Ladies and gentlemen, welcome to the analyst and media conference call and live webcast. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comments in writing by the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Martin Brändle, Senior Vice President, Corporate Communications and Investor Relations. Please go ahead, sir.
Thank you. Ladies and gentlemen, welcome, and thank you for joining us for this conference call and webcast to provide you with more information on Tecan's acquisition of Paramit Corporation. On the call with me are our Chief Executive Officer, Dr. Achim von Leoprechting, and our Chief Financial Officer, Tania Micki. The press release announcing the acquisition of Paramit was issued yesterday evening at 7:00 P.M. Central European Summer Time. You can find the presentation deck, which we will use in this call, on the company website, tecan.com, under the investor relations tab. We will go through these slides first, and then we open it up for Q&A. Please note this call is being webcast live over the internet, and the recording will be available afterwards. With that, let me now turn the call over to Achim von Leoprechting. Achim?
Thank you very much, Martin. A very good morning and good afternoon, and welcome from my side as well. Let me first of all introduce Paramit Corporation to you. Headquartered in California, U.S., Paramit is a leading OEM developer and manufacturer of medical devices as well as Life Sciences modules and instruments. The addition of Paramit's capabilities and customer portfolio will further extend Tecan's reach into the Life Sciences and in vitro diagnostic markets, but with medical mechatronics also adds an entirely new business and growth vertical to Tecan. The acquisition adds highly complementary expertise and presence in the important life science and healthcare markets in the U.S. and Asia Pacific, with differentiated development, industrialization, and manufacturing capabilities. Paramit Corporation has operating locations both in the U.S. and Malaysia and offers significant engineering and differentiated manufacturing capabilities to its global clients.
In the full year 2021, Paramit is expected to generate around $280 million or CHF 257 million, and EBITDA of around $50 million or CHF 46 million. The total consideration for the acquisition of Paramit will be $1 billion or CHF 992 million. The acquisition of Paramit is a significant step in Tecan's strategic growth plans for the existing Life Sciences and in vitro diagnostic markets. Furthermore, Paramit expands Tecan's addressable market into the medical devices market segment, where we also see significant growth opportunities.
You are familiar, of course, with our strategic growth vectors one, two, and three, and we will continue to strengthen our Life Sciences B usiness and Partnering Business segment organically and inorganically by adding competencies in lab automation, one, expanding our portfolio in Life Sciences instruments and technology, two, as well as adding reagents and consumables to complete the solutions offering with a particular focus on genomics, proteomics, and cell analysis workflows, vector three. Since 2013, we have complemented our organic investments in these areas with six bolt-on acquisitions. Paramit now adds capabilities which will allow us to further strengthen our customer offering for the life science and in vitro diagnostic markets through both of our business divisions, illustrated by vector four. In addition, Paramit now offers access and scale in a sub-segment of the $100 billion medical devices market called medical mechatronics, vector five, on the right-hand side of the illustration.
This represents a significant opportunity of between $13 billion-$15 billion, thereby more than doubling our total addressable market. Combining Paramit's differentiated engineering and manufacturing capabilities for highly regulated markets with Tecan competencies in system engineering and software development, which are also geared towards innovative yet regulated markets, we believe that we can offer an even more compelling offering to customers in these both markets globally. To describe the synergistic key areas of Paramit and Tecan in more detail, I'd like to outline the complementary offering of OEM components, modules, and instrumentation related to the markets in a bit more detail. Tecan's portfolio today includes highly innovative components as well as platforms and bespoke development programs through which we are addressing key growth areas like molecular diagnostics, including sequencing, immunodiagnostics, tissue and liquid biopsy-based cancer companion diagnostics, cell analysis, and many more.
Paramit offers today for those Life Sciences IVD segments engineering and manufacturing solutions with a particular focus on product realization services and industrializing innovative workflows for benchtop solutions and small system integrations. In addition, Paramit offers complementary components and modules based on robotic controls, microfluidics, and optical technologies. For the medical mechatronics market, Paramit's core competency is the industrialization and high-quality manufacturing of components, modules, and entire systems based on the same building blocks, but complemented with leading expertise in laser and radio frequency technology engineering. Key applications for Paramit in this market segment include surgical robotics, reconstructive surgery, laser treatment, and several more. The medical mechatronics market segment has not previously been accessible for Tecan before. The combination of Paramit with Tecan's current business offering significantly enhances our OEM portfolio and customer value proposition.
