Ladies and gentlemen, thank you for standing by, and welcome to the Parker Hannifin Announces Offer TO Acquire Meggitt Plc. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to turn the call over to your host, Todd Lee Ruino, Chief Financial Officer. You may begin.
Thank you, Kevin. Good morning, everyone, and thanks for joining this webcast, in which Parker is announcing a recommended offer, all cash acquisition of Meggitt PLC. As Kevin said, this is Todd Leanbrunno, Chief Financial Officer. Here with me today is Chairman and Chief Executive Officer, Tom Williams and President and Chief Operating Officer, Lee Banks. If I could direct you to Slide 2, our usual practice of announcing an acquisition is a little bit different today, so I want to discuss this first.
As Meggitt is a public listed company on the London Stock Exchange, this acquisition falls under the rules of the UK takeover code. Under the UK Takeover Code, once an acquirer has a firm intention to make an offer, they issue what is commonly referred to as a Rule 2.7 announcement, which contains the terms and conditions of the offer. That announcement was released in the UK earlier this morning. The takeover code sets out various requirements, which govern such offers and which we will need to comply with. The UK takeover code also requires Parker to only share information that has been already released within that announcement, and that requirement applies to information on our slides, what we share during today's call or in any discussions we may have later.
No additional material information about this transaction can be shared. Slide 2 includes the disclaimer language related to these requirements. On Slide 3, you'll find our company's Safe Harbor disclosure statement addressing forward looking statements as well as non GAAP financial measures. Reconciliations to any non GAAP measures are included in today's materials. These reconciliations, our presentation and additional information about this transaction, including the 2.7 announcement, are available at aerospacegrowth.com.
On Slide 4, I'll touch on the agenda today. We'll begin with Tom providing the specifics of the offer and the strategic rationale of this combination. Then he'll give an overview of the Meggitt business, show the strong fit and touch on expected synergies. Tom will then close with highlighting the compelling value for shareholders. And then Tom, Lee and I will allow some time for Q and A that falls within the details of the 2.7 announcement.
With that, I'll ask you to direct your attention to Slide 5, and I'll turn it over to Tom.
Thank you, Todd, and good morning, good afternoon, good evening to everybody joining in. It's an exciting day for Parker and for Meggitt. I'd like to welcome all of our shareholders, analysts, Parker team members and a special welcome to all the Mega team members that might be listening in. Mega is a great company with a great history and heritage and we've admired you for a long time. And we really look forward to you joining the Parker team.
So on this page, I want to cover some of the highlights on the strategy and the expected financial benefits. First, this acquisition will nearly double the size of the Aerospace Systems segment with highly complementary technologies, which I'll highlight later on in the presentation. It is well positioned on premier programs with our key customers, 70% sole sourced with proprietary products. It's going to expand our system and component capabilities. A nice reoccurring revenue is going to add 500 basis points to our aftermarket mix and a very strong sustainable portfolio with some attractive electrification of low carbon technologies.
It's nicely positioned for growth potential with a combination of the aerospace commercial recovery as well as the synergies, which we'll talk about a little bit later on. And this will be accretive to our organic sales growth, EPS and cash flow. So if you go to Slide 6, some details on an offer overview. So we're offering to acquire 100% of the Meggitt PLC stock, has some statistics on calendar 2020 calendar 2019. So $2,300,000,000 in sales for 2020 $3,200,000,000 in sales in 2019.
So this would be pre COVID, which would be probably more indicative of normal business conditions for Meggitt. EBITDA margins a little over 14% in 2020, a little over 19 800p offer per share, results in a transaction value of about $9,900,000,000 You can see the multiples there, and we did this on a pre COVID basis. We think that's the best way to look at these multiples as it's more indicative of an ongoing normal state for the business, 16.3%. And then 10.9 percent when you put in the cost synergies of the synergized EBITDA being 10.9%, very similar to where we were with the CLARCOR acquisition. The financial impact, EPS accretive in the 1st 12 months after closing, strong incremental sales growth and top line margins and cash flow, high single digit ROIC and your continued expansion.
