Good day, and welcome to the Silgan Holdings Acquisition of Weener Plastics Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Alexander Hutter, Vice President of Investor Relations of Silgan Holdings. Please go ahead, sir.
Thank you, and good morning. Joining me on the call today to discuss our announced agreement to acquire Weener Plastics are Adam Greenlee, President and CEO; Rob Lewis, EVP, Corporate Development and Administration; and Kim Ulmer, SVP and CFO. Before we begin the call today, we would like to make it clear that certain statements made on this call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company, and therefore involve a number of uncertainties and risks, including, but not limited to, those described in the company's annual report on Form 10-K for 2023 and other filings with the Securities and Exchange Commission. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements.
In addition, commentary on today's call may contain references to certain non-GAAP financial metrics, including, among others, Adjusted EBIT and Adjusted EBITDA. A reconciliation of these metrics, which should not be considered substitutes for similar GAAP metrics, can be found in today's presentation and under non-GAAP financial information available in the Investor Relations section of our website at silganholdings.com. During today's call, we will be referencing slides that have been posted to the investor section of our website at silganholdings.com. Finally, we would like to remind those attending today's call that given the proximity to our second quarter earnings call released on July 31, 2024, we will be limiting our remarks on today's call to the Weener transaction and will not be discussing topics related to our current quarter or the fiscal year for the company. With that, let me turn it over to Adam.
Thank you, Alex, and we'd like to welcome everyone to our call today to discuss our announced agreement to acquire Weener Plastics. To start today's discussion, I think it would be useful to remind everyone of our strategy, our culture, and how we at Silgan think about creating value for our shareholders. On page four of the presentation, you'll see that our strategy starts with building and enhancing what we refer to as franchise positions, which consist of businesses with long-term, sustainable, competitive advantages and often translates into market leadership or the ability to become a market leader. Culturally, we view our focus on meeting the unique needs of our customers and as an extension, our ability to provide best value to our customers as one of our key competitive advantages across all of our franchises.
From a financial perspective, these competitive advantages have resulted in stable and predictable cash flows, margin improvement, and organic growth opportunities for the company. The Weener acquisition we announced this morning has all the hallmarks we look for in a franchise business with market-leading positions in its product categories, long-term customer relationships, strong margins, and demonstrated organic growth. In addition, and as importantly, Weener is an excellent cultural fit within our company. Next, we look to deploy the strong free cash flow generation that our franchise businesses generate through our highly disciplined capital deployment process. This process takes a long-term view on value creation and factors in all potential opportunities for our capital, including M&A, organic investment, debt repayment, and returning capital to shareholders to determine the best use of capital to drive the most value for the company and our shareholders.
We believe the acquisition of Weener, which is a best-in-class asset with organic growth at a valuation that is below our current trading multiple and significantly below the closest publicly traded comp for this business, represents clear value for our shareholders. As a result of the success of our strategy, we have delivered consistent long-term value creation for our shareholders, with top-tier earnings growth and returns. The Weener transaction is no exception, with approximately 10% post-synergy earnings accretion expected, and presents a meaningful opportunity to continue to enhance the growth and margin profile of our business. Turning now to slide five. Today's announcement is another key milestone in our strategy to evolve our portfolio and expand our dispensing and specialty closures product offering towards higher margin, higher organic growth products and end markets in a journey that we began nearly a decade ago.
Taking a step back and looking at the company ten years ago, Silgan was the market-leading food can producer in North America, with two smaller but very strong businesses in closures and plastic containers, with approximately $500 million in total adjusted EBITDA. Fast forward to today, Silgan is still the market-leading food can producer in North America, with the strongest mix of customers, markets, and products in that business. Including the acquisition of Weener, our pro forma EBITDA of over $1 billion is more than double what it was in 2013. Our dispensing and specialty closures business is now the global leader in the market, generating more pro forma EBITDA than our entire company did just a decade ago.