Today, with Tecan Cavro and Tecan Synergence, Tecan offers a broad range of products and services from components to full systems, including consumables, spare parts, and even support and field service offerings. Paramit, as just discussed, adds to this existing portfolio, but also adds an entirely new market vertically with medical mechatronics. As highlighted in the arrows, where purple represents Paramit competencies and red represents Tecan capabilities, we see a significant synergy and cross-leverage on the joint products and services, both for the underlying segments we serve and also from a geographical strength perspective. Complementing the development and manufacturing sites of Tecan, Paramit operates sites in the U.S., two sites in Morgan Hill, California, the headquarters with a manufacturing site with more than 450 employees, plus a smaller R&D location, and the site in Boston, Massachusetts, where it's focused on OEM product development.
Paramit also operates a state-of-the-art manufacturing site in Penang, Malaysia, with more than 170,000 sq ft or roughly 16,000 sq m and more than 570 employees. All manufacturing sites of Paramit are ISO 9001 and ISO 13485 certified, and therefore allow Paramit to supply the highly regulated IVD and med tech markets while also leveraging Paramit's proprietary and highly differentiated quality manufacturing system called vPoke. Paramit's proprietary computer-directed assembly system, vPoke, provides a substantially higher level of control and validation for mechanical assembly. These systems are ideally suited for low- to mid-volume, high-mix manufacturing with an operator-independent quality assured output, aiming at zero-defect manufacturing. This system is recognized by Paramit's customers for being ideal to deliver scale and consistency for complex products demanding highest quality and compliance, particularly, of course, then for regulated markets.
vPoke is at the core of Paramit's growth and success with global customers and will be a central area of future possible growth expansion of Tecan as well. With this, I would like to hand over to Tania Micki, who will guide you through the financial aspect of this Tecan acquisition.
Thank you, Achim. In addition to what you have already heard regarding the strategic fit of the acquisition, this transaction delivers a compelling financial profile. The acquisition will be immediately and significantly accretive to earnings per share upon closing. We expect that on a reported basis, even when including non-integration costs and the purchase price amortization, PPA, compared to the reported figure in 2020, it will be an EPS increase of around 10% in 2022, the first full year of consolidation. Just before amortization of intangibles from M&A net of tax and the integration costs, we estimate EPS accretion in the range of 15%-20% for 2022. Paramit has recorded strong growth and healthy operating margins over the past five years. In the full 2021, we expect Paramit to generate around $280 million in sales. Currently, that is around CHF 257 million.
We also expect approximately $50 million EBITDA, or around CHF 46 million, that is before acquisition-related costs. This additional contribution will transform Tecan into a more than CHF 1 billion revenue and more than CHF 200 million EBITDA company. It will provide the group with critical mass and scale, further enhancing our already strong operating cash flow. This strengthened financial profile will fuel future growth in our two business segments, both organic and through additional acquisitions. We also anticipate substantial commercial and cost synergies to be achieved through a range of opportunities, including synergies in the supply chain and in the validation of suppliers of certain parts, modules, and subassemblies.
Looking at the actual transaction in more detail, upon closing of the transaction, the total purchase consideration of $1 billion, or about CHF 920 million, will be funded through a mix of cash on hand, the issuance of new shares, and the bond offering. All three elements will contribute to about 1/3 of the funding. We can see further details of the three pillars at the bottom of the slide. We have opted for this mix of funding to preserve our financial flexibility also for potential additional M&A transactions. We are leveraging our strong balance sheet with a net liquidity position of CHF 468 million at the end of the year 2020. We are also benefiting from the pretty favorable exchange rate of the Swiss franc versus the U.S. dollar.
Until the closing and the realization of the funding mix described before, we have obtained committed bridge financing with respect to the purchase price from Credit Suisse. Closing is expected to be completed in the coming months and as always, is subject to the satisfaction of customary closing conditions. Upon completion, Paramit will be included in the consolidated financial statements of the Tecan Group as part of the Partnering Business segment. With this, I now hand back over to Achim for your question again. Achim.