I'll touch on the synergies, dollars 300,000,000 in the 3rd full year, and we'll be funded with cash and debt, and we are committed to maintaining our investment grade rating through the process. Closing pending normal regulatory filings is in approximately 12 months. So you go to Slide 7, give you a quick introduction to Meggitt. Upper left hand corner provides proprietary content for airframe and engines, and I'll give you more details on that as we go through the next several slides. You can see their aftermarket mix at 45%, quite a bit higher than where we are, and I'll touch on what that does with the combination.
Lower left is sales by application. I would just point out that we like the fact that they're very diversified as far as the applications that we brought. On the right hand side is 2 pie charts on sales by division and then sales by geography. Sales by division, you can see there's 4 divisions. I'll go through the 3 product divisions with pictures.
The service and support division is a cross company, full service aftermarket organization providing customer experience, smart support planning for all their technologies. And they had 3 global hubs, 1 in Miami, supporting the United States and Steve Carp support, which is in England, supporting EMEA and Singapore supporting Asia Pacific. And then if you look at the sales by region, you can see the largest region being the U. S. At 61%.
Go on to Slide 8. In the next several slides, I'm going to talk about the various products that they have by division, starting with the airframe system products. And they provide braking systems, which really can do the whole system. It can go from the control system to the brakes as well as provide brake system components at the component level. A lot of pictures on this page, I would just orientate you to start at the nose of the plane and I'm going to kind of give you natural groupings of their products.
So the nose of the plane you see, the nose wheel and they also provide the main wheel, so a variety of wheel technology. Across the brakes, you can see carbon ceramic brakes, electric and steel, various valve technologies from the brake control valve to the servo control for our anti skid control. And then they have control systems and monitoring systems as well. If you go on to the next slide, Slide 9, continue on with the airframe system products, have a grouping of products around power and motion, really power generation conversion and distribution highlighted in the pictures that you see on the bottom of that page on the left. Then on the avionics and sensors, they have a very strong sensor offering, providing sensor technology for air temperature, outside pressure, ice detection, position of the aircraft, which is very attractive for us.
It's an adjacency that we're not in, and it helps support the growth of digital products across the entire airframe or engine. If you go on to Slide 10, again, the last slide for the Airframe System business. There's fuel products and composites. They have composite radomes, if you're not familiar with what that is, that's the structure anti icing structures, heated elements that would go into preventing ice buildup. You see that picture on the rotor blades on the bottom of that slide.
And then fuel bladders are self sealing fuel bladders, primarily for military applications. And then on our right, polymer seals, which is exciting for us because this offers additional adjacent complementary technologies for our Engineered Materials portfolio. They have structured ceiling like the picture down at the bottom for door seals. They also have compartment seals for like the landing gear compartment door. And then fire rated solutions, you see a picture of the engine seal there, is a technology we do not have.
So again, an adjacency that's very attractive. On Slide 11, move on moving to a new division different division, Engine System Products. And everything on the left, fire protection and safety systems are all again complementary technologies. This would be both for the engine and the airframe, so smoke and fire detection, bleed error, leak detection. And they have an environmentally friendly fire suppression that would be fighting fire suppression for the engine, the APU and cargo compartment.
And on
the right, valve sensors and thermal management. Again, sensors would be both for airframe as well as the engine. On the engine, it's providing really health monitoring, in particular, areas we're looking at here is for vibration control to check for out of balance conditions. On the valves, again, the more distinct difference between our valve technology, which I'll highlight here in a minute. Valve technology, which I'll highlight here in a minute, and a very nice portfolio of thermal management, heat exchangers, again, which becomes much more important for the higher heat loads that aircraft and the engines will be enduring in the future.
Go to the next slide on Slide 12, Energy and Equipment Products. On the left hand side, the military applications is really a combination of actuation solutions and thermal management. If you go to that picture, the lower left, you see a weapons system actuation. This would be for an Apache helicopter in this particular example. And then thermal management system, this example for an M1 tank.