We've accomplished this by investing over $3.5 billion on five best-in-class dispensing acquisitions over the past eight years, all at compelling valuations, each delivering attractive returns and earnings accretion for our shareholders. Our portfolio of businesses is more diverse while maintaining our focus on consumer end markets and developed geographies. Our margins have expanded, and our organic growth outlook, which was ±1% a decade ago, is now squarely in the low to mid-single digit range. We have both growth and margin mix opportunities in the business, and our addressable markets continue to expand. Kim will now walk you through the particulars of the transaction, and Rob will give some more details on the business, and then I'll provide final remarks before opening the call to Q&A.
Thank you, Adam. Turning to slide 6, as of May 2024, Weener generated last 12 months sales of approximately EUR 450 million euros, an adjusted EBITDA of EUR 96 million euros, representing a 21% adjusted EBITDA margin. As a result of the integration of this transaction, we expect to achieve approximately EUR 20 million euros of cost synergies within 18 months of closing, with the majority of those synergies from procurement and supply chain optimization, and the balance coming from footprint and other operational opportunities. On a fully synergized basis, adjusted EBITDA margin of 26% is above the levels of our WestRock and Albéa acquisitions, represents world-class profitability in this business, and is above those of the publicly traded comps in this industry.
The enterprise value of EUR 838 million for this transaction represents a multiple of 8.7x trailing twelve-month adjusted EBITDA, and a multiple of 7.2x trailing twelve-month adjusted EBITDA post synergies. As you can see on the bottom of the slide, we believe the transaction price for this business represents compelling value for a best-in-class franchise business, with post-synergy valuation below both our current trading multiple and that of the public comp in this industry. In a moment, Rob will walk you through some of the dynamics that have enabled us to achieve such an attractive valuation for this asset. The Weener transaction is expected to be highly accretive to our earnings, with adjusted EPS and free cash flow accretion in 2025 and approximately 10% adjusted EPS accretion once fully integrated.
The transaction is expected to close late in the fourth quarter, and we expect to finance this acquisition under our existing credit agreement and with cash on hand. Pro forma for the transaction, including synergies, our year-end 2024 net debt to Adjusted EBITDA is expected to be below the high end of our target leverage range of 2.5-3.5 times Adjusted EBITDA, and we expect to exit 2025 with year-end leverage below 3 times. With that, I'll turn it over to Rob.
Thank you, Kim. Picking up on Kim's prior comments on valuation and the chart on the bottom of slide 6, the economics of this deal represents Silgan's ability to use speed and certainty to our competitive advantage in the M&A market. That advantage has expanded in the current environment as a result of our market-leading position in dispensing products and our ability to generate synergies and deliver strong free cash flow. Our ready access to capital has further advantaged Silgan versus financial buyers relative to the cost of capital and return profiles, and should continue to allow us to execute on our M&A priorities to acquire similar high-quality businesses. Turning to slide 7, we believe Weener is a compelling fit with our dispensing and specialty closures business, which will drive incremental mixed benefits as this business continues to grow.
Looking at the performance of the Weener business from pre-pandemic through 2023, the business has grown sales at an organic CAGR of 6% and Adjusted EBITDA at an organic CAGR of 8%, which we believe is repeatable as we look forward. Weener operates a global network of 19 well-capitalized facilities in 12 countries with more than 4,000 employees. Competitively, Weener commands a leading market position in the products they produce for personal and healthcare and food markets, predominantly in Europe and the Americas. Weener also brings new technology in adjacent end markets with significant clean room capabilities for healthcare manufacturing and a robust innovation pipeline of differentiated, high-value products. Like our business, Weener has long-term contractual relationships with blue chip customers that allow for the pass-through of raw material and other costs. Many of these customers are long-term partners of Silgan.
On slide eight, you can see some of the highly recognizable products that Weener brings to the Silgan portfolio to help broaden that portfolio, including global leadership in roll-on ball technology, advanced capabilities in aerosol actuation, nasal and ophthalmic dispensing products, and innovative recyclable elastomer valve technology with a broad range of applications. We believe the addition of this innovative product and technology profile to our global scale and dispensing, combined with our deep customer relationships, will provide significant opportunity to accelerate the growth profile of this business going forward. From an end market perspective, you can see our outlook for each category in the upper part of the page, and on a blended basis, we believe end market growth for Weener is in the mid-single-digit range.