Thank you very much, Tania. In summary, we are strengthening our leadership position with the acquisition of Paramit, a leading OEM supplier with a notable list of blue-chip customers across life science research and medical devices. We are adding complementary expertise and are broadening our design, development, and manufacturing capabilities. We are more than doubling our total addressable market in a financially compelling transaction. We are setting the basis for future growth. Very importantly, the two companies share many aspects in regard to the corporate culture. We are both very customer-centric, have clear commitments to the values of ambition, trust, and high standards, with a very strong focus on quality management in regulated markets. Both organizations are driven by a common purpose, to contribute to improving the quality of life of humankind by scaling innovation from research to the clinic.
With that, we open the call for Q&A.
The first question comes from the line of Maja Pataki with Kepler. Please go ahead.
Hi, good afternoon. I have two questions, please. The first one, could you provide us a split of the revenues into life science and the medical mechatronics? Potentially also give us an indication on if there's a difference in the growth rates.
Sure.
The second question would be relating to the vPoke assembly software or whatever we want to call it. How much of a gross margin driver could that be for the Tecan standalone business if applied to the components business or something? Thank you very much.
Yeah, thank you very much, Maja. Very good question. I would probably ask Tania to answer the first question. Then I will be a bit more detailed on vPoke and what we're planning with vPoke going forward and how it's already deployed at Paramit to assure quality and the production volumes that they're carrying. Maybe, Tania, if you could take the first question on split of revenues between Life Sciences and the medical mechatronics markets.
Sure. Thank you, Maja, for your question. So far, this is about 70% on medical devices, 20% on life science research, and about 10% on IVD.
Maybe on the question on vPoke. We're actually quite excited about vPoke, and vPoke has been a technology infrastructure that has been created by Paramit over the past three decades and is being very successfully deployed by them in that area that demands a manufacturing environment of low to mid volume and high mix with combination of high quality output. Very low number of defects in production, but also at the end of the testing and in the field. This is, I think, a key market recognition and differentiation by Paramit in their manufacturing environments. This system is actually being deployed both identically in Morgan Hill and in Penang, Malaysia.
Of course, when we think about our own production environment, I would dare to say that we're also pretty good in terms of our quality output and our quality assurance systems, which is, I think, also one reason why we are quite successful in the clinical markets that we're serving. However, vPoke, I would say from our perspective and my personal experience now takes it to the next level, allowing also to deploy these manufacturing environments in a far more modular system that is ideally suited also for similar products like we would use them in our component system development and production, but also in our sub-building block modules and even to some extent on the larger platforms.
The big attraction of vPoke to me is it is entirely scalable and transferable also from site to site once products are properly implemented, and then it becomes more or less operator independent. The qualification of the operator to yield very high quality output through vPoke can be substantially, I would say, lower than what traditional manufacturing regimes would require. I think there's a lot of things that we have in mind right now to deploy a vPoke environment in also our own facilities. Of course, also using the existing infrastructure in Morgan Hill and Penang for selective production of additional products and new programs that will come into our framework. I think overall, I think a very good system and then also the basis, of course, for the profitable growth of Paramit over the past three decades.
Okay. Maybe just two follow-ups please, if I may. If we look at a split of 70% medical side, is there a difference in the growth rates in the margin between the life science and the medical side? Could you maybe talk a bit to the synergies that you expect to get out of the combination? Because I am a bit surprised at the big share of the medical mechatronics share of the revenues. I'm just trying to understand if you could give us a bit of a example of where you see the synergies that you could take out. Thank you.
Yeah. When we look at it also the history of Paramit, they have been in both segments quite successful, and adding constantly new programs and new partners into their OEM work, both from a medical device standpoint, but also from a Life Sciences standpoint. Probably similar to what we see when I look at the Tecan Life Sciences segment, probably the most dynamic right now also for Paramit, the area is genomics overall. I think they have already and are also continue to drive the scale-up and some of the programs that look at innovative genomic solutions probably as a big focus area, but also on the medical device, on medical mechatronics side. The pipeline of programs is very robust and also the inbound demand for new programs coming their way is quite substantial.
Of course, with their recent addition of more engineering capabilities in the field of, I would say, energy transfer, they have already now started a very comprehensive program to exploit that in terms of new lead generation, new program generation, as well as capturing more of the Life Sciences revenues of such a multi-year interaction with the key account. In that sense, I think we are equally excited about the two segments where, of course, life science is more complementary and the med tech is more additive to what we do today. They all in their own rights are very dynamic and very healthily growing businesses for Paramit. On the synergy side, of course, there are multiple aspects that we're looking at. As I said before, we're quite excited about vPoke and also their production capabilities.