This be providing cooling for electronics and for the soldiers as well. And think of this as supplemental cooling to the existing cooling system on that particular application. And then like most aerospace companies, they take aero derivative technologies and go into similar applications primarily in power generation and industrial. So the heat exchanger technologies they have, the turbine health, our technologies they have going on to gas turbines and looking at pressure and temperature in those applications. If you go Slide 13.
One of the things that's very attractive and a strategy that the mega team has had in place is 2 thirds of innovation is targeted towards clean technology. So the move to a more sustainable aviation portfolio, something that's very much in coincidence with us, fits with our strategy and we're going to continue this as we move forward. So just highlight some of the areas that they're doing on sustainable aviation. Clearly, all the sensor technology they have is creating a more efficient engine. The capabilities they have for more electric aircraft a very attractive.
I mentioned how important the thermal management is as aircraft and engines become hotter and hotter. They have a portfolio of lightweight materials to help with weight reduction for fuel consumption. And then they have environmental friendly fire suppression, which I mentioned earlier. So they have technology to replace over time the Halon systems that are used in today's fire suppression. Go to Slide 14.
They're on all the right programs. You can see in both commercial and military, the right programs, a marquee lineup of applications with a growing bill of material that they've developed over a period of time. Moving to Slide 15. A blue chip customer less long standing relationships, that 70% sole source position, very similar to Parker, this customer listen. And part of what we really like, if I think about prior acquisitions that we've done, we like acquisitions that have common customers, common end markets with complementary technologies, which is exactly what Meggitt has with this application.
What's really important on Slide 16 is that success in a lot of acquisitions are tied around a common shared vision of values, culture and heritage. And we have very much that when we look at Meggitt and Parker. Both companies, engineering led company, strong innovation reputations. When you look at the Win Strategy and you look at the Meggitt Business System, a lot of similarity. Both companies focused on safety and a high performance culture.
And as I mentioned earlier, share commitment to sustainability their technology development and how they run their factories and what we do for society. Both of us are trusted defense partners. Both businesses have strong content with the U. S. Department of Defense, U.
K. MOD as well as other international defense partners. And we view very strongly that this creates a long term future that's very bright for the combined organization. On Slide 17, this gets at the aftermarket mix. I talked about this at the beginning.
If you look at where on the left hand pie, Parker today is 35% MRO, like it being 45%, when you put that together, end up with a 40% MRO, so a 500 basis point improvement. I think everybody understands what that means. It means less cyclicality, higher margins than the OEM and a recurring revenue stream that's very attractive as we go forward. On Slide 18, really when we do 2018 2019, we try to put as many of the technology as we could on a page without making it too complicated. And this first one is on the airframe.
And in blue is all the Parker technologies. And in green are highlights of the MEGA technology. And you can just see how this fits very nicely hand in glove, how complementary they are and what a very strong offering we'll be able to give to customers, which will enable us to solve more problems and create more value for them. And then if you go to Slide 19, similar type of format to the slide just showing engine products, again, Parker in blue, including the new acquisition technologies with Exotic in there and then MEGHIT in green, again a very strong offering for our engine customers as well. Now in 2020, really gets at the heart what makes us so attractive is the complementary technologies.
We did the other slides because we couldn't list. It got very complicated to list all the Parker Technologies on the slide. So really, here we're focusing on those pages on the negative technologies and how they compare to what Parker has with that particular product area. So you can see on braking systems, they may have a much stronger offering. They add larger aircraft, regional jets, business jets, military and bring brake technology and have a stronger control system to component suite of technologies that we do.
On advanced sensors scenario, completely adjacent. We don't have any activity there. Very attractive again for the whole IoT movement, the digitization of everything, but also the ability to create more sustainable solutions safety systems and other adjacent application, both fire detection and suppression. On the engine piece, a very distinct difference between our offering. So we primarily do fuel hydraulic valves, which would be using high pressure fuel to actuate the valve.
