Ladies and gentlemen, thank you for standing by. My name is Krista and I'll be your operator today. At this time, I would like to welcome everyone to AMETEK Acquisition of Indicor Instrumentation conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star then the number one on your telephone keypad. If you would like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Kevin Coleman, Vice President of Investor Relations and Treasurer. Kevin, please go ahead.
Thank you, Krista. Good morning, thank you for joining us to discuss this exciting acquisition. With me today are David Zapico, Chairman and Chief Executive Officer, and Dalip Puri, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. This morning, we announced that AMETEK has entered into a definitive agreement to acquire the Instrumentation group of businesses from Indicor, LLC. We will refer to the acquired businesses as Indicor throughout this call.
The press release and the presentation slides to be used during today's call can be accessed on the investor section of our website. We'll start the call with some prepared remarks, and then we'll open it up for questions. I'll now pass the call over to Dave.
Thank you, Kevin, and good morning, everyone. We are very pleased to be with you today to announce our pending acquisition of Indicor. I'm excited to share more details on the strategic merits of the acquisition and the meaningful value creation this acquisition will provide. Starting with slide three, this is a highly strategic acquisition and is a result of AMETEK's disciplined approach to capital deployment and is a compelling and unique opportunity to acquire a portfolio of outstanding industrial technology businesses in one transaction. These businesses provide highly differentiated mission-critical solutions to a diverse set of customers within attractive niche markets. Indicor's strategic approach to niche market segmentation and technology innovation, along with their deep domain expertise and strong embedded customer relationships, fit very well with AMETEK's long-term strategy.
We have identified meaningful opportunities to create value through integration of the Indicor businesses into AMETEK's operating model and our distributed operating structure. Integration is our secret sauce, and we have created substantial value over time with our well-defined and proven process. This value creation will provide for accelerated growth and market expansion as well as improved profitability, cash flow, and strong returns on capital. Additionally, we are excited about the opportunity to further innovate and support our customers' critical applications given the complementary nature of Indicor's product and technology profile. Indicor generates approximately $1.1 billion in annual sales with strong profitability, providing a unique opportunity to acquire highly profitable niche differentiated technology businesses at scale. One last point on this slide, we included the logos of the individual Indicor businesses on the right-hand side of the slide.
These businesses each strategically align with different AMETEK businesses, allowing for a distributed, efficient integration into AMETEK's operating model. Now turning to slide four. As noted, the fit between Indicor and AMETEK's existing businesses is compelling and perfectly aligned with our mission-critical niche market strategy. Each of the businesses is well-positioned within their respective markets and applications where technological capability is paramount. These businesses nicely complement AMETEK's end markets with balanced geographic exposures. Indicor's strong customer relationships and intellectual property help support a sizable aftermarket services capability with approximately 50% of their sales derived from recurring proprietary aftermarket sales and services. As noted, there are compelling sales and cost synergy opportunities which will drive us to further improve their profitability. We anticipate annualized synergies of 10%-12% of sales in line with AMETEK's typical synergy levels.
We are excited about the opportunity to acquire a high-quality portfolio of industrial technology businesses of scale and are confident that this portfolio of businesses will generate attractive year one cash earnings accretion and strong returns on capital. Switching to slide five. As I mentioned, Indicor is very closely aligned with AMETEK's portfolio, with the businesses fitting within both our EIG and EMG reportable segments. Our end market exposures following the acquisition are largely consistent with our current exposures, as noted in the table on the right. The close strategic alignment of Indicor businesses within AMETEK's existing group and divisional structure will provide for an efficient and low-risk integration. Integration responsibility will be distributed amongst experienced group presidents and division general managers who will provide ownership of the results. Each of the Indicor businesses will be placed in our structure where they fit best for long-term growth.
While we are acquiring a large business, it will look like a number of smaller distributed integrations led by experienced AMETEK business leaders. On slide six, I'll spend a few moments walking through the transaction details. The total cash consideration for the transaction is $5 billion, which represents an approximate 14 times multiple of EBITDA. We expect to fund the transaction with a combination of borrowings under AMETEK's credit facility and new debt issuance. At transaction closing, we expect our ratio of debt to EBITDA to be roughly 2.3 times, providing us with continued capacity to support our growth initiatives and capital allocation strategy. As noted, we expect the transaction to be solidly accretive to cash earnings in year one, with solid returns on capital.
