a step change for Trelleborg Sealing Solutions in the way that is becoming as strong in North America as we already are in Europe.
So turning to the next page three in the presentation, further comments on the strategic rationale, which is of course in line with what we wrote in the press release released only, let's say, some hour ago, less than an hour ago. This, as I said before, is kind of seen as for us a step change for Trelleborg Sealing Solutions. We are in this way becoming as strong in North America as in Europe. I mean, in order to fully understand that comment is that in Europe, we are very well established, with a full offering of both kind of elastomer, rubber components and different specialty plastics material.
While in U.S., we have been somewhat missing the elastomer rubber part of it and been very strong in the engineered plastic side, let's say, high value-added plastics. With this, we are now also creating a position with the elastomers, which is then kind of offering synergies in the very core of Trelleborg. That's also to highlight, this is really strengthening the very core. It's not an adjacent acquisition, it's actually an acquisition which is straight in the core of Sealing Solutions. We are sailing in known waters, we know the products, and Minnesota has very good positions with especially the North American blue-chip engineering companies, and therefore, we see this highly synergistic in multiple dimensions.
We have some cross-selling here since we are, as those of you who've been following, buying in some products to Sealing Solutions. Now we have a possibility to insource them into Minnesota factories, and there are also some cost overlap in the logistics and sales where we see possibilities to improve. The major synergy here is actually that we have complementary offering, and we have complementary customer footprint, which means that we see major opportunities for cross-selling, and we know that our customers is looking for kind of supplier consolidation, and we will be the most capable of offering complete solutions, and become, let's say, their premium partner in the sealing, precision sealing applications. It also adding very important kind of exposures for us.
Healthcare and medical is kind of becoming bigger, and we're becoming more complete in that offering. We are also strengthening us, especially in one segment we call food, beverage, and water, where we had to admit at Trelleborg before had some about, let's say, weak offering. Minnesota is very strong in that offering, and that is something we see benefits for us both in North America, but as well in Europe and elsewhere. In total, we definitely see that this is an upside, let's say, an acquisition which is accelerating our journey in multiple directions but overall in a very correct direction. Turning to page four, I mean, Minnesota Rubber and Plastics has been known, let's say, is owned by KKR.
I get back to comment on that, and that's because we know that this company was to become for sale eventually, and when this process has started a few months ago, very keen on looking into it. Sales SEK 2.25 billion expected in 2022. Headquarters in Plymouth, Minnesota, which is kind of the core area for medical and healthcare, especially in North America, but also for other, a lot of other kind of industrial and engineering companies. Running with eight manufacturing sites, four in North America. They have also in Europe, in Czech Republic and UK, one in Mexico, I forgot to mention, and also 1 in China, in Suzhou, which is also very, very nice for us, and more than 1,400 employees.
This is kind of in all areas a very good fit for Trelleborg. Footprint, just comment on that. I already mentioned it on the manufacturing footprint, which you see on the map here on page 5 on the left side. If you look at geographical, you also see it's very heavy in North America, which is kind of very good for us because that's also an area where we see substantial, let's say, growth opportunities for us. With this now, we are immediately doing a step change in this and getting a very good footprint, and also done some minor sales, if I say, in the comparison for Asia and Europe, where we also will be able to offer more and do better for them there.
If you look at the market segments, I already commented on medical and healthcare being the, let's say, the biggest individual segment for them. Food, beverage, and water, second biggest. They have, let's say, multiple of kind of various segments will be then defined here in specialty industrials, and they also have some smaller automotive, actually smaller automotive exposure than we have in total Sealing Solutions before. All in all, we think this is a good fit, and it's kind of matching and adding on, strengthening Trelleborg Sealing Solutions in, once again, in the multiple of dimensions. Seller KKR, as you know, a well-known private equity company. KKR bought this in a process 2017-2018.
We were looking at Minnesota already at that time, but we didn't really go all the way, and it went to KKR, which has been improving the company. We know when it came up for sale again, we definitely found this being a very good add-on acquisition and more as a very strategic acquisition. Once again, an add-on in the respect that it's in known waters and it's really an area where we're very well acquainted with and we know how to manage and we know how to integrate this in a very good way into Trelleborg.
It's highly synergistic, as I already commented, both in kind of production efficiency, cross-selling opportunities in the respect that we can sell our, let's say, a little bit wider offering than Minnesota has today. We can sell together with their customer contacts in North America, and we also now has far better opportunities to follow the Minnesota customers, let's say, outside of North America. We have cross-selling opportunities both in North America and the rest of the world. Valuation, a little bit high. I mean, we have to admit that, but I mean, it's still in a multiple high, but we also with synergies and with near-term synergies, we believe we are gonna pay some 10x EBITDA. Synergies again coming, very solid synergies coming both from cost efficiency and extra sales.