That said, as the mix of business continues to improve with higher growth in healthcare markets, coupled with the potential to outperform in the markets as we have done in our own dispensing business, there is opportunity to drive higher organic growth rates in this business. As you see on the bottom of slide 8, the addition of the Weener business increases both our company and more specifically, our DSC exposure to higher growth end markets like personal care and healthcare. This acquisition increases the segment's exposure to higher growth dispensing products to approximately 65% of pro forma sales and approximately 75% pro forma Adjusted EBITDA. With that, I'll turn it back to Adam.
Thanks, Rob. Turning now to slide 9 and ending where I began earlier on the call. As we reflect on the progress we've made in our dispensing and specialty closure segment over the last 10 years, we've grown segment sales at a compounded annual growth rate of 12% and adjusted EBITDA at a compounded annual growth rate of 16%. We have expanded the margins of this segment by 550 basis points, and including the Weener acquisition and the associated synergies, we'll add another 100 basis points of margin to this segment. Our best-in-class margins are driven by our franchise positions, differentiated product portfolio, innovation, and focus on meeting the unique needs of our customers, our capital discipline, and our core competency in M&A.
We have been able to identify attractive acquisitions in our industry at value and earnings accretive multiples with strong earnings and free cash flow accretion. When we compare our growth and margins to our peers in this space, we believe our business compares very favorably and offers significant value opportunity to shareholders. To wrap up the presentation, today's announcement marks a continuation of the strategy we've been executing for nearly a decade, with our portfolio evolving with higher margin, higher organic growth products and end markets, and dispensing the specialty closures at very attractive returns with strong earnings accretion. Importantly, this milestone is far from the end of this journey, as we believe today's announcement confirms our advantaged position in the market and our ability to execute our strategy to build the leading global dispensing and specialty closures franchise and drive value for our shareholders.
As always, we will continue to be guided by our founding principles, which include our constancy of purpose, commercial and capital discipline, and long-term focus on being the best at what we do by competing and winning in the markets we serve, and always focusing on meeting the unique needs of our customers. At this time, we'll open the call for questions and ask Melinda to please kindly provide the directions for the Q&A session.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you find that your question has been answered, you may remove yourself from the queue by pressing star two. Once again, that is star one to ask a question, and we'll pause just briefly to assemble our queue. And we'll take our first question from George Staphos with Bank of America. Please go ahead.
Yeah. Hi, guys. Good morning. This is actually Cashen Keeler on for George. We had conflicting calls this morning. First off, I was hoping you could just help us a little bit more in terms of the volume growth for this business, what it's looked like more recently in total and by end market, and then perhaps your expectations moving forward. You know, would you expect this business to grow in line with those market growths you outlined here?
Yeah, good morning. Look, as we look at the business, maybe we should go back just kind of to pre-pandemic. And I think this is a business much like our dispensing, especially closure segment, that probably volume mix is the right way to think about it. So they've seen nice growth in volume mix, you know, since the pandemic, and really, it's two things. It's volume's been stable in their core markets. What they've done is a very nice job with innovation and launching new products that are mix-enhancing the mix of the overall business. So I think a good example for you would be the innovation they have. They've got a fully recyclable elastomer valve technology that Rob had mentioned in his remarks. And, you know, that's a new product that was launched within that same window.
So margin-enhancing, volume growth, it's a really nice combination. And you know, when we think about how it fits into our business, we think it's gonna grow at roughly the same rate as our DSC business has been growing and is expected to grow kind of on a long-term basis.
Got it. Okay. Then if I could just ask another one. You know, in your view, what have been the key parts of this business's moat and business approach, you know, in your view? And then moving forward, will you be keeping the current management there in place or any changes, you know, on that front?
Sure. You know, look, I think as we talked about in the prior remarks, I mean, this is a franchise business much like our Silgan businesses. So you think about the moat, it's innovation, it's differentiated product line, it's long-term customers, it's raw material pass-throughs. It's all the same things that we talk about our business. And in fairness, they've grown at a very nice rate in the markets that they serve. So we think the moat is very defensible, and we like the forward look of that.