The transaction is subject to customary closing conditions and regulatory approvals. We expect closing in the second half of the year. On slide seven, we include a one-page summary of the 10 Indicor businesses to provide more background on each of the businesses in key end markets. The summary highlights the diversity of their end market exposures and the fit within each of the AMETEK segments. Moving to slide eight. In summary, this transaction represents a disciplined deployment of capital on a highly strategic return accretive acquisition of a high-quality portfolio. Indicor provides AMETEK with further scale and diversification, niche differentiated technologies, and a sizable recurring revenue stream. We're excited about the opportunity to add value through integration into AMETEK's operating model and to create meaningful shareholder value.
With all that said, I'd like to take a quick moment to thank my AMETEK colleagues who spent considerable time supporting the acquisition process, and I would also like to thank the Indicor team for their support during this process. We're excited about the future and what it will bring together. I'll now turn it back to Kevin.
Thank you, Dave. Krista, could we please open the line for questions?
Yes. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, again, press star one. We do ask that you limit yourself to one question and 1 follow-up. For any additional questions, please re-queue. Your first question comes from Matt Summerville with D.A. Davidson. Please go ahead.
Thank you. David, I was curious, if you look at the group of brands you're acquiring, are there one or two that drive the overwhelming majority of that aftermarket revenue, or is that aftermarket revenue, would you say, fairly distributed across the 10 or so businesses you're acquiring? I have a follow-up.
Yeah, I think it's a relatively broad distribution. The businesses are in, size-wise, from a little over $200 million to slightly below $50 million, and they're, but they're all about that $100 million level and the aftermarket's relatively evenly distributed.
Would you say, if you think about maybe just walk through a couple of examples where you the larger sort of portions here, so maybe those that are around that $200 million range, you know, how you plan to drive some, you know, the cost synergy I understand, but where you see maybe in some of the bigger divisions you're acquiring, where you see maybe more of the opportunity to drive commercial revenue synergy. Is the price capture typically seen in these businesses, is that also pretty similar to the price power AMETEK has in the market? Thank you.
Because of their niche differentiated market leadership, Indicor has substantial ability to capture price similar to AMETEK. There's a lot of businesses. I'll give you an example. Struers is one of the larger businesses, and they focus on material prep, pre-preparing a sample before it's analyzed. Our equipment does the analysis, and they do the material prep before it's analyzed. It's a, it's a sequence of a customer's unit process that's a perfect fit for our materials analysis division. That's an example, and that's the largest business that we're acquiring. They all have a similar type of fit with AMETEK. It fits like a glove, we, as we integrate these into businesses, we're putting them in the places where they can capture the fit the most.
There'll be sales synergies by the integration into the different parts of EIG and EMG.
Thanks, Dave.
Thank you.
Your next question comes from the line of Andrew Buscaglia with BNP Paribas. Please go ahead.
Hi, good morning, everyone.
Good morning, Andrew.
Are you able to share, historically, you know, what how this business has grown or some of these businesses have grown relative to maybe AMETEK's core business? How have margins trended if based on corporate average currently, but, yeah, maybe can you just give us a little context on that history?
Yeah. I mean, these businesses over the last years years have grown in the 6%, 7% range. You know, we have a build into our model. We're a little bit more conservative. We have a 6% number. These are mid-single digits growers and that, you know, 5%-7% range, 6% is what we settled on.
Yeah. Okay. It looks like, yeah, it fits in both EIG and EMG. Are there, like, what you consider, like, sister businesses that you have already that, you know, would align really well with some of these names? Could you talk a little bit more about that?
Oh, yeah.
Where do you see, like?
I mentioned.
-complementary?
Hey, I mentioned the Struers business that's really complementary.
Yeah.
I mean, it's amazing the impact that we have. If you take the things that we're putting into EMG, for example, one of the businesses is named AMOT, we're putting the businesses into EMG versus EIG really because of product and customer fit. AMOT is really in the, t hey're automating their customers' processes. They have actuation systems and there's other businesses that have valves and safety shutdown systems. We put those businesses in our automation business in EMG. There's a really close fit there. I mentioned Struers. I mean, we have our P&A, Process and analytical Instruments is very strong in the energy market. The PAC business is a complementary fit. Those businesses are gonna go tremendously well together.
I could go through the whole thing. There's a great fit and it, you know, our people are very excited on both sides to be able to serve our customers at a different level.
Got it. Thank you.
Thank you.
Your next question comes from the line of Deane Dray with RBC Capital Markets. Please go ahead.
Thank you. Good morning, everyone. Congratulations on the deal.
Thank you, Deane. Good morning.
Hey, covered some good ground here already, and I just wanted to probe a little bit further on your approach to the integration. These, we're familiar with the businesses having covered Roper, and so they are not in the category of what we would call fixer-uppers. They're kind of just the opposite.
Right.