They are probably a bit more vertically integrated than Tecan is today. I think just from the scale and access to materials, building blocks, modules, components, there's a lot we can think of to now use Paramit in our future growth to complement our production profiles that we already have in Tecan. I think overall, I would think about it like this is a clear combination of two growth companies, so we're not necessarily looking at it to reduce necessarily footprint, but it's more about scaling growth and then leveraging very nicely tuned operations and manufacturing footprint, particularly also with the ability to transfer programs once they're matured from the Paramit Morgan Hill facilities, potentially into the even more cost advantageous Penang, Malaysia environment.
I think there's a couple of things that probably I wouldn't like to get into too much detail yet, but there's of course, a lot of programs that we're looking at right now that would leverage that capability. As I said, particularly with a focus on the regulated aspects of the production growth that we are looking at in our own strategic framework.
Thank you very much for that.
The next question comes from the line of Peter Testa with One Investments. Please go ahead.
Yes. Thank you. I had a couple of questions, please. Firstly, could you just give us a sense, please, of what the organic growth has been at Paramit over the last two years and whether there's been any M&A?
Paramit has been affected by COVID negatively in 2020, but prior to that, they had a solid growth over the last few years. We can also see the pickup in 2021 with prospects beyond being around or above market expectations.
Okay. Can you define what solid growth was before? Are we talking 5%, 10%, 10%+, 5%? What are we talking? Just to give some idea.
Yeah, we are talking 5%, 10%.
Okay, fine. On the inside their business, to what extent do they have consumables or spares income?
Practically, from a consumer standpoint, there is nothing, and there is, of course, underlying always modules in some area of spare parts, as they think about their production lines. It's probably a nominally small business contribution overall.
Okay. Then if you look at the opportunity to use their physical manufacturing structure, do you have a sense as to what sort of proportion of value or anything that you could say in terms of Tecan cost of goods sold that could go through Paramit's manufacturing? Is there anything to do with product registration, i.e., you'd need to get approval of resubmitting a new product for equivalents or anything like that you'd need to go through to make that happen?
In response to Maja's question on vPoke and how we're looking at this. For me, and for us as we plan it's more about accommodating growth for future programs and product and, to some extent, assembly or building blocks that go into our infrastructure as well. We're not planning any kind of transfer, for example, of an Abbott m2000 or something. We are quite happy with the flexibility and dynamics here. It's more about new programs, new products, and leveraging that joint footprint. There's also new abilities to more effectively design to cost and design to manufacturing using that vPoke system, which greatly benefits from an inclusion in the R&D program already. It's more about future growth and new programs.
Okay. Last thing, can you give a sense of what proportion of Paramit's products are, say, full products, like Tecan does with its partnerships, as opposed to, say, the component or the part of that that's maybe consumable in case of some of the medical device business?
We haven't broken that down as of yet. Maybe just to give you an idea, in Life Sciences, for them, it's mostly about systems. It's a kind of benchtop system. It's what you probably would associate more with systems that you would associate with things like point of care or research applications. They are complete systems. In the medical mechatronics, it's a variety of things. It starts with franchise around components, but also modules, but then also more functional integrated systems than what is like, for example, simulators. Then I would probably speak about more complete systems. It's a variety of solutions that they're putting, but we've not necessarily broken it down in terms of how much percentages would come from components or modules or entire systems.
Okay. No, I'm just asking because you look on their websites for the manufacturing and you look at the different products you see inside the parts of the business, you end up looking at, like in life science, it looks like the whole system. Some of it looks like, for example, Roche, they have a machine or Lonza, they have some pieces, and it's not really clear how much is systems and how much is a variety of other things, but okay, thanks. Okay, thank you very much and congratulations on the deal.
Thank you.
The next question comes from the line of Daniel Jelovcan with Mirabaud. Please go ahead.
Good afternoon as well. Just three questions. The first one, what was very eye-catching to me was that the acquired company has 1,000 employees roughly, and you yourself have 1,500, but you are much bigger than them. I saw the slide with the Malaysian footprint. Is it more labor-intent? The labor, of course, is cheap in Malaysia, but just to see the context.