And their offering is more on the pneumatic side, so distinct difference there as well as they have more of a concentration of the engine bleed air application. On electric power, basically, we have very little there. So that's another adjacency adding to more electric capabilities going forward. And then thermal management, we have very little we have a little thermal spray activity there and they have high capacity cooling and heat exchangers, which we find very attractive. So again, highly complementary to what we're offering.
And on 21, have you lifted up and look at what does this do for the total company? On the left hand side is would be before Meggitt, the 3 external reporting segments that we have today. And on the right hand side would be with MEGHIT. And you can see that clearly it balances it out, the portfolio between the 3, aerospace systems, Diversified Industrial North America and Diversified International. But if you looked at higher and think about what we've been doing in the last 7 years and the strategic acquisitions we've been doing to transform the portfolio, all of you are familiar with these CLARCOR and Filtration, Fluorigen Engine Materials, Exotic and Aerospace and now make it again in Aerospace, creating a portfolio that over the last 7 years is clearly less cyclical with higher growth rates, higher cash flow and higher margins.
And you've seen that through our performance over the last 7 years, which has been a combination of the Win Strategy and our portfolio strategy. So we're very excited, the fact that this is going to double the almost double Aerospace business and continue the capital deployment strategy and transforming the portfolio. Moving to 'twenty two, talk about synergies. These are pretax synergies and this is an estimate at $300,000,000 and this would be at the end of the 3rd full year, so it's approximately 10% sales. You can see the anticipated areas, the Win Strategy, supply chain, lean productivity and SG and A and continued footprint optimization.
Our focus on footprint is going to be to execute Meggitt's footprint plant that they have in place. So they've been I'll look about this 2016, they laid out a vision for their footprint strategy. At that time, they had 6 facilities and they had a vision to reduce that in half. And our last public annual report, they were at 37 for 2020. So they made a lot of progress and we will just continue to execute the plan that they have in place.
And all these centers when you put it together will be margin accretive within the synergy period, which is what we're going to illustrate on 23 on the next page. So if you take where they were in calendar 2019, again, a more normal state for the business pre COVID, and you apply these $300,000,000 of cost synergies, you would get to an approximate 30% EBITDA with these synergies, which is very attractive, which fits with the strategy you've heard me talk about as far as being accretive within the synergy period on growth, margins and cash flow, and this will enable us to do that. And lastly for me just to sum up before we turn it over to Q and A. Really a compelling value story for our shareholders will be EPS accretive within the 1st 12 months, strong cost synergies of $300,000,000 by the 3rd full year. This will generate high single digit ROIC by year 5 with continued expansion.
This is a business that is positioned well with leading programs with marquee customers and positioned for strong growth as the industry turns. Strong capital deployment, again, part of the strategy that we've laid out very much in our wheelhouse and part of what we've been articulating for a number of years will create long term shareholder value. On the dividend, we will maintain our payout ratio we've articulated before and at 35% net income and continue our annual dividend track record. And we're committed to a strong balance sheet and maintaining an investment grade rating as we go through this process. And with that, I just just want to say thank you for your attention.
I'm going to turn it over to Kevin to open up the Q and A.
Our first question comes from Andrew Obin with Bank of America.
Hi, guys. Good morning. Can you guys hear me?
Yes. Andrew, we can hear you fine.
Yes. Thanks a lot. So I guess the first question is, with the previous deals, the path was you're ready to do the next deal after 2 years. Clearly, this one is bigger, but there are more synergy opportunities. What is the delevering path for Parker over the next 2, 3 years?
So Andrew, we I would expect you would see the same deleveraging this is Tom, by the way that we saw with the last several deals. With the 2.7, we really can't go into specific quantities as we go forward, but I think you could just see the track that we had before. The leverage as we come out of this, it will obviously will depend exactly when it closes, will be very similar to where we started our initial leverage with the time period we did lower and exotic. And I would expect to see a very similar reducing that dead load.