In aggregate, the restructuring of these businesses would be less on, you know, the scale of the businesses that you typically acquire, less restructuring needed. In aggregate, 'cause there are so many businesses, there could be a restructuring lift. How are you approaching, you know, and the thought would be, pay as you go, just, you know, any help there for starters?
Yeah. I mean, It's a great question because these are very high quality businesses. The management team understand accountability. The management teams understand how to run businesses and generate cash flow. We're getting some premier assets. At the same time, the businesses are run very independently, like AMETEK's, but they don't have an overriding business system that we use, and we've had tremendous amount of value by adding our business system. That's something that we're highly confident in our ability to add the typical synergy levels, and I'll give you some examples. You know, we look at deals. The AMETEK global sourcing is an incredible delivery mechanism for deal synergies. There really wasn't much of an aggregation of spend across the businesses that we're acquiring. We'll leverage our global sourcing organization immediately.
You know, that's been typically the largest driver of synergy in a deal, we understand what prices are being paid and what we're paying, and we think there's a lot of room there. The second thing is our international infrastructure facilities. We run them as one AMETEK facility. Essentially, you know, we have a hotel that everybody operates out of, these businesses were so independent that they went and established their own sales and service infrastructure. Without changing how a business operates, there's really 130 sales and service offices that we're gonna shrink and run our model that's gonna generate significant synergy. We have a global shared services infrastructure, places like India, Malaysia, Mexico. There really wasn't a shared infrastructure. We get cost reductions out of G&A in relatively short order.
We have a philosophy about localized production for local market growth that's different than the acquired businesses. We have talented country managers in each country of the globe. If you're not successful in a market, our country managers can get involved and help you grow. This is a small, very talented team that the businesses that were acquired didn't really have. I think all these standard AMETEK tools will be used to support the Indicor synergy plan. We've done this successfully over many times. When you combine the premier assets, the well-run businesses that we're acquiring with our growth model, with the synergy capability that we have, it's a financial home run.
That's really good to hear. Can you help us, help size for us, you know, the acquisition in total? You know, we can see it adds roughly 14% to the revenue base, but how many P&Ls are actually coming in? How many P&Ls do you have today? Just to kind of size organizationally how that fits.
Yeah.
How many, you know, senior leaders, group presidents will be involved in this?
Right.
Just kind of give us that dimension.
AMETEK has about 40 P&Ls, and they're a little bit bigger than Roper's or than Indicor's because we've consolidated some businesses over time. We have 40. We're bringing in 10 separate P&Ls. That will make 50 in total. One of the things I'm very pleased with is we have all 10 of these talented business leaders signed up with AMETEK. They're signed up to take us forward. We're really pleased that we've got the management on board. It was critical for me. We're basically going from 40 to 50. They're a little bit smaller than our business units, but we're perfectly comfortable with that. About 80% of the businesses are in EIG, and about 20% of the businesses are in EMG.
All right. That's really helpful. Just a last quick one for me is, what have you been able to calculate the New Product Vitality Index from the Indicor businesses? I mean, I know that's a real high priority for AMETEK, but it gives us also a dimension of, you know, what kind of emphasis and investment in new products have they had.
Yeah.
What upside that might be.
Yeah. It's much lower than ours. We think we can move the needle there.
Great. Congrats.
Thank you.
Your next question comes from the line of Jamie Cook with Truist Securities. Please go ahead.
Hi, good morning, and congrats on the acquisition. I guess two questions. One, I think you talked about the long-term organic growth of the company being between 6%-7%, and you're assuming 6%, but can you talk about the cyclicality within that range if there is any? I'm just wondering if we're in a world where, you know, PMIs and industrial short cycles improving, do you get some benefit there? I guess my second question, just how the deal came about. It looks like you if the press is right, it wasn't maybe it wasn't a competitive bid situation, and I don't think so, but do we need to be concerned about any antitrust issues? Thank you.
Yeah. Great questions, Jamie. The first one was really your question about the cycle and it's our experience that mission-critical products may be delayed in the short term, but they'll eventually be purchased 'cause they're a necessity. When I think about this business, they have a 50% recurring revenue profile that will help provide a buffer if there is or when the next industrial downturn comes. I mean, right now, the business has some real very healthy backlogs, so we're very optimistic on that. As you know, AMETEK has a very good track record of managing businesses in all market conditions. If I go back and I look, example, during the 2020 downturn, our margin and cash flow actually improved. We have contingency plans to put in place if something happens.
You know, we go into this with open eyes, and what I think about is the 50% recurring revenue profile really helps buffer any downturn. You asked about the regulatory approvals. You know, they're progressing through standard regulatory process. We do not anticipate any issues. It'll just take some time because of all the government agencies around the world that we need to get their approvals from. I mean, we expect closing in the second half of the year.
