Please note today's call will be recorded, and I'll be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Tony Cristello, Vice President of Investor Relations. Please go ahead.
Thank you, Travis, and good morning, everyone. Thank you for joining us to discuss the definitive agreement Standard Motor Products has entered into to acquire Nissens Automotive. With us today are Larry Sills, Chairman Emeritus, Eric Sills, Chairman and Chief Executive Officer, Jim Burke, Chief Operating Officer, and Nathan Iles, Chief Financial Officer. Please refer to the Standard Motor Products website at smpcorp.com for our release issued this morning, as well as the accompanying slide presentation for this call. If you would like to ask a question on the webcast, you will need to dial in with the information provided on the press release. Before we begin this morning, we'd like to remind you that some of the material that we'll be discussing today may include forward-looking statements regarding our business and expected financial results.
When we use words like anticipate, believe, estimate, or expect, these are generally forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available to us and certain assumptions made by us, and we cannot assure you that they will be proving correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I'll now turn the call over to Eric Sills, our CEO.
All right. Thank you. Good morning, everyone. And thank you for taking the time to learn more about this exciting news. This morning, we announced that we have signed a definitive agreement to acquire Nissens Automotive. We expect this to close well before the end of the year, pending regulatory approvals, and are just very excited to get going with this. This is the largest acquisition we've ever made. Nissens generated over $260 million in revenue in the last fiscal year, generating mid-teens EBITDA margins. It's really a game changer for us. We're going to walk you through some slides, and I'm not going to hit all the information on them, but the presentation is available on our website, and we encourage you to review it there further. All right. Next slide, please, Tony.
We believe that this deal makes us much stronger just on a number of fronts. Here are some of the headlines. I'll get into the detail in the next several slides. In short, as you'll see and as we get into it, we're really very similar companies operating on opposite sides of the ocean. By putting us together, we become a leader across continents in our categories. The majority of what they sell is powertrain neutral, further protecting us from future disruption from electrification, though I think we all recognize that that's still a long way away. This enhances our diversification, both geographic. This now puts us with about 20% of our business in Europe and also helps to diversify our customer base as well.
Importantly, we've been extremely impressed with the leadership team over there, led by Klavs Pedersen, the CEO, as well as his whole group. We've gotten a chance to spend some time with them, and it's a very strong group. They've obviously been very successful with what they've been able to do with this company. That speaks volumes. Excuse me. But I think, importantly, what we also see and recognize is a strong cultural fit, which in a merger of this size is really just it's extremely important to know that you have well-aligned business cultures, corporate cultures, and I think that that's come through very, very clear to us. And lastly, and as you'll see, not only are they accretive pretty much right away, we believe there are significant synergies both on the cost and growth sides, which we'll review further. Next slide, please. All right.
Some of the headlines about Nissens. They're almost as old as we are. They've been around for over 100 years. They're headquartered in Horsens, Denmark. They go to market with really great overlapping product categories as us, but as you'll see, with different emphasis, which is really where we see opportunities that we do things similarly but with different strengths. I'll get into the products more on the next slide. They also go to market with a very similar business strategy, being professional-grade products, premium products, branded products, and a full-line approach, as you can see in the top right there. They have over 15,000 SKUs in their offering. So they're really targeting the market very similar to how we do it here in the U.S.
They go to market with three brands, but the majority of it is in the Nissens brand, 80% or so, and that's their premium professional-grade brand that they've really grown up with. The other two brands, AVA and Highway, are part of an acquisition that they did a few years ago, which are targeting more of the entry price point of the market, the value segment, which has proven to be very complementary to their premium brand, which is, again, where really the emphasis is. They have a very broad distribution network. You can see that 17 DCs and warehouses, which provides them with a major differentiator, and I'll speak more about that in a bit as well. They are a basic manufacturer.
They have two factories in Europe, primarily making heat exchangers, and then the rest of what they sell comes through an extensive network of strategic suppliers that they have globally. And lastly, and certainly not least, you can see on the bottom right, they've really shown impressive sales growth over the last many years, and as I mentioned earlier, tapping out the end of last year with over $260 million in revenue. Next slide, please. All right. Getting into the products a bit, and there's a lot going on on this slide. I'm not going to go into the specifics, but they go to market with three main categories. The first, which is powertrain cooling. It's engine cooling, but it is also powertrain cooling for electric vehicles. It's the biggest of what they do. It's almost half of their business.