Yes. No, that's great. Thank you. And then the second question, as far as your exposure to engine manufacturers, GE, Pratt, Rolls, can you just tell us where we were prior to the deal? And how does Meggitt change your exposure to various engine manufacturers?
I would say with this transaction probably more your turbofan applications. In general, if you just look at the bill of material content, build material content, if you put Meggitt and Parker together, it's just going to offer a stronger build material, whether it's on the airframe side or in the engine side. Exotic built out more of a Pratt and Whitney exposure to us, which was very attractive. And I think this does the same kind of looking across really all three engine makers.
Andrew. Thanks, Andrew.
Our next question comes from Joe Ritchie with Goldman Sachs.
Hey, good morning guys. Congrats. Yes, so my first question is really just around the synergies. So my understanding, Meggitt, is that they've been kind of along going along the path of some footprint consolidation. I think in the prior call that you guys did this morning, you talked about some supplier consolidation.
I guess if you think about the buckets of the 300,000,000 dollars maybe just help provide a little bit more clarity of how you expect to get after it?
Joe, that scenario we won't be able to go into detail on. The 2.7 does not discuss that, so I won't be I'm not at liberty to discuss that as well. I would just maybe reference that, Meggitt has recognized their supply chain opportunities already, and this is part of their publicly vision that they've had as far as looking to consolidate that supply chain and clearly will look for opportunities to put both of our supply chains together. But I can't go into detail on the various buckets that make up the $300,000,000
Okay. Fair enough, Tom. Maybe my second question, as I kind of think about where we are in the cycle and you think about ARO hopefully being at the bottom of the cycle and hopefully starting to see some better growth in the months quarters to come. And I can't help but think of like the when you guys did the CLARCOR acquisition, and there were some hiccups along the way, partly because of how strong the cycle was. They had kind of like a bit of a pig in the python problem back then.
And I'm just would love to hear some thoughts on how you've kind of planned to manage the upturn while also going after some of the synergies that you've highlighted today?
Yes, Joe, it's Tom again. So I mean, clearly one of the things that is if you're in the aerospace industry today, ourselves and Meggitt, the worst is behind you. And the opportunity is in front of us and that you're going to see better times. And so that's very attractive. But one of the things that is different, if you take CLARCOR, CLARCOR was a very heavy, heavy footprint consolidation type of acquisition.
This will be nowhere near like that. We're going to execute Mega's plan, which has been very thoughtfully laid out and will be very digestible, while we go through what is expected to be a recovery over a period of time going forward. But that's how I would contrast the difference. This will be one of the challenges we have at ClarkWorks, we're doing all the footprint and we had volume going up and we won't have the same level of challenges with this. Joe,
we're looking at a 12 month close period. So both companies remain separate for the 12 months and we'll both deal with that spike over the next 12 months.
Got it. Very helpful. Thanks guys.
Thanks, Joe.
Our next question comes from Jeff Sprague with Vertical Research.
Good morning, Jeff. Hey, good morning.
Thanks and congrats everyone.
Maybe just a little bit
more just thinking about the synergies from a different angle, Tom, and I understand that your hands are somewhat tied. But to what degree does this allow you to also just kind of further reevaluate your own supply chain on the Parker side of the house? And what you might be able to do different. And perhaps that's rolled up in the 300 anyhow, but could
you comment on that to any degree? Clearly, these synergies are not just looking at megabit per se, it's looking at where it makes sense with the combination. So that would be supply chain. And we did call out in the 2.7 that with the footprint we'll be executing their plan, but then we'll also look at where it makes sense when we look at the total combined footprint as well. So yes, we'll be the $300,000,000 is looking at opportunities for both businesses.
And just to understand just on the accounting side, the difference between the GAAP and IFRS, I think, is the capitalized R and D on wheels and brakes. Is that it? And is there just anything else from a modeling standpoint we should be thinking about as we kind of try to piece this together?