Just, sorry, the last was just how the deal came about. I mean, there was a lot of press speculating this, but if you could give any color there. Thank you.
Yeah. The, I'm not gonna speculate on, you know, press reports, but I can just tell you that Indicor is run by a, you know, a premier private equity firm, and we have relationships with them, and they knew we were a logical buyer, and we've been talking about them for some time. When you have a transaction like this that, you know, when we have the management capability to do it, we have the financing to execute from a really leveraged, under-leveraged balance sheet, we're 2.3 times post-transaction, and it just came together, and we're very pleased with it.
Thank you. Congrats.
Thank you.
Your next question comes from the line of Andrew Obin with Bank of America. Please go ahead.
Yeah, good morning.
Good morning, Andrew.
Congratulations. How long do you think it will take you to delever, and what's leverage level at which you'll start contemplating M&A again?
Yeah. Let me take that one, Andrew. As you know, we're gonna fund this acquisition through a combination of cash on hand and new debt. Pro forma leverage at the close is expected to be about 2.3 times, still conservative levels. The combined businesses are gonna throw off a lot of cash, so we'll have the ability to delever quickly. As David Zapico mentioned in his remarks, we're still very much focused on our key capital allocation priority, which continues to be acquisitions. Even though we're buying a big asset with this transaction, we'll continue to have considerable firepower. In terms of the deleveraging, it'll be about 0.2 to 0.3 of a turn each quarter. We have the ability to delever quickly if we wanted to.
Oh, wow. Then what's the timeline on this 10%-12% synergy? Is it by year three? By year four?
Yeah. It's exactly, it's by year three.
Thank you very much.
Thank you.
Your next question comes from the line of Chris Snyder with Morgan Stanley. Please go ahead.
Thank you. Is there anything you could provide on Indicor's gross margin profile? You know, it seems like at an operating margin level, the business is run quite well with similar margins to your own. Just trying to see if it is coming in a premium gross margin.
Yeah. It's.
You know, just make that pathway a bit more clear.
Yeah. Yeah. It's greater than 50%, Chris. They're a premium business with premium gross margins.
Thank you. I appreciate that. Then if I could just follow up on the 10%- 12% synergy combination. Is that a combination of both revenue and cost synergies? I guess, you know, this just seems like it's the typical, you know, AMETEK expectation to drive that 10%- 12% by year three. Just how does that typically split between revenue and costs? Thank you.
Yeah. We've learned over time to value cost synergies much more than sales synergies. That number is a cost synergy number. There's a model that has sales synergies that's much greater than what we're talking about, but we don't value that just based on history. The cost synergies for us have been a certainty, and that's what we rely on when we price a deal.
Thank you, Dave. Appreciate that.
Thank you, Chris.
Your next question comes from the line of Joe Giordano with TD Cowen. Please go ahead.
Hey, guys.
Hello, Joe.
Is the 14x EBITDA multiple that you mentioned, is that inclusive of the synergies, or is that, like, as of today?
That's year one.
Year one. Okay. Was this like a package deal? Like, did you get to go in there and kind of pick the assets that you wanted out of the larger portfolio, or was this already kind of prepackaged as this group of assets?
Well, we didn't buy all of Indicor. The decision to acquire only the businesses that we acquired reflects our discipline to only acquire businesses that fit best with us.
Great. Thank you.
Your next question comes from the line of Julian Mitchell with Barclays. Please go ahead.
Hi, good morning. Congratulations on this news. I guess I was focused on slide four. It's a very non-U.S., you know, very global business here. In that light, the sort of 6%, 7% organic sales growth rate you mentioned in recent years is particularly impressive. Just wondered sort of have you seen the growth of this business be very U.S.-centric, or it's been pretty diverse even including that large slug in Europe? Maybe any color on what the China exposure is of the business, please.
Yeah, I mean, the business has grown well. It's grown well globally. It's grown well in China. It's a really balanced geography. I mean, it is levered to some of the industrial themes now. There's a energy transition theme. There is a bit of a data center power theme in the business. You know, the business in particular, the European businesses of Struers is a global business. Technolog is primarily drives a lot of revenue from critical infrastructure in the U.K., so that business has done well, and they have a kind of a locked-in revenue stream by U.K. government programs that we're excited about. So, you know, they have some businesses that are, you know, the infrastructure world in the U.K.
There's a business there. Mainly it's a global business. It's differentiated technology. When you have differentiated technology businesses, you sell in the U.S., and you sell in Germany, and you sell in Japan, and you sell in China. Those are all the places that we look at to understand the differentiation in the technology, and they're selling well in all of them.