Got it. And just in terms of management, staying in place?
Yeah. Well, just quickly, management team, clearly a talented team coming with the business for some time and has done a really nice job running the business, so we're excited to work with all of them.
Next, we'll go to Matt Roberts with Raymond James. Please go ahead.
Hey, good morning, everybody, and thank you for the constructive detail here. Kim, if I may, could you discuss the financing on the deal, the available borrowings you have under that credit facility and the anticipated borrowing rate for the transaction under that? And also, Kim, I believe I missed the comment or might have not heard it entirely in the opening remarks, but did you say path towards getting to three times leverage, and when was that again? Thank you.
Sure. So we are planning on financing it under our credit agreement. We will probably close this transaction in the fourth quarter-ish, so we'll have capacity under our revolver. In addition, we can look to do an additional borrowing under the credit agreement with a consortium of banks. The rate we would expect on a euro basis is probably between 5%-6% on that, and I can't remember what the other question was...
when we get below 3x for leverage?
Oh, okay. So yeah, we do expect that our leverage ratio will be around the upper end of that as we move through this transaction. We'll look to continue to move that down to the 2.5 lower range. I mean, historically, when we've been at the lower end of the range, we've looked to return capital or, you know, obviously, we'll continue to be acquisitive.
We'll be, I think the target is below 3x at the end of 2025 after we get our synergies.
Yes.
Perfect. Thank you all for the color. I'll hand it over and get back in the queue if necessary.
We'll go next to Ghansham Panjabi with Baird. Your line is open.
Hey, guys. Good morning. Congrats on the deal. You know, I guess first off, on the healthcare piece and, you know, the growth rates of mid to high single digits, you know, how, how does... Are any of these products, sort of, do they go through the FDA approval process, or are these off-the-shelf products, as it relates to the healthcare business?
It's a good combination of both. And, you know, we're really interested in this part of the business because it's, it's a nice complement to what we do already at Silgan. And, you know, it's not something we talk a lot about, Ghansham, but we've got a very nice healthcare business that is growing probably ahead of the market rates that you see on the slide there. So, we think there's a really interesting opportunity between the two, two businesses, because, frankly, we were having trouble justifying a clean room investment in more mature markets on top of what we've already got, and so were they. When you put those two technologies together, we think there's an interesting platform for continued and maybe accelerated growth in the healthcare market with the existing portfolio of products that we have between the two entities.
Ghansham, I would just add to that. If you look at the two businesses combined on a pro forma basis, we'll have nearly $200 million worth of revenue in the healthcare space. So it's not something that we talk a lot about, but we are continuing to grow that part of the portfolio.
Perfect. And then could you give us a bit more detail on how you get to the 10% EPS accretion, just based on the math? You know, maybe we're missing something, but we're having a tough time getting there. And then, Adam, for you, you know, you're obviously taking on a leveraging transaction, in context of a very tough set of fundamentals for the packaging industry, probably the toughest since the financial crisis. So with this transaction, you know, do you feel like the worst is behind the industry at this point, that gives you comfort in a deal of this size, apart from just, you know, the assets available when it's available?
Well, again, we're continuing on the path of our strategy, right? And so this is a very logical addition to what we've been doing. We've known the business for an awfully long time. You know, I'd love to tell you that the packaging world is great, and everything's, you know, rosy on the outlook going forward. I'm not quite sure we're there yet. But as far as, you know, the flexibility we have with our balance sheet, the core competency in M&A that we have to continue to mine these kind of opportunities, that we've always said when we have the right opportunity at the right time and is the right fit for Silgan, we're going to execute that strategy. And I think this is just another example of that.
On the earnings accretion?
Yeah, look, I think it's really just continued growth in the business. It's the synergies that we expect to achieve, and for the most part, the synergies should be in, you know, we said 18 months, so you're getting a vast majority of those by the end of 2025, when we've got the 10% EPS accretion.