Yes, Jeff, this is Todd. That's a good point. You're right. That's the biggest piece of it. There's also treatment of leases and some pension, to a smaller extent, the pension side of it.
We've got a reconciliation in the deck, so that should be able to help you out.
Our next question comes from David Russell with Evercore ISI.
Hi, thank you for the time. I was just curious if you can give us some color on how this deal came together, any key regulatory hurdles we should be thinking about and milestones of how to get to closing from here? Thank you.
David, hi, it's Tom. So the how, I would say we've been admiring Meggitt for a long time. And this has been part of our capital deployment strategy that we would look at opportunities to be the consolidated choice within motion control. And you've heard me talk about kind of the priorities within that motion control portfolio was aerospace filtration, engineered materials and instrumentation. And you've seen us do transactions all in those areas that we focused on.
The other part that we've been clear on, we like companies that have a common customer list, common end market exposures with complementary technologies and that's exactly what Meggitt has. So it's something we've been looking at for a while and I won't go into the details of our discussions, but we did approach them and this has been a and what I would say very friendly, highly respectful manner and we have full support from the Meggitt Board on this transaction. As far
as regulatory, we'll
be filing, doing all the necessary filings. And by the nature of these two businesses to be very complementary, we feel very good about it.
And lastly, regarding some of the challenges that are greater or opportunities that are easier, when you look at the roughly 10% of revenues that you expect to take out in cost synergies, I know you mentioned the footprint, heavy lifting you had on CLARCOR, but they've also both had the targeted initial synergies about 10% of revenues. So it's sort of the same baseline assumption of how much you could take out. How would you rank the challenge to take out this 10% versus, Lord in particular? And I assume Clark Carr was a little obviously, that was more challenging, right? You were trying to close a lot of factories just when demand was surprising to the upside.
So I'd love to think this one's maybe a little easier than CLARCOR, but maybe compare it versus LORD, if you could.
Yes, David. I would say this is very similar to LORD as far as how this approach will go. And we always approach these things in a collaborative fashion. We have obviously to build these models and to decide what would be appropriate for our shareholders. We had to come up with our own thoughts on this.
But as we go forward, we'll be doing this jointly with the mega team coming up with what makes sense for both businesses. And the idea is with every acquisition is to take the best of both companies, the 1 +1 equals 3 strategy, and that's the approach we'll take with this.
Our next question comes from Julian Mitchell with Barclays.
Good morning, Julian. Thanks.
Good morning and congratulations. Maybe just my first question on the synergy aspect. If you could just sort of clarify your confidence around getting those gross synergies while balancing those commitments to the U. K. Government that you've laid out this morning in terms of sort of reinvestment in Meggitt?
And also wanted to clarify is that Meggitt facility reduction program, the savings from that, are they included in the €300,000,000 or perhaps you said they were additive? And sort of of the 300,000,000, what percent do you think drops through? Because I know in defense synergies, often the customer can get a good chunk of the synergies.
Yes. So Julian, their footprint consolidation is included in this $300,000,000 And this is Parker Meggitt's $300,000,000 not something that is shared outside. So this is what Parker Meggitt will enjoy. What was the first part of your question again? Say again, Yes,
Tom. Just around balancing, you've got some sort of commitments around things like R and D. And obviously, the U. K. Government is very sensitive to takeovers right now of domestic assets.
Yes. Thank you. I couldn't remember your first part. We feel very strongly about both of those. We feel strongly about the ability to achieve these synergies, and they were done with our eyes wide open with the binding commitments that we're making to the government.
And we feel equally strong about making those commitments. We respect the heritage and the position that Meggitt has in the British industry, and we are going to continue that role. We have 2,100 people in the U. K. Today.
We have 18 facilities today. This is even before Meggitt, which is about the same size as far as number of people that Meggitt has. So we've been there for 50 years and we'll be there for 50 more plus. So we have a very strong commitment. And so those commitments were done as part of these synergies and we feel strongly about both of them.