It is driven by radiators, but there are many more categories there as well, as you can see listed. That middle column, Air Conditioning, 37% of the business. Here we see really just a perfect overlay with our Temperature Control business, but with some slightly different emphasis. So they're stronger on Heat Exchangers like Condensers, while we believe we're stronger on some of the other categories. So here, again, where we can help each other flesh out our lines. And then lastly, on the far right, this is the newest part of their business. They call it Engine Efficiency. It's 16% of what they do. It's currently focused only on a couple of categories, but they are in the process of expanding it. And here we see really very strong potential to help them expand with our Vehicle Control categories because that's really where this is.
That will not only be for advanced ICE categories that we've been seeing such great success with here in the U.S., but as well into our powertrain neutral categories within electrical and safety products. Next slide, please. So as we think about how well their categories are suited for vehicle technology change, here you see there are two main areas of engine powertrain cooling and air conditioning, and you can see that the categories are on both conventional ICE vehicles as well as on electric vehicles, really every single one of them. As we've been saying about our temperature control business, really in many ways, it's expected to benefit from electrification as we see more systems on electric vehicles that require thermal management.
A big area, for example, is battery temperature management, where we see that managing the temperature of the battery has direct impact on the performance and range of the battery. So that's just one example of where we see the expansion of thermal management in newer technologies. And we believe they're ahead of us here. They have over 900 SKUs already for electric vehicles and growing, which you'd expect as the European adoption of electric vehicles is ahead of that here in the U.S. So they have some good insights into the dynamics, including that what they've seen is that the typical thermal management components for EVs tend to be higher cost. And while still in the early days, they seem to have higher replacement rates, or at least the same replacement rates as those for electric vehicles. So really a lot for conventional vehicles.
So a lot to be excited about. Next slide, please. All right. Here is their map. And as you can see, the vast majority of what they do, 85% of their business is in Europe. They have enjoyed growth elsewhere, but 85% of it is in Europe. But it's important to note that Europe is not a monolithic market. It's many countries with country-specific nuances. And so really one of their real strong differentiators, which I alluded to in the beginning, is that they have local distribution centers and local sales teams spread throughout the continent. And this really provides huge benefits on having local sales representation. It allows them to enjoy local relationships with the customers within those markets and really have unique insights into what the specific needs of those markets are.
And then having the local distribution point allows them to have specific vehicle coverage for the vehicles in that market. And having that inventory deployed so close to the market allows them to have very quick turnaround time on orders, which has garnered them really strong kudos from the customers in those markets to be able to get them products specific to their car parcs in very quick fashion. So this distribution network has proven to be really a boon for them. Next slide, please. Okay. So having painted a picture of Nissens, the company, I want to talk now about putting them together with us and why we see that as really a very powerful combination. So again, we have very similar go-to-market strategies, and we have overlapping product offerings. And while we're both market leaders in our geographies, we're really playing in different markets.
So we really don't compete with each other, which allows us to really capitalize on the mutual strengths to help us grow, to help us enhance our profitability, and really become a better supplier to customers on both sides of the ocean. Let me review the ways that we see this happen. It really falls in three areas. First, on growth, we can share product offerings on both sides of the ocean. As we've seen over these last several slides, we are involved in the same main broad categories, but we have different strengths that we can really augment each other's portfolios. For example, on the Nissens side, they're just beginning to grow out what we call Vehicle Control , what they call Engine Efficiency, standing at only 16% of what they do, but it's our real strength.
So we see that we can really help accelerate what their plans are there. And again, they may be in ICE-related, but they also could be within our expertise in electrical products and safety-related products. There are also areas of coverage within air conditioning where we believe we can help. They're strong in compressors and condensers. We may be stronger in other areas such as switches, sensors, hose assemblies, and so on. And we're eager to see what we can do there. On the SMP side, we frankly have a bit of a gap in our air conditioning program with different heat exchanger categories, most specifically and notably condensers. And this is a sweet spot for them, and they can really help us a great deal. And again, they're ahead of us in products for electrification, and we see benefits there.