You've got a fairly sizable free cash flow accretion that happens that helps reduce that debt load as well.
Okay. Got it. Thanks so much.
Our next question or comment comes from Gabe Hajde with Wells Fargo. Please go ahead.
Hi, good morning. This is Alexander Hutter. I guess I was wondering if you could provide some color on how the margin profile trended for the business between 2019 and 2023.
Can you just repeat that question? Were you asking about the volume trends from 2019 to 2023?
No. Yes, volume trends and the margins.
Okay, great. So, look, we've seen nice margin growth since that period of time. Again, it's back to sort of the previous commentary that they have innovation, they've launched new products, differentiated new products. They've had growth in healthcare. So, you know, we've seen nice margin expansion and, you know, something like 200 basis points, probably over that period of time for their business. And then on volume, again, I think I'd go back to the same comment on it's more of a volume mix story that they're enhancing their mix with every new product that they're taking to market. And volume, you know, mix has been favorable over the same period of time.
I think the other thing that has benefited this business, they've done a really nice job of managing their cost structure and putting in operational excellence programs, so that they've seen a pretty nice turn in the performance of their businesses as well over that period of time.
Okay, thank you. And if I could ask another question. What has been the free cash flow conversion for this business, like, I guess, if you go back from the similar periods?
I think the real issue with the free cash flow there, as we talked about, is they have carried some leverage, and they have invested pretty heavily in advancing the business. We think as you combine this business with ours, we'll be able to moderate that capital spend by managing or utilizing the combined footprint. And that should allow the CapEx spend to be more in our traditional run rate for that business, as opposed to the run rate that they've been attaining over the last several years.
Okay. All right, thank you.
Next, we'll go to Anthony Pettinari with Citi. Please go ahead.
Good morning. This is actually Bryan Burgmeier sitting in for Anthony. Thank you for taking the question. Maybe just a question on synergies. Do you anticipate any cash costs to achieve those synergies? Is it possible to maybe put it in maybe a couple of different buckets and where the synergies are gonna come from? Any detail there would be great.
Yeah, sure. We said that there's roughly EUR 20 million of synergy coming. We think we'll have that completed in the first 18 months. I wouldn't expect a lot of cash flow implication to that, or a lot of cash spend to achieve them because the way they bucket out is, you know, the majority of it is coming from procurement and supply chain opportunities.
that we think that there are some footprint opportunities here between the two businesses, and then kind of the remaining part of that is call it from general operations, and that'll be everything from, you know, a little bit of administrative spend around things like audit fees and the like that we can wring out, as well as just becoming a bit more efficient between the two businesses. A pretty-
Got it. Got it. Thanks.
Pretty straightforward set of synergies here from our perspective and from our historical achievement in these types of deals.
Right. Right, that makes sense. The last question for me, maybe just, you know, a lot of different sustainability actions going on in Europe right now. How do you see Weener being kind of prepared for those changes? Are there opportunities to maybe leverage some of their sustainability offerings in Silgan's portfolio or, or vice versa? Yeah, just curious if you've kind of thought about how the sustainability angle could trend. Thanks. I'll turn it over.
Sure. You know, we have and, and we think Weener is absolutely a leader on the, the sustainability front, not only in Europe, but really globally for the products that they manufacture. So, we at Silgan also think we're pretty good at this, too, but I think there is absolutely a, a benefit of the combined entities. And again, taking some of those sustainably advantaged, products and, and moving them in other parts of the world, utilizing the global footprint that we have on a combined basis, I think is a really interesting opportunity. And again, you know, we've mentioned the product, that recyclable, elastomer valve technology that, you know, is the first of its kind to reach the market that they've commercialized. It's a terrific product, which we think has even more opportunities in front of it.
We'll go next to Daniel Rizzo with Jefferies. Please go ahead.
Hey, guys. Thanks for taking my questions. Nice acquisition. I was just wondering if, I mean, obviously, you're focused on mature markets in Europe and North America. Is that because, I mean, it's just not as attractive in the emerging markets, given, I don't know, different dynamics within those regions? Is there something about that that kind of makes you kinda wanna shy away from it?