Purchase price $950 million. Today may be slightly more than SEK 9.5 billion, but also the income is in U.S. dollars. We know the exchange rates are fluctuating, but the purchase price is $950 million, cash- and debt-free. We also have a major tax benefit there of SEK 90 million due to the structure of the deal. Actual purchase price was kind of a dollar-for-dollar exchange to the underlying sales, the purchase price $860 million. Bridge financing, we call it bridge financing, and of course we don't need some extra financing here, when we have been closing the Wheel Systems deal.
We have nevertheless a secure bridge financing to make sure that we can manage this if it's, let's say, plus/minus a few months there, depending on the closing for Trelleborg Wheel Systems. Closing, there are some approvals. We don't expect any problems or challenges, but nevertheless, there are formalities connected to this. There will be, we estimate today between two and four months between signing and closing, but that is still to be seen. This is on the closing remarks before opening. This is really an acquisition which is kind of spot on for us, sailing in known waters.
We are highly synergistic deal, and we believe also from a, I should say, business model point of view and also a way of selling point of view, it's a very good fit for us, and therefore, we are very happy to make this acquisition. It's a strong support then as we say, the new horizons for Trelleborg and strengthening it in an area where we definitely want to be stronger. It's also turning us more profitable, less cyclical, and also an improved sustainability profile in total is also in line with this. More coherent portfolios also, of course, this is in the middle of that. It's a similar business models and drivers, so that is kind of also spot on for that.
Higher growth segments, we do expect with exposure Minnesota has. It actually improves the overall footprint for Sealing Solutions and thereby also for all of Trelleborg. This is also then, let's say, creating a good foundation for continued growth and continued acquisitions. I mean, following this acquisition, we see that we have a strong position in North America, and of course, the next target area, if I may say, for Sealing Solutions is now gonna be expansion in Asia. We have a new factory in Vietnam coming up relatively short term, but beyond that, of course, we continue to scout for, let's say, add-on acquisitions with a strategic value also in Asia, and hopefully, we'll be able also to comment about that in the next year or so.
This is really what we want to comment on now, and thereby by this opening up for questions. Please go ahead and open up for questions. Thank you. If you wish to ask a question, you may do so by pressing zero-one on your number pad. If you wish to withdraw a question, you may do so by pressing zero-two. There will now be a brief pause while questions are being registered. Thank you. Our first question comes from Claus Bay-Lind from Fifty. Go ahead. Your line is now open.
Yes. Hi, Peter. Claus Bay-Lind. Just a couple of questions, please. First of all, I was under the impression that you wanted to do more bolt-on type deals. This is pretty sizable. Obviously, it looks like a good fit with lots of solid growth segment, and you expand the North American exposure. You're, as you also say, paying a quite hefty multiple, sub 4x sales, including the tax assets. Your own valuation is 1.8x sales, pro forma ex synergies. It looks like major synergies are required to drive value. Can you talk about the split between cost synergies and the cross-selling opportunities and when you expect to achieve these synergies? That's my first one. Thank you.
Yeah. I mean, the synergies, I mean, the major synergies is cross-selling. I mean, just to elaborate further on this, I mean, a big account for Trelleborg, we can sell more than 1,000 articles on that one, and that is done by having a very wide offering of Trelleborg, and the customers really like that. That is kind of been part of the success, both in terms of growth and margin for Sealing Solutions. I mean, Minnesota is more focused today. They are more focused on, if I may say, rubber elastomers and less so of specialty plastics and thermoplastics and all of that. They are more focused on rubber components. That is kind of the major part of the synergies.
I mean, we will have, let's say, substantial synergies also in terms of cost efficiency and production efficiency. Once again, the major synergies will be in cross-selling. I mean, it's gonna take a few years, but we expect this to, let's say, improve the overall margin and bring it down to this, what to say, valuation of 10x EBITDA within, let's say, the next 2 years. I don't think it's a kind of very large synergies. It's not about closing factories. There is some logistics setups, and there is warehousing, and there is also some insourcing. I mean, we buy, as I'm sure you know, Claus, we buy part of our kind of offering from outside today that we sell within the Sealing Solutions.
Here we have, let's say, possibility to insource that. That is kind of an immediate and very safe synergy. We feel very confident on the synergies here, I must say. I mean, but once again, majority is in sales, to put it like that.
All right.
There is also substantial cost synergies bringing us, I mean, if we succeed with all these synergies, then, of course, the margin on this business will be substantially higher than the kind of what we have in Sealing Solutions today. We feel it's a kind of a low risk in terms of synergy extraction.
Yeah. If I assume the same maybe for Fredrik, well, for you as well, it's actually in the similar DNA as you have, then it looks like SEK 250-300 million in terms of synergies. I'm talking Swedish krona, of course, i.e., over 10 times target sales. It's quite a big step up for Minnesota on the margin. I mean, just trying to get some sort of numbers out of you guys, to understand the magnitude.