Yeah. Directionally, of course, thank you, Daniel, for jumping in. Yeah, Paramit, the total employee base is a little bit more than 1,000, and Tecan today is also more than 2,000 already. We've grown actually quite a bit over the last couple of years. You're right. Of course, when you look at their footprint, a lot of what they do is assembly and testing and engineering. Naturally, a bit more kind of labor-intent than, for example, driving a consumables or reagents business. Of course, also, Paramit, particularly in Penang, Malaysia, as you noted, with around 550 employees, has capabilities that require more labor steps in between and then also differentiate between maybe more kind of smaller systems and components, but also handheld and point-of-care devices that need some more level of human interaction.
Overall, I think when we look at our production footprint, it's a normal correlation between what I would assume from a headcount perspective compared to the output and the complexity of the builds that they're doing in their manufacturing sites.
Okay. The second question is, in the medical part, can you talk a little bit about the peers? Everybody knows Flextronics, are you now a small Flextronics or? Yeah, that's the question.
I would say, Paramit has absolutely fantastic differentiation compared to, I would say, the large volume infrastructure builder companies out there. It all goes back to what I said earlier with their proprietary assembly systems and their, I would say, absolute determination on quality and regulatory compliant output. They've been very successful to differentiate in that part of regulated, yet high-mix, low- to mid-volume manufacturing needs. They're not trying to compete on price or these kind of things. I think as you see from the financials there, they're very healthy on their profitability, and their differentiation allows them to access those programs that are targeted exactly to these kind of mid-volume, high-mix environments using their flexibility that allows them to do these kind of operational switches between production lines and systems in a very elegant and cost-effective way.
Again, I will come back to the biggest area of differentiation is what I call, the vPoke discussion, the zero-defect manufacturing output. This is, as you can imagine, probably their biggest selling item and claim to fame, which transports between clients and brings them a lot of inbound business. Maybe just noting that the commercial front end of Paramit is very lean. A lot of their business comes from customer referrals, recommendations, and showcases and these kind of things. I think they found a very good space in differentiating. Then, of course, they have also now started to develop a more integrated model, and that's very important as well compared to many other companies just offering manufacturing models. This goes also to the core of our strategy with Paramit.
As I mentioned, they have integrated now an R&D capability, both in California and in Boston, that allows them not just to do manufacturing production, but also design, development, and a very high degree of differentiation in terms of mastering technology. This is very close also to how we think about the differentiation in OEMs. To not only differentiate by the production capabilities, but also adding value in lifecycle management, in design, but also aiding maybe then the subsequent generation mutations of systems as they go through their lifecycles. I think that differentiation is very important. It has been recognized by Paramit a couple of years ago. They integrated, a couple of years already, an R&D company in, like I said, California, and more recently added a very well-differentiated powerhouse of innovation and development in Boston.
Yes. Thanks. I guess the two peers are probably small companies as well, so not the Flextronics of the world. Is that correct in this kind of niche?
Well, I think as always, in this environment, you know that discussion from our own world, it's always about in-house versus not in-house discussion. The variety of competition is in-house production lines and any other production modality out there in the market. I would say, again, to what I said earlier, they have found a very nice and attractive differentiated niche in that crossroads between Life Sciences, diagnostics, and medical devices that allows us to grow, as Tania illustrated, very substantially over the last years. When we look at it right now, they are very capable and able to attract a very meaningful number of new programs, including big blue-chip names. I think what they're doing is very well vetted, proven, and like I said, also differentiated particularly through the angle of engineering development services and the whole complexity of lifecycle management options.
Okay, the last third question, can you quantify the synergies a bit? In terms of really numbers, let's say in year, whatever, three, four, or five?
We are anticipating the total cost of the synergies to be around CHF 10 million for the next five years, including the synergies in the supply chain and internalization of supply for certain parts, and more or less the equivalent in terms of synergies.
The synergies are primarily cost synergies or also top-line synergies between the leverage in your regions?
It's a combination of both. We will work right away on cost synergies, which are similar to synergies in the supply chain, and as I mentioned, the internalization of supplies of certain parts, modules, and subassemblies. It is really more about further scaling the production. As also Achim talked about the vPoke system, and what we are seeing is the potential for introducing the vPoke or the direct support in manufacturing into our existing sites as well. Of course, as you mentioned, that there will also be some further opportunities that we see to expand the OEM component business into the medical mechatronics segment.
Maybe just to follow on in addition to what you said, Tania. I think when I look at the commercial synergy or the upside opportunity, I think this is the area where we're very excited that we can use and leverage our existing reach into all geographies with a very well-established commercial key account framework. As I hinted to, Paramit so far is operating on a very lean two-person commercial key account team. I think there's a lot more reach and then customer generation that Tecan can bring to the equation through our partnering OEM channel. I think that's probably not yet really quantified, and then I would probably be cautious before we have a more substantial discussion of these kind of upside and commercial synergies.