I think it's important to note that as we talk about the value of synergies, we do not include any we have not quantified the synergies from growth in the numbers that we talk about in the $8 million-$12 million in synergies that are involved in cost reductions. So that takes us to the cost savings potential, that middle area. And again, due to the complementary businesses we're in, there's just so many areas to work on. And I think it's important to note that this is bidirectional. It's not all going to be improving the Nissens' cost structure. We think there's equal opportunities to leverage what they do to improve our legacy business.
The obvious area is going to be in product cost, which is getting to the best cost, comparing supply bases, leveraging our joint muscle with suppliers, and seeking opportunities to insource into our different factories and so on. We also see opportunities to combine our energy on supply chain activities, including items like freight consolidation, transportation services, and so on, but just plus myriad other means of operational improvement, streamlining services, functions, and so on. Lastly, thinking about operational excellence. What do we mean by this? This is really where by combining our forces, we could become a stronger company, which in turn makes us a better supplier to our customers. A few examples here. Through joint product development, we can accelerate our product launches. By combining our engineering resources, it'll allow us to tackle new technologies at a greater rate.
We can join forces in all of our marketing efforts, providing better rich content to our customers. We're both very involved in training technicians, so combining our training resources, we'll be able to enhance the technical support we provide technicians. And the list, frankly, goes on and on, and we're really just beginning to conceptualize where these areas are. We really think that areas of mutual benefit can be endless. So we're just obviously very excited about where this is. With this, I'm going to turn it over to Nathan. He'll talk about transaction details, and then we'll open it up to questions.
All right. Thank you, Eric. Good morning, everyone. First, let me cover the acquisition price. As we noted in our release, we agreed to buy 100% of the shares of Nissens for EUR 360 million, which is approximately $388 million. This price represents a multiple of approximately 7.5x EBITDA, including an estimate for run rate cost synergies of $10 million. We plan to fund the acquisition with existing cash and amended credit facilities, and I'll speak more about that later. As we think about the financial implications of the acquisition, I want to reiterate that this deal is very attractive in terms of accretion and business diversification. The acquisition will grow SMP's top-line revenue by about 20% and help us achieve significant geographic diversification.
With the addition of Nissens, SMP sales in Europe will be almost 20% of our total sales, which is a significant increase as we had just 4% of our sales in Europe in 2023. The company also has a very strong margin profile with EBITDA rates in the mid-teens that will help expand SMP's overall margins immediately. Run rate cost synergies of $8 million-$12 million are expected to further enhance margins over 24 months. We expect the acquisition to be accretive to our earnings per share in the first full year of ownership, with accretion moving higher as synergies are realized. Return on invested capital for the acquisition in the first year will be in the double digits, and it's important to note we believe there will be additional upside for both EPS accretion and return on capital as cross-selling opportunities materialize.
We plan to finance the transaction with the help of our banking partners, including J.P. Morgan, Bank of America, and Wells Fargo, which have all committed financing for the acquisition. We intend to further amend our credit agreement through a new 5-year facility and extend it through 2029 prior to a closing later this year, and anticipate net debt at closing will be less than 3.5x EBITDA. We're planning to use excess cash flow to pay down our borrowings over the next 2 years, targeting net leverage by the end of 2026 of less than 2x EBITDA. To wrap up, I want to again summarize the benefits of the acquisition on the next page. It is a great opportunity and fits right in line with both our overall business and capital allocation strategy.
In addition to creating a global aftermarket leader with a large and growing powertrain neutral product portfolio and significant revenue diversification, this acquisition will deliver meaningful synergies and be highly accretive, and it also comes with a strong and talented management team. We look forward to working with the Nissens team to close the deal later this year and begin our journey together. Thank you for your attention. I'll now turn the call back to Eric and open up for questions.
Thank you, Nathan. With that, we'll turn it back to the moderator. We'll open up for questions. I would just note that we are in the period between sign and close, and so we may have to answer some questions accordingly.
At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. We will pause for a moment to allow questions to queue. Our first question comes from Brett Jordan with Jefferies.
Hey, good morning, guys. This is Patrick Buckley on for Brett. Thanks for taking our questions.
Morning, Patrick.
Good morning. Could you dive into the cross-selling opportunities a bit more? Given that the parts vary across Europe and in between North America and Europe, do you guys envision any extra cost in redesigning the parts just to capitalize on those cross-selling opportunities?