I don't know, Fredrik, if you want to comment or?
No. Please go ahead, Peter.
I mean, what we say here is kind of, I mean, the profitability of Minnesota on EBITDA level is kind of a few percentage points lower than Sealing Solutions today.
Mm-hmm.
We expect to cover that gap quite quickly. Thereby, I mean, correct, as you said, I mean, I think our ambition is probably even higher on the synergies than yours because, I mean, okay, you can talk synergies, but they have growth, the growth in this as well. I mean, this is a company with a growing, very, let's say, good order backlog, especially for medical and healthcare, which is kind of providing also a good base for the current, let's say, performance of the business. I mean, I think our synergy target is higher, and I agree with you, and that is why we have been calculating this. I mean, we're talking about 10% of sales or even more in synergies. Of course, it is a very solid synergy case.
Once again, that is also why we are very keen on it because we feel very confident that this is gonna be delivered.
Yeah. No, I appreciate it. No, that makes sense. My very final one, and then I'll stop, step back in line, is on the high-growth areas, and I appreciate this is a synergy case on sales, right? But I'm still interested in the historical growth of Minnesota.
8%-10%.
8%-10%.
8%-10%.
Obviously, that must be higher than in medical, food and beverage and specialty, given that you also have some automotive.
Yeah.
Yeah. All right.
I mean, I think we're. This has been happening. If you look at Minnesota when we looked at it 2017, 2018, for instance, I've been lowering our automotive exposure and been growing. It's not been a full growth case in a way, but it's also been incredible to take on the management of Minnesota. I've also been able to kind of transform the company a little bit since we looked at it carefully here in 2017, 2018.
Okay. I appreciate it. Thank you.
Thank you. Our next question comes from Hampus Engellau from Handelsbanken. Go ahead, your line is now open.
Thank you very much. I think Claus maybe took most of my questions, but it would be interesting to hear a bit from you guys in terms of integration cost, what we should expect, and also PPA, if you have made any initial calculations on the back of that. And then.
Mm.
Also, in terms of financial targets, is this maybe boosting your financial capabilities long term or should we near term maybe be more careful in what you are targeting? The last question is this in any way changing your buyback programs? Those are my questions. Thanks.
If I start off and then supplement, the integration cost will be limited. I mean, the majority of there is of course gonna be some IT costs, but in terms of scheme of things, it's gonna be very limited. I mean, it's not any major factory closures, it's nothing like that. It's more kind of add on. I mean, I know Claus Bay-Lind of course said we I was expecting you to do bolt on, but this is kind of for us a very big bolt on, supplementing us, and it's not kind of an overlapping setup like that. We don't expect any major integration costs. Of course, there are gonna be some upgrades.
We are probably running our factories actually slightly better than they, we have some automation ideas and stuff like that, but it's more CapEx related and providing kind of benefits in itself. It's not really integration costs. Once again, we'll be limited. With regards to PPA, we need to get back on that. I mean, of course, KKR being a private equity company, they've been fully focused on cash flow, and they've been, or should I put it, optimizing the tax, more than than kind of the EBIT. That is something we need to get back to all of you and give more flavor when we have the closing on that one. I don't want to comment any more on that at this stage, because this is, as I say, up in the air.
Of course, we have our plans, and we know what we're gonna go for, but nevertheless, we have to wait for the full closing accounts before we get back on that. Of course, it's more a cash flow-focused company than EBIT-focused company. That is something where we need to make sure that we inform in the right way. Target going forward, I mean, this is really supplementing us a lot for the North American market. I shouldn't say we are not finished in North America with Sealing Solutions with this, but at least it's a major step for us in North America, and it's also opening up a lot of doors to new customers, especially, let's say, American-based industrial engineering companies, where maybe we could have had a better footprint. That is really the area here. I mean.
To target forward, exactly for Sealing Solutions gonna be more to expand in Asia and expand very much in targeted segments like medical, healthcare, and aerospace. That is where we're still looking for acquisitions. I mean, even if we look beyond this deal and let's say including the money we get from Wheel Systems, we are still gonna get very low leverage. That means also in the buyback scenario, we don't see that kind of this deal alone as such. It's not kind of changing the buyback scenario. It might be that we need to tone it down a little here before we end this bridging period.
I mean, we don't see when this deal is done and the Wheel Systems money is in and also the Printing Solutions money is in, so then I don't know, Fredrik, then we are back to, what do we expect in leverage then?
Yeah, absolutely.