That's helpful. Thank you. And just one follow-up around any sort of other liabilities coming with MEGI. I think there's a U. K.
Pension plan, but with a fairly small net balance. And any detail on the timing of the one time cost out, the sort of $240,000,000 number?
Yes, Julian, this is Todd. Again, I can't speak too much for the $240,000,000 cost out just by what was in the $2,700,000 I can't speak about the pension plan. We are committed to that pension plan. As Tom said, we have over 2,000 team members in the UK. Our team members are part of a U.
K. Pension plan. And we had great conversations with the leadership at Meggitt, the pension trustees and our advisors, and we're including all that in the numbers you're seeing here on the transaction.
Great. Thank you. Yes.
Our next question comes from Ann Duignan with JPMorgan.
This is Sean McMullen on for Ann. Most of our questions have been answered already. However, can you perhaps discuss your expectations for potential revenue synergies and clarify if you're working on any joint programs with Meggitt?
Okay. Sean, it's Tom. Revenue synergies were not included in the $300,000,000 But obviously, when you put both of our customer lists and our bill of material applications, there's an opportunity to just be able to create more value for a customer, both on new platforms or product improvements to existing platforms or in the aftermarket. So we look forward very much to working jointly with them to develop account strategies and platform strategies that would leverage the best of all these technologies. But we didn't factor that in into the synergy plan.
Great. Thank you. That's all I had.
Our next question comes from Joel Tiss with BMO.
Good morning, Joel. Hey, how's it going?
Good.
I wonder, are you able to speak about any areas of potential overlap where either you have to divest or you could lose a little share as the customers look to diversify?
Joel, it's Tom. We see virtually no overlap. That one slide that I referred you to in the deck that had basically the kind of the moon charts, these are either completely new adjacencies or distinctly different technologies within the same product areas. So we have we feel very good about that and see that as very low risk.
And maybe this is an unfair question, but can you give us any sense about opportunities for others to come over the top? Like how I know that there's other companies have been looking at this acquisition as well. And I wonder, like how tight is your agreement or is there always room for someone else to come in? Thank you. Sorry about that.
Joel, again, it's Tom. So I won't comment on that other than I would say part of our discussions with the Mega team were to put together a total offering between the financial offering, which is 800p share price, the premium we were paying, which reflected the long term value creation of the business and accelerated that and derisked that for mega shareholders. And the combination of all the binding commitments that we made that were around national security, economic and social commitments to demonstrate a holistic package that would be very compelling for all stakeholders that would view Parker as the absolutely best home for Meggitt and that's our intention. We went into this discussion and had full support from the Board all along the lines that we were the best home for this business.
Okay. Thank
you. Thanks, Joel.
Our next question comes from Jadeen Cooke with Credit Suisse.
Hi, good morning and congratulations. Most of my questions have been asked. I guess just one, you talked about opportunities on electrification and low carbon technologies. If you could just sort of elaborate, how this better positions Parker? And then just also talk about, the level of R and D and what's expected going forward to invest in some of these technologies?
Thanks.
First of all, that one slide that I had on sustainability, I mean, for sensor technology, which allows to basically run the airplane, took with the engines with more efficiently. The capabilities they have with more electric allows us as the airframe moves to more electric, it gives us an opportunity there. The thermal management technologies helps with all the higher heat loads. They have more lightweight type of applications in particular composites that reduce weight. And their fuel suppression system, they've already designed an alternative to Halon, which is out in the marketplace and then over time will gradually, will replace Halon.
So we think and we've committed to that part as well that we've committed to continuing their investment on sustainable applications. And their CapEx, their R and D historically has kind of been in the 7% range. And I believe last year was around 6% that was publicly available in public domain. And we intend to continue that kind of R and D.
Thank you.
Our next question comes from Nigel Coe with Wolfe Research.
Good morning. Congratulations.