Clearly something we are very excited about, and we see as a great potential for the midterm and the long term of this partnership with Paramit.
Okay, thanks very much.
One more question from the phone.
The next question from the phone comes from Scott Bardo with Berenberg. Please go ahead.
Yeah. Hi, guys. Thanks so much for taking my questions, and congratulations on the deal. The first question, please, just really trying to understand a little bit more about Paramit. I wonder if you could please help us understand a little bit what the historic growth for this business has been like and the historic margin profile, and whether from this point you believe the business to be growth accretive or at the pace of Tecan growth. Just some perspective there. I'd also like to understand, please, the capital intensity of this business. Is it similar to the group, or less? Lastly on this area, please, help us understand a little bit the nature of the partnerships. Is it similar in construct to what you enjoy in your Partnering Business, long duration contracts? Do you have very strong visibility on the pipeline for the next five years or so?
Is there any particular subcategory where there is a strong pipeline? Just like to get a bit more flavor for the business, please. Perhaps I will stop there then, Achim, and I have a couple of very short follow-ups. Thank you.
Okay, super. Thank you very much for the questions. We'll look at Tania to take you through things like CapEx and the historic growth, then I will talk a little bit more about the nature of business and the customer interaction.
Thanks, Scott. I think from a historical revenue growth rate, in the last three to five years, what we can say is that Paramit recorded growth rate in the mid-single digits. As I mentioned before, the 2020 year was disrupted by COVID with a mid-single digit decline, and we are seeing again in 2021 a pick-up of the business. If we talk about maybe more on the target for the sales growth in the coming years, as I mentioned also before, going forward, we expect it to be at least in this mid-single digit range with the potential to accelerate the growth to a higher single digit with the key products further ramping up and also the sales synergies that Achim mentioned in the previous session. From the margins perspective for 2021, we expect EBITDA margins already to be around 18% of sales.
Of course, in 2020, with the mid-single digit decline due to the COVID-19 situation, it was somewhat below that. What we expect, again, is going further with the cost synergies that I have mentioned, that we can bring it to higher levels. For 2022, and of course, the increase that I'm talking about would be before any acquisition-related costs. That is something that we will have to take into consideration as well. From the capital intensity, yes, you have asked if it will be similar to the levels in Tecan. That is what we see at this stage. It's pretty low, with representing about 2% of sales from a CapEx perspective. That I think addresses a little bit your first set of questions, and maybe Achim can take from that.
Yeah, no. Thanks, Tania. On the customer interaction, and when we look at the customer partnerships and particularly the duration of these partnerships, it's very good to see how long partners typically are with Paramit. I think many of them are associating Paramit as an enabling partner in their ventures. The kind of contractual nature of the relationship is very different. Of course, similar in our world, when you're supplying components or modules, typically, you're more kind of running on an annual renewal basis, where, of course, once designed in, it's a pretty sticky environment. Then when, similar to us, when you do a full development program and these kind of things, then it becomes more, if you want, more sticky because you're engineering products and capabilities and support.
In aggregate, I would say, the Paramit business is probably kind of less multi-year contractual as we are. Like I said, more rolling contracts, but with a very high degree of stickiness simply because Paramit has capabilities in production and in quality assurance and testing and validation that are very hard to be substituted by someone else. Of course, like I said before, the plan has been, and that's been already in execution, to add engineering and to add capabilities to become more sticky and to become more complete in these interactions. Overall, I think very happy with looking at the historics and the, I would say, retention and stickiness of their clients.
Of course, when you look at the pipeline, very good to see that every year they're able to sign on a number of new accounts that add to the inherent growth of their existing partners. Going forward, of course, this is something we will also then like to address and moving even more of these newer partnerships, in addition to what Paramit is doing to the area that you know us for, that is then also leveraging wherever possible, maybe some of our own IP or software competencies in future development programs. I think there's a pretty interesting road ahead of us. For the time being, I would say very pleased with the retention rate of Paramit, given their obsession and track record in quality assurance and their differentiation in the production space.