Yeah, look, it's a long-standing, I think, philosophy at Silgan, that we do like mature markets and the stability that they provide, not only for us and our customers, but for our shareholders as well. And you know, again, it's that volatility that some of the other markets bring in, that yes, there might be significant growth, but there might be some pullback as well. So we tend to like more stable markets, is probably the right way to think about that, and stable products, which is why we are, you know, very focused on what we do really well, which is, you know, rigid packaging for consumer goods products.
All right, thanks. And then just my second question is, has the changing interest rate environment kind of made it a little bit easier? I mean, is private equity backing off and making people maybe a little more realistic with their multiples, given the higher borrowing costs, or am I overthinking it?
No, look, I think you got it just about right there. I mean, we've talked for a long time about Silgan being opportunistic in the market, right? And I would say that this is a quintessential Silgan deal in the sense that we've known this asset for a long time. We've looked at it over that period of time, gotten to know management. You know, I think as they began to consider a sale process, we came to the table knowing the business, understanding what the synergy play was gonna be, what the integration was gonna look like, and we brought with us, you know, speed and certainty and the ability to get through the diligence and understand what the business was, and having financing in hand, so to speak.
So it was a perfect opportunity for us to bring this business into the Silgan culture, and in many ways, it's very similar to the way we think about our business, so it makes a lot of sense. And I do think that we will have, you know... Given the market backdrop, it plays very well for us to continue to look at opportunities such as this, to continue to build out parts of the portfolio. And very specifically, I think we've said in the past that we'll continue to look for opportunities in this segment itself.
Thank you very much.
Our next question comes from Arun Viswanathan with RBC Capital Markets. Your line is open.
Great. Thanks for my question. Good morning. Congrats on the transaction. Just a question on the growth rate. So, looks like you guys have confidence of achieving low to mid-single digit organic growth going forward. Maybe you can just help us understand how each of those... how if there's a certain growth rate that each business would be achieving, is it, say, mid-single digits for DSC, and lower ranges for the other two? How should we think about that?
You're talking about Silgan in total, I think. Is that right?
Yes. Yes, thanks.
Okay, sure. So, you know, yeah, growth rates for DSC, we've said, are kind of in that mid-single digit range. For the other two businesses, we're kind of low to, you know, low to mid-single digit range as well, so slightly below DSC, but still growing.
And then, do you see, you know, the likelihood of revenue synergies here? And just on that geographic mix, have you noticed any deterioration in Europe growth over the last, you know, couple of years? Or, conversely, is it actually growing faster because of some of the, you know, innovation and kind of market positions within some of these faster growing verticals?
Sure. Maybe I'll take the geography. I'll let Rob comment on the synergies. And so, you know, they've had nice growth in Europe. You know, what we've seen, going through our diligence is that really these products were not subject to, you know, some of the other industry dynamics that were at play with destocking, et cetera. They've had fairly consistent volume and fairly consistent new product launches that are driving, you know, the growth that we're talking about. So, you know, we think the business has been very consistent over time and has performed, which is an important metric. Performance does matter, and we're expecting, you know, again, nice continued growth going forward.
Yeah, look, I think on the synergy side, I kind of put it in multiple buckets, right? We talked a bit about the cost out synergies. I think there's the synergy on the footprint side that helps us reduce the CapEx here. And then I do think that there are... while we don't necessarily always value these in the model, but there are some commercial synergies here as we bring their portfolio of products to our to bear for our customers, and vice versa, quite frankly. So I think there's opportunity geographically, as well as from a product line perspective, to facilitate growth on both our core business and what is being acquired into that core business.
Okay, thanks. And just lastly, just on the, you know, valuations, as you note in the slide deck, you know, this Weener acquisition is, you know, significantly below some of the multiples you paid in the double-digit range for Albéa and, WestRock and so on. So I mean, pre-synergy multiple, but just curious, you know, how this transaction kind of came about. I know that you guys have been fully aware of this company for a while. And, are there further such acquisitions available? You can just comment on those two items next.