That's helpful. Thank you. Following up on the point around sort of reinvestment. It sounds like, you know, NPI, you can do a lot more with it there, but I guess the organic growth rate also tells us that it's probably not been under-invested in. Just wondered any sort of comfort you could provide around that point. I think most investors looking at a business that came out of Roper and PE would say it probably hasn't been over-invested in. Just, you know, how you're thinking about, you know, any kind of true-up needs on CapEx or R&D or anything like that, or you feel those should be pretty minor after the close?
Yeah, I think they're pretty minor after the close. I think we're gonna focus on new product development, and I think we can improve the vitality of the businesses for sure. We have some, we've done that successfully with our businesses over time. The PE firm, their focus was to improve growth. They've done a few smaller acquisitions to really augment the growth profile, really additive to the business in terms of acquiring technology, small technology deals that really built nice technology that the core business didn't have. They've done that work to improve the growth profile. We just think it's, you know, it's a great fit for us.
There's, you know, AMETEK is run by a lot of technical people in a lot of different places, and we think there's great opportunities to take the current portfolio of Indicor and the AMETEK portfolio, put them together. Let's look at what's happening. We think there's growth opportunities that will drive that weren't there before as separate companies.
That's great. Thank you.
Thank you, Julian.
Your next question comes from the line of Rob Mason with Baird. Please go ahead.
Yes, good morning, and congratulations as well, Dave. I'm just curious, you know, conceptually, after you get, you know, three years into this with the synergy capture as it is, I know maybe not one answer here, but if you could summarize, you know, what would you attribute the source to the premium margins? Is it market structure these businesses in? Is it, you know, a higher aftermarket mix than maybe AMETEK overall? Or just, you know, what would you attribute that to?
I think it's the basic mission-critical niche strategy. I mean, they're leaders in market niches. They do a good job of servicing their customers, and because of that, they can get some good pricing for the unique capability and unique value add that they have, and that's AMETEK's strategy. This, in a way, it's a perfect fit. We are very pleased on the recurring revenue side. They have a 50% aftermarket mix that's higher than ours. We're pleased about that. As I mentioned before, that's a buffer in difficult times. The 50% aftermarket mix, that's reinforced by strong IP, embedded customer relationships, it's a key part of the deal.
I see. Just as a follow-up, you know, within the 10 businesses, since they went into private equity, how has the leadership been? You know, I guess, has there been much leadership turnover since they've been owned by private equity at the top?
No. They had some retirements and things like that over a period of time, but we're acquiring experienced leaders of businesses. They're very familiar with the businesses and the markets, and they're all signed up to stay on with AMETEK. We have a seasoned, mature leadership team, and I think they're gonna adapt to the AMETEK growth model and the tools we have very well, and we're looking forward to working with them. As I said before, it was important to have them all signed up with AMETEK, and we have all 10 of the leaders signed up to take the businesses forward.
Excellent.
All right.
Congrats again.
Yeah. Thank you, Rob.
Your next question comes from the line of Christopher Glynn with Oppenheimer. Please go ahead.
I Yeah. Thank you. Good morning, and congratulations.
Thank you, Chris. Good morning.
What a great welcome, Dave. Morning. A lot of ground covered, one was, you know, any portfolio moves since Roper sold, I think you covered that. I didn't recognize Alphasense or ADR.
Yeah.
I assume those were the pickups you're referring to, but.
ADR was a new acquisition that was added during that period of time. Alphasense, I believe, was existing. There were some other smaller brands that they added to augment the technology profile of the business.
Okay. Yeah, just the other one was just the idea of folding into your existing P&L. I was surprised to hear you put out the equation of 40 plus 10 equals 50. I would have maybe thought, you know, it might have been a net four new platforms, but just wanna kinda organize my thinking around that.
Yeah. Yeah. I mean, as things logically make sense, they may come together over time. You know, we're gonna take our time on integration, make sure it's going well, and, we're perfectly comfortable with that. You know, when I started with AMETEK.
Okay.
With AMETEK, I think we had 30 business units, and we were about less than a billion in sales. Now we're, you know, a lot bigger, and we have 40 going to 50. We, as we acquire businesses, we integrate them, and that's been a key thing for us. We have some good businesses, and it is 40 going to 10 equals 50.
Okay, great. Thanks.
We have no further questions in our queue at this time. I would like to turn the call back over to Kevin Coleman for closing comments.
Great. Thank you, everyone, for joining our call today. As a reminder, a replay of today's webcast can be accessed in the investor section of ametek.com. Have a great day.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.