That's very helpful. Thanks. The two quick follow-ups then, please. Tania, am I correct in saying that the 15%-20% adjusted earnings accretion next year is almost a pre-synergy number, and that it would take a few years for you to realize your optimal cost synergies? I wonder if you could please clarify that. The second question or the third question, so to say, please, Achim, can you talk a little bit more about the board's decision to issue equity as part of the funding structure for this deal? It doesn't seem entirely, so to say, necessary to complete this transaction given your cash position and favorable raise capabilities. Is it that you do have indeed a very broad pipeline for more targets and that this year we may indeed expect further deals? Thank you.
For the first question, Scott, we said we expect an EPS increase of around 10% for the first year of consolidation, and that should include a portion of the amortization of intangibles and as well as some integration costs. When I mentioned the 15%-20%, that was before, of course, integration costs. To your point, yes, it will take a few years before, as we said, for the synergies, we said it's about five years that we anticipate the total cost of synergies to materialize fully, and that 15%-20% would be within that range of two to five years.
Yeah, then maybe to your question on the mix of financing, clearly, you're hinting to the exact right direction. We are pretty well aware of the kind of options and tools that we have, and of course, we still maintain some flexibility between the tools that Tania called out between cash, debt financing, and equity financing. However, clearly, we don't want to stand still and deprive ourselves of firepower for too long. I probably will, again, like we discussed in similar circumstances, M&A is always happening when it happens and when we feel, like in this case, very good about strategic fit and our financial end, I always stress that operational and regulatory diligence requirements to advance targets forward.
Clearly, what I also tried to illustrate in my short presentation is that we are by no means disorienting from our growth profile opportunities in our Life Sciences segment. The kind of vectors that are called one, two, and three that add to capabilities in Life Sciences and instrumentation, but also reagents and consumables, is absolutely not off our radar. I, again, wouldn't dare to say, whether it is happening this year or whatever, as always, but clearly, what you're hinting at our ability to leverage our very strong share price in the mix is also giving us more flexibility in the future to do M&A maybe in a shorter period of time. This is clearly something we are looking at. Also, in all honesty, now this is a pretty significant integration and once it's closed.
I'm also, I think, cognizant of the fact that we have a certain span of attention for M&A. Maybe from a size perspective, that will keep us busy for a while, but I think bolt-ons or any other kind of means to reinforce our strategic intent, like I said, particularly maybe now with an increased focus on Life Sciences, is absolutely on our radar, and this is what we try to prepare for.
That's very clear. I'll drop back in the queue. Thanks, guys.
There's one more question on the phone follow-up, and then we will also have two questions from the webcast.
The next question for the phone is a follow-up from. Please go ahead.
Yep. Just two small ones. The first, does the management of the Paramit, I think the CEO is there since 10 years. Does management stay within Tecan, or what are the plans there? The second is, sorry to ask, but the seasonality of the business, just for our models in the future is between the first half and the second half, I guess it's also geared more towards the second half, or is maybe the medical business very different between the two half-year periods? Thanks.
Okay. Probably I take the first question. Absolutely, we want to work with the supreme management team that built up Paramit. Of course, it's always a personal decision to stay or not to stay with Tecan. I must say what I said in my presentation part, we are very pleased with the culture, also with the commitment, the passion, and the expertise and knowledge of the Paramit team, which goes several layers from the CEO. Very capable, very strong, long-serving team that we are very impressed with. As I said, for me, this is a growth case. We want to continue to grow Tecan. We want to grow now Paramit in this new environment. For me, it's more on handling that question than anything else.
As always, things can change, on a personal level, but from an intent standpoint, we would love to work with everyone at Tecan for as long as we can. That's probably what I can say. We're very impressed with the team and very happy with all their accomplishments and their backgrounds and passion for the business.
To take on the seasonality question, so far, we have not seen significant seasonality. What is clear is that they are very much volume scale driven, similar to Tecan. Of course, from that perspective, if you do more volume in one month or in the half year, then you would have some impact on the margin as well.
Okay, thanks.
Good. Maybe taking a question, in the meantime, several questions have been answered that were also posted over the webcast. There is one more that I probably want to read now. It is: Has there been a bidding process for Paramit, or were you "the only or preferred contender?
Okay, probably, I take this. This was not a competitive process. This was one of the examples that I think I referred to in many of our earlier discussions on M&A and where we believe, and in particular from our vantage point and position, are focusing on in this very dynamic M&A environment, that, of course, as we all know, has not slowed down a bit and accelerated quite a bit. It was a process that we cultivated over many years, and the relationship was built over quite some time. We were basically able to engage in a private process with the selling entity. Very, very pleased about the program and also our ability to keep it on a one-on-one basis.