Yeah, look, I think, you know, this is... as I said before, this is very typical for a Silgan-type deal, where we have built a relationship over time. As a process gets started, we have a bit of advantage because we understand what the business is. I think that, combined with our ability to move quickly and have certainty around close, was attractive to the seller. I do think that that whole idea of developing those kind of relationships is core to our corporate development strategy, and we do think that there are other opportunities out there that, at some point in time, will become actionable.
We think that this market backdrop, in particular, is advantageous to us because of, you know, our access to capital, and our ability to move quickly in this environment and have synergistic opportunities between the businesses, which leads us to a bit of a competitive advantage in this market backdrop.
Great. Thanks.
We go next to Michael Roxland with Truist Securities. Please go ahead.
Hi, guys. This is Nico Buccino from Mike Roxland this morning. I apologize if I missed this earlier, but specifically for U.S. healthcare, where do you see that business growing now that it has more scale? And maybe in relation to that mid-single-digit bogey for DSC, and then, compared to its growth rate pre-acquisition.
Yeah, hey, look, the growth rate, you know, the DSC growth rate is a blend, right? So you've got some markets that are moving slightly above that, some below. Healthcare is one that tends to grow slightly greater than what our blended rate is. So, for us—for DSC anyway, at Silgan, it's primarily a European business for us in healthcare. We've got some in the U.S., but the predominant business is in Europe. So you know, we think that, you know, bringing some of our products in combination with the Weener products to the United States is actually a great opportunity for us. So, we'll talk about that in further evaluation as we get through the rest of the close of the acquisition.
But, you know, I think there's real opportunity there, and we've got advantage, differentiated products in the markets that we serve today, and I think those would do well in the U.S. as well... Got it. Thank you very much.
We'll go next to Jeffrey Zekauskas with JP Morgan. Your line is open.
Thanks very much. What's the EBIT and CapEx of the business?
So, on, maybe I'll give you an EBITDA basis, but on-
Yeah
On an EBITDA basis, the LTM is pre-synergy, and I'm giving you euro here, is EUR 95.5 million.
No, I was wondering about the EBIT, right? You give the EBITDA in the press in the slides.
Yeah, DNA, 1.1, it's not fully adjusted for the purchase accounting yet, but, but I think it's running, CapEx is running at about 5% D&A kind of in that, in that range, maybe a little bit higher.
Just, just for purposes of understanding its efficiency, how many people work in your dispensing and closure business?
Yeah, we disclose our total number of employees, but we don't give it by segment. So what I would tell you, Jeff, is, you know, there are more employees in this business, I think, on a comparative basis. And really, it's about the operational footprint that they have. We've got more plants. They're a little smaller than Silgan, I think, on average. And, you know, in fairness, we probably have higher run volumes for run lengths, and therefore a little more automation in our business than maybe what they have as well. So I think that really is the answer as to why is there potentially a difference in total head count for this business versus our own segment.
And then lastly, I take it they buy a lot of polypropylene. Is that the major raw material? How much do they buy? Is there some polyethylene they buy? What's the raw material footprint for these guys?
Yeah, it's all the same resins that we buy. So you have a good chunk of polypropylene. You've got a decent amount of polyethylene as well. So it's all the same products that we purchase. And what I tell you, it's probably a pretty similar distribution of that purchase across our portfolio as well. So it is a nice fit, and, you know, as we talked earlier, you know, the synergies, more than half of them, let's call it, are from supply chain and procurement, so resin is going to be a part of that.
Thank you very much.
We'll return to George Staphos for an additional question or comment. Please go ahead.
Hi, Adam, thanks for taking my question. Sorry, dueling calls today, guys. Good luck with this transaction. I want to start with kind of a, sort of, bigger picture question. How important, in your view, and be candid, is the opportunity for re-rating because you're adding to the DSC portfolio in terms of this overall transaction for Weener? Said differently, if that wasn't part of the calculus, would you still do this transaction?