Yeah, Patrick, it's a very good question. You're right. While there is overlap in vehicles between the markets, there are also obviously many differences to them. So many of the parts are not directly interchangeable. It will require us to expand what we do. But we typically believe at this point that it will not be that capital-intensive to be able to do it. It's a lot of very similar product types, similar tooling, existing manufacturing operations. And since a lot of it is working with third-party suppliers, it often does not come with the tooling expense directly anyway. So I think you're hitting on an important point. It's not just putting their part in our box and vice versa. There will be some of that, but it is going to require a certain amount of product line expansion.
Got it. And then looking at the 17% average sales growth for Nissens over the past five years, I guess, could you talk a little bit more about the drivers there? And then is that a fair run rate moving forward?
Yeah. So the drivers there, the biggest driver happens in the earlier part of that timeline, which was the acquisition of those two companies. But beyond that, they have been growing faster than the market, and that is a combination of expanding what they're doing, for example, that Engine Efficiency offering, which didn't exist at all a handful of years ago, and just continuing to broaden their categories. But beyond that, they have absolutely been gaining market share from many competitors out there, whether it's other aftermarket folks or the tier one OES suppliers.
They've just been doing very well with gaining additional share. We're not projecting what their growth rate is. I would not expect it to continue to be at that high double-digit rate. If you look at their longer-term growth, it's been a bit lower than that, but we do expect them to grow faster than the market, especially as we now start to get into the cross-selling potential.
Great. Very helpful. That's all for us. Thanks, guys.
Thank you, sir.
Just a reminder to ask a question. Please press star one. Our next question comes from Scott Stember with Roth MKM.
Good morning, guys. Thanks for taking my questions.
Hello, Scott.
Morning. Can you talk about the margin profile between the three different businesses?
Scott, just to clarify, you're talking about the three product categories within the Nissens portfolio?
Yeah. Yeah. No. Not really. Yeah. Not at this point. Really just keeping with margin at the consolidated level. Obviously, we've got some work to do just to get through the financial reporting on this as we go through the closing period, and we'll get into more of that detail later on. I imagine there is some volatility in their AC business in North America, and if so, just maybe expand on that.
Yeah. As you'd expect, they have similar seasonality to us, but since that's only a third of their business, it doesn't have the same seasonal curve as our temp control business. It's offset by the other categories that are much less seasonal.
Some of these cross-selling synergies between the core SMP business and Nissens could smooth that out even further.
What was the question at the end of that, Scott? I didn't quite catch it.
Oh, to expand on what the growth potential is?
Yeah. No. Yeah.
Again, we're only speaking.
I'm in a remote location right now, so the call quality isn't that great. So no, I was just talking about the cross-selling opportunities within air conditioning. Can you maybe just quantify how much that can contribute?
Yeah. It's premature. We're not quantifying the growth potential at this point. We're just speaking to what we believe the opportunities are. Once we get through the close and are really able to start working side by side with them, we will be in a better position. But at this point, we're just identifying it more along the lines of where we see it and not how big it can be.
All right. And then last question on the EV opportunity. You said that they're further along in Europe than we are here in the U.S., but could you maybe just quantify how much proliferation there is within the business and a timeline when you would expect to start to see those vehicles really starting to hit the sweet spot for the European aftermarket?
Yeah. So Europe is ahead of the U.S., but as I was looking at it, it's still under 2% of all of Europe's car parc, which is still double the penetration in the U.S., but it's still only 2%. We believe that they will be able to gain more insights. And again, as I described before, you have nuances by country. Some countries are further along, and I believe we'll be able to learn a lot from what we see there. But it's still the youngest part of the car park and a small part of their business, but it will give us that advanced look into what we think we can expect here in the U.S. And so early days, but we think it could be very exciting to learn from them.
Got it. Great. Thanks, guys.
Thank you, Scott.
We have no further questions in the queue at this time. I would now like to turn the call back over to today's presenters for any additional or closing remarks.
Thank you, Travis. And again, we want to thank everyone for participating in our conference call today. We understand there was a lot of information presented, and we'll be happy to answer any follow-up questions you may have. Our contact information is available on our press release or investor relations website. We hope you have a great day. Thank you.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.