There is another question around integration costs expected in 2021 and the EBITDA margin levels and the sustainability of those. Tania?
In 2021, we expect the integration cost to be in the mid-single digit million. In 2022, a higher single-digit million amount. From the current EBITDA margin, as I mentioned, they are quite volume driven. We have seen some decrease in margins in 2020 when the volume was affected by the COVID situation. It goes back to the 18% level with the higher volume. Now, is that already fully optimized? From the, of course, the setup that they have today, they are probably at the right level. As I mentioned before, with the cost synergies that we want to bring in and the potential use of the vPoke system as well as leveraging on their supply chain and internalization of supplies of certain parts, modules, and sub-assemblies, we will see some improvement. However, not necessarily reflected in Paramit itself.
Overall for Tecan, that's what we would see.
Good. There is one, maybe last question in the line, on the telephone line as a follow-up. Please go ahead.
Last question on the phone is a follow-up from Mr. Bardo with Berenberg. Please go ahead, sir.
Thanks very much for taking this follow-up. Achim, I wonder if you can describe whether there's a service angle to this business, whether that's something you can scale as part of a broader initiative to offer service in your partnering offering for diagnostics. Similarly, can you talk to a little bit about the evolving life science business for Paramit? In your opinion, is this an interesting feeder business for Silicon Valley type companies that you've struggled to, if you like, capitalize on before? Perhaps if you can just help us understand that point and whether indeed there are certain critical components that you now garner as part of this acquisition that will be useful for your future development.
Yeah, great questions again. Maybe quickly on service. I would probably span it into three categories. One is engineering services, life cycle management, and field and repair services. Clearly, what Paramit started doing is adding competencies in engineering, so design and development, and I would say earlier beginnings of a life cycle management proposal. Clearly something that we believe we can build and grow and particularly add from a Tecan perspective, quite a bit of experience in system integration, software development, and applications know-how, particularly in the field of life science and diagnostics. When it comes to field service, this clearly is, I think, an opportunity that we see, particularly again, for that segment around life science and diagnostics. In the med tech space, it's probably something where also we, from our side, would need to build up our competencies to do these kind of things.
Of course, repair services or these kind of things can be included in that model as well. On your second question on the Life Science business, clearly, with the location of Paramit, particularly in Morgan Hill, California, they have been quite successful, as you outlined, to work with innovators in North America, I would say, in California, but also in the wider North American range. Most recently also being actually stepping across the Atlantic to do some very interesting new developments around synthetic biology or DNA synthesizing. I think clearly, as you said, this is something we see as highly complementary, and particularly because it is not the Tecan automation systems. It's smaller systems, benchtop systems, more integrated fluidics and optics, than compared to what Tecan would traditionally offer in terms of the platforms of Fluent or EVO or even Magni Flex.
I think a very nice addition to that portfolio. Of course, we can see deployed in two directions. One, again, as an OEM offering into a space where benchtop or maybe nearer patient solutions or more integrated solutions are of importance and of value, but also for our Life Sciences business, where of course, we are also in the process to identify more integrated benchtop solutions for genomics, proteomics, and potentially cell analysis, where we started some build out to our Austrian site. Clearly, when I look at particularly fluidics and optical competencies of Paramit, this is highly interesting and complementary to what Tecan would offer into such partnerships. Also in that space very, very positive in terms of our ability to really join forces and complement two, I think, very well-differentiated offerings and capabilities.
I think this is, for me, one of the really exciting parts going forward, to exploit that kind of intellectual end component and competency around module build and integration from very small to very large systems for the Life Sciences in vitro diagnostics. But of course, also going forward more and more into the med tech and mechatronics field.
Good. One second.
A last quick question from the web for you, Tania, maybe. A gentleman wants to understand the depreciation amortization level, if there is a lot of basically depreciation amortization due to their investment in the factory in Malaysia.
As I mentioned, the CapEx is really that low as well, and it represents around 2% of sales. No, the D&A is not significant and compared to tech.
Good. Super. I think with that, we wrap up the call. Okay. Thank you very much and yeah, speak to you soon.
Thank you. Goodbye.
Ladies and gentlemen, the conference is now over. Thank you for choosing call and thank you for participating in the conference. You may now disconnect your lines. Goodbye