Yeah, George, I think it's a really interesting question. Number one, we don't include a re-rating as we evaluate transactions. So, you know, what the market decides to do with our valuation, the market will do. So, we take these on face value. So the answer is absolutely yes. We do these transactions without the anticipation of re-rating in our modeling. So, you know, I look at the combined EBITDA of the business and how much that has moved. Again, just to kind of reiterate some of the commentary from earlier, you know, 10 years ago, Silgan in total was $500 million of EBITDA. Well, that's what this segment has now grown into.
It's a $500 million EBITDA segment, and it just, you know, the market needs to digest that, the market needs to understand that, and we need to do, maybe a better job of continuing to explain that to the market because we think it's very clear, this evaluation, particularly for this business, is undervalued.
Yeah.
You know, it's good organic growth. It's got margin rates that are kind of best in class. You know, there's a lot to like about this business, and therefore, as Rob said, you know, we're gonna continue to grow, we're gonna continue to add, and see where we can go from here.
Yeah, George, I might put a bit of a finer point on that. I mean, as I think about it, this is a business that fits, you know, hand in glove with our existing business in dispensing, and we're getting this business at a value that allows us to earn a really good return. You know, it's, you know, we've got a ten-year IRR that's in the mid to high teens against the cost of capital that's significantly below that. So, to me, it's about what the return profile looks like in the business, and the shareholders are gonna have to decide what that means to the re-rate or not relative to the stock price.
Yeah. No, I appreciate the color because while you have lots of company, because in this market, and materials, in general, have not performed particularly well, and you also have done a good job on return on capital over the years, so I'm not taking anything away from Silgan. If I look at the acquisitions that you made on page six, and you did a good job on getting the synergies down, nonetheless, the stock really hasn't done much over the last number of years, the EBITDA multiple has not moved. So in theory, you know, when you look at Weener, one thing you should be also looking at is, what do you do with the capital? Perhaps the best thing to do would be to buy Silgan and buy more stock back.
So implicitly, in your answer and what you're doing, you see Weener as maybe an even higher quality business than your existing portfolio. Would you agree with that? Any thoughts on that?
I think it would be comparable to our current portfolio. I think, again, it's a really good fit. So, you know, George, we do look at, you know, share repurchases versus any acquisition that we do, or frankly, any use of capital that we are considering. So, you know, as I think Rob was going through some of the return metrics, you know, this is a really good return for our shareholders that we're generating by doing this acquisition. So I wouldn't say it's superior or inferior. I think it's right in line with our business. Culturally, it's a really good fit. Their facilities look like ours. There's a lot of overlap here.
Okay. Last one for me, I'll turn it over, and thank you for taking it. One, I know you said it's a stable business. Did it actually see a boom and a bust during COVID? You know, what have the last couple of years looked like? Who are the largest customers, and what are you doing to keep management in place, if you are keeping management in place? Thanks, guys. Good luck in the quarter. We're, never mind, we'll get to that one in a couple of weeks. Good luck with this transition.
Yeah, we'll let you know next week. Good questions. So really no boom or bust during COVID. They had a little bit of uptick, gave a little bit back, but didn't see nearly, I think, what we had seen in some of our other geographies. And I think it's because the business is predominantly European-based. Our businesses didn't quite see that same kind of volatility that we saw maybe in the Americas. And then, you know, as it goes to customers, George, you know, we're not gonna disclose exactly who those customers are, but you can just assume that, you know, when we talk about blue-chip customers, we've got the entire portfolio at Silgan, so there's tremendous customer overlap, and not many that I can think of that we don't already have some sort of relationship with. So blue-chip customer base.
And then for management, you know, again, we're kicking off conversations with them this afternoon, so we're excited to add a very talented team to Silgan, and as I said before, we're looking forward to working with all of them.
Okay, thank you so much.
Thank you.
It appears there are no further questions. I'd like to turn the conference back to Adam Greenlee for any additional or closing remarks.
Great. Thank you, Melinda. We appreciate everyone's interest in the acquisition and look forward to talking about our second quarter earnings next week on the 31st.
This concludes today's conference. We thank you for your participation. You may disconnect your lines at this time.