We have communicated that we will try to do at least SEK 3 billion in share buyback this year, and SEK 3 billion. That's still what we're aiming for this year. Then as Peter said, when we have got the wheel proceeds and the printing proceeds, we will continue in 2022. That's the plan for now. Sorry, 2023. Yeah, and the leverage, let's say, this deal and wheel and everything, what are we talking, Fredrik? Then we are down to back to close to zero.
Absolutely.
I mean, we basically have no leverage with this deal and Wheel Systems and everything. Of course, there's plenty of room both for buybacks and continue with the kind of acquisition. Might not be of this size, but we will have plenty of capacity to continue to do bolt-on focused acquisitions. I don't know, Hampus, if you have anything to add.
No, no, that's definitely enough. Thank you.
Yeah.
Thank you. As a reminder, if you would like to ask a question, you may do so by pressing zero one on your number pad. Our next question comes from Agnieszka Vilela from Nordea. Go ahead. Your line is now open.
Perfect. Thank you. I have a couple of questions, starting with the historical financial performance of the company acquired. The 8% growth that you referred to, was it purely organic or did they create that growth platform through acquisitions as well?
That is organic growth. Then they made actually only some two smaller acquisitions. That was done actually late 2021 and early 2022. That has not really been impacting the historical growth rates.
This historical growth rates, is there any kind of time period you can refer to, average for like 10+ years, or how should we think about it?
Sorry, Agnieszka, what do you mean? To give. Because this company, of course, didn't change over the last few years.
Yeah.
When I refer to 8%-10%, it's the last three years.
Like last three years. Perfect. just,
That is what we have. It's, let's say that it's because it's not been the same company before that.
Yes.
Once again, what I've been doing is, in a way, a simple story. It's been lowering the automotive exposure and increasing the medical and healthcare exposure.
Perfect. Thank you. Very clear. Then on the EBITDA margin level, you said it's two percentage point lower than Sealing Solutions today. If we're saying 16%-18%, is it a fair assumption in your opinion?
I mean, of course, it's a few percentage points lower than Sealing Solutions, and that's. I think we want to stay with that. When we do the closing, we will provide more flavor on that. Because once again, I mean, it is private equity owned, and they've been focused kind of solely on the cash flow and EBITDA. We need to decide on the PPA and how we actually allocate the PPA before we want to comment on and give you. We will provide historical figures about this, but I mean, at the moment, we want to say it's a few percentage points lower than Sealing Solutions.
Great.
Once again, we expect to cover that gap very quickly. We expect it to be on par within the next 18-24 months.
All right. Just, could you remind us what the tax benefits are coming from?
Yeah. That's tax step-up. Fredrik, can you give some more input on that?
The tax step-up will be consumed over the coming 10-15 years, but it's already discounted when we are communicated the $90 million. That's just a part of how we structured the transaction. Based on our other business that we have in U.S., we can get this benefit.
Which we could go, but the financial buyer cannot. That is kind of our benefit in this discussion.
Yeah. Maybe if we could go back to the synergies. The cross-selling synergies, did I get you right when you said that you expect about 10% of the acquired company sales to come in extra synergies?
No. That was it. 10% of sales is the EBIT, let's say, benefit. The sales synergies will be actually higher than that. You know, the gross profit in this kind of product is kind of 40%-50%.
Yeah.
That is what. You can do your calculation yourself, how much extra sales it has to be delivered. When I say 10% of sales, that is 10% of sales is total synergies.
Okay, perfect. Actually last question from me, if you could tell us how long have you been in conversations with the company, and also whether there were any competing bids for it?
Yeah. I mean, as I said before, we looked at this already 2017, 2018 when it was acquired by KKR, and of course, it's been on the map ever since we know it's up for sale. I mean, it was KKR who initiated a process with an American banker to go out, and there have been several parties, let's say, involved in this process, strategics and financials. It's been a competitive process, and process started kind of 2-3 months ago. No, not a bilateral discussion in that way. This has been kind of a structured process where we at the end managed to agree and sign. Is that enough, Agnieszka?
Thank you.
Or you-
Yeah. Yeah, that's enough. Thank you.
Mm-hmm.
Thank you. We have no further questions in line at this point in time. I will hand over to the speakers for any closing remarks. Thank you.
Okay. Thank you once again. I mean, thanks for showing interest here, and I mean, listening in on our presentation of our agreement to acquire Minnesota Rubber and Plastics. I mean, as a comment, then this is really spot on to where we wanna move, and we really feel that that is accelerating our journey in a multiple directions, but overall in a very correct directions. Of course, now as this deal will close, we will get back with more information, but we need to kind of put together the balance sheet and the PPA and tax effects and all of that, and then we provide more flavor on it.
Now we need to work on that in order to get that part of the deal in place and of course make sure that we immediately start to prepare to extract the sizable synergies that we see following this deal. As always, Christofer available for our questions, and Fredrik and myself as well. Thanks for showing interest and speak to you later. Thank you.