How do we think about
the cash flow profile for Meggitt over the next few years? So oftentimes, there's big differences between EBITDA and cash flow over the cycle. So just curious how you view the cash flow profile for Meggitt's post close?
Nigel, this is Todd. I'll take that question. And again, we're limited to somewhat to what we can say here on a forward looking statement is based on the 2.7%. But just to give you some color, looking back at calendar year 2019, which Tom has mentioned a couple of times, it's a more normal runway rate for the business. Free cash flow as a percent of sales out of Meggitt was 11%.
Their free cash flow conversion 113%. So we think that's a good base to start. I would direct you to some of the analyst estimates out there if you're looking for future forecasts, but very similar to some of the businesses that we have in Parker, and we're confident that, that cash flow profile will be a positive going forward.
Great. And then my follow on question is that difference between U. S. And IFRS GAAP, that £70,000,000 adjustments, I think £70,000,000 in 2019, does that remain fairly constant as the recovery comes through? So as EBITDA expands, does that adjustment remain fairly static?
Yes. Nothing that I have right now would tell me that wouldn't change. So I would say it's pretty static.
Great. Thanks very much.
Our next question comes from Nicole DeBlase with Deutsche Bank.
Yes, thanks. Good morning, guys.
Good morning.
Congratulations. So maybe just on the synergies to the extent that you can give us a sense of how the $300,000,000 phases over year 1, 2 3?
Nicole, I think we answered that. We're kind of limited
to what we can do there.
What we have in the $2,700,000,000 is the $300,000,000 and that's at the end of the full 3rd year.
Okay, understood. And I guess, looking back at Meggitt's historical results, EBITDA margins have been on a downward Nicole, it's Tom. Hard for me to comment
Nicole, it's Tom. Hard for me to comment about it historically. I would just say that Tony and the team, Tony Wood, our CEO has done, I think, a very good job. This laid out a great strategy for the business as continued to improve. And we look forward to working with them together going forward.
It's a company that's got great technologies, great people and a great part of our team we close.
Okay, got it. Thanks guys.
Thanks, Paul.
Our next question comes from Joe Giordano with Cowen.
Good morning, Joe. Hey, good morning, guys.
If you just look back at growth historically, like how does the like the over the cycle growth rate that MEGHIT kind of change the profile of Parker Legacy Aerospace? And one is like what's the negative view on when 2019 levels are kind of achievable again?
So Joe, it's Tom. I can't comment on when we'll hit 2019 because that would be a forward looking comment. I would refer you to various equity analysts and what other companies have said going forward. But if you look at from 2016 to 2019, compare their growth rate to Aerospace and to Legacy Parker, they grew at about 6% and we grew at about 4%. So, in what I would call more normal conditions, they had a slightly faster growth rate.
And then just what's the view on how I guess if you're allowed to comment on this, like how MEGHIP would be kind of rolled up from an organizational standpoint within the Parker structure?
Yes. So again, Joe, it's Tom. We would the 4 divisions that they have, and obviously, I won't go into other things that would be evaluated over time, but the 4 divisions will remain in place. And because of the complementary nature of the technologies, it makes sense very much to keep those like they are today. And that was part of our commitments we've made to the government.
And we think it makes a lot of sense to do that.
Thanks, Tom.
Thanks, Joe.
And I'm not showing any further questions at this time. I'd like to turn the call back over to Todd.
Yes. Thanks, Kevin. So first of all, thanks to everyone for joining us today. We appreciate your interest in Parker. We apologize for the short notice.
One thing that I want to make note of here, a requirement in the U. K. Takeover code is that we need to have our financial advisor listen into any conversations we have to just basically confirm that there's no nonpublic information being disclosed. So just a heads up on that. Robin Davenport and Jeff Miller will be available today if you'd like to schedule a callback, and we'll do our best to accommodate everyone that has interest.
So thank you again. Look forward to talking to you on Thursday, where we'll announce our Q4 earnings. And thanks again for your interest. Appreciate it.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.