Ladies and gentlemen, thank you for standing by. Welcome to today's conference call and webcast to discuss Thermo Fisher Scientific acquisition of FEI Company. At this time, all participants have been placed in a listen-only mode. The call will be open for your questions following the presentation. If you would like to ask a question, please press star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. We ask that you please pick up your handset to allow optimal sound quality. I would now like to turn the call over to Ken Apicerno, Vice President of Investor Relations at Thermo Fisher Scientific. Please go ahead, sir.
Thank you, and good morning, everyone. Welcome to our conference call to discuss Thermo Fisher's acquisition of FEI, which was announced earlier today. On the call with me today is Marc Casper, our President and Chief Executive Officer, Stephen Williamson, our Chief Financial Officer, Dan Shine, Senior Vice President and President of Analytical Instruments, and Don Kania, President and Chief Executive Officer of FEI. You'll find a brief slide presentation in the investor section of our website under the section titled Webcast and Presentations that we'll be walking through this morning. After our prepared comments, we'll open it up for Q&A. Before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about Thermo Fisher's future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors as set forth in Thermo Fisher and FEI's most recent annual reports and current reports, which are on file with the SEC and available on our respective websites, as well as the possibility that expected benefits related to the transaction may not materialize as expected. Transaction not being timely completed, if completed at all. Prior to the completion of the transaction, FEI's business experiencing disruptions due to transaction-related uncertainty or other factors, making it more difficult to maintain relationships with employees, customers, licensees, other business partners, or governmental entities. Difficulty retaining key employees, the parties being unable to successfully implement integration strategies or to achieve expected synergies and operating efficiencies within the expected time frames or at all.
While Thermo Fisher or FEI may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during the call, we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP, such as adjusted EPS, adjusted operating income, adjusted EBITDA, adjusted ROIC, and free cash flow. We believe that the use of these non-GAAP measures helps investors gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the company's performance, especially when comparing such results to previous periods or forecasts. With that, I'll now turn the call over to Marc.
Thank you, Ken. Good morning, everyone, thank you for joining us on short notice. I'm going to start on slide four. We're very excited to talk to you today about our acquisition of FEI, the leader in high-performance electron microscopy. As you'll hear this morning, FEI is an outstanding strategic fit with our company. FEI's products and services are highly complementary to our own and will create new growth opportunities for us in some very attractive markets, such as structural biology and material sciences. More on that later. This transaction is also compelling from a financial perspective. A quick snapshot on the deal. This is an all-cash transaction, we're paying $107.50 per share. We expect it to be immediately and significantly accretive to our adjusted EPS. It has a strong return on investment profile, we expect to complete the transaction by early 2017.
Before I get into the details, I'd like to turn the call over to Don Kania to make a few comments about the transaction. Don?
Thank you, Marc. I want to echo Marc's sentiments about how excited we are about this transaction, which will enable us to thrive and grow as part of the world leader in serving science. Let me briefly review why we believe this is a win for all FEI stakeholders. First, this transaction offers immediate and significant value for our shareholders who, as Marc said, will receive $107.50 per share in cash for each share of FEI they own. Our customers will benefit through the global scale and depth of capabilities that Thermo Fisher brings, allowing us to more effectively reach new customers. With Thermo Fisher's industry leadership, we will be better positioned to continue to capitalize on the growing adoption of electron microscopy across all of our markets and especially in life sciences.
This transaction is testament to the tireless efforts of our employees, who have helped build FEI into the leader in high-performance electron microscopy. Importantly, Thermo Fisher shares our commitment to innovation and intense focus on customers. We believe this combination will offer our employees exciting new opportunities as part of the global industry leader, a rapidly growing company. In summary, we are pleased to be joining Thermo Fisher, are confident that together, we can drive significant value for our customers and our shareholders. With that, I will turn the call back over to Marc.
Thanks, Don. Turning back to the presentation, slide five provides a quick snapshot of FEI. As many of you may know, FEI is the leader in electron microscopy with a broad portfolio serving customers primarily across life sciences and material science markets. These are high-tech instruments that provide images and information at the micro, nano, and picometer scales. This allows customers to study a wide range of biological and inorganic materials with great precision, including cells, molecules, and metals, for example. With an incredible install base built over the years, FEI has established an exceptional service and software business that represents approximately 30% of its total revenues, creating a high margin recurring revenue stream. From a geographic perspective, FEI has a global presence and a very balanced revenue profile. Approximately 40% of its sales are generated in Asia Pacific and rest of world.
Clearly, a strong focus on capturing opportunities in these high growth regions, similar to Thermo Fisher. FEI is a strong and growing organization with approximately 3,000 colleagues globally. Their key locations in Europe and the U.S. include R&D, commercial, and manufacturing capabilities. In 2015, the business had annual revenues of $930 million and adjusted EBITDA margins of 23.4%. Slide six. To help you understand where the company fits in, look at the left side and you'll see our current segment breakdown. FEI will become part of Analytical Instruments. This is where our company's leading mass spectrometry and chromatography businesses reside, as well as our chemical analysis business. Not only is FEI's electron microscopy portfolio highly complementary to these technologies, but we'll also be able to leverage our total company global commercial reach to put FEI's products into the hands of more customers.
As you know, our unique customer value proposition is based on our ability to leverage our strengths across these complementary businesses. Whether our customers are looking for reagents, lab supplies, or analytical instruments, our sales teams are in customer laboratories around the world every day. This is a key competitive advantage that will benefit FEI once it's part of Thermo Fisher, making us the natural owner of this strategic asset. Turning to slide seven, FEI is a great strategic fit with our company and will make our unique customer value proposition even stronger. With our combined capabilities in protein analysis, Thermo Fisher will be in the best position to serve the growing structural biology market. Our expanding offering in material science will increase our presence in these attractive markets, where growth is driven by the adoption of nanotechnologies.
Thermo Fisher's unmatched global scale and commercial reach will create new opportunities for FEI to expand its customer base, especially by leveraging our leadership in life sciences. Aside from a leading product portfolio, FEI brings strong service business that will contribute to our growing services capability. All of this is a great example of how we continue to strengthen our unique customer value proposition. It's a key element of our growth strategy that allows us to drive share gain with our customers and as well as expand to additional customer sets, ultimately creating shareholder value. On slide eight, let's cover a bit more detail on FEI's technologies and how they serve customers working in life sciences and material science. First, as the clear leader in electron microscopy, FEI has made significant advances that have positioned this technology increasingly for life science applications, particularly structural biology.
They understood that there was an unmet customer need, which is the ability to actually visualize a molecular structure. Their breakthrough Cryo-EM system, for example, is a disruptive technology that's being used for high resolution analysis of proteins. Based on our interactions with academic and biopharma customers, we're very excited about the opportunity to accelerate the adoption of these products in life sciences markets. FEI also has unique imaging capabilities for material science applications. Tools such as their 3D nano characterization and nanoprototyping technologies are serving the growing trend towards innovative devices that are smaller and more complex to manufacture. The semiconductor industry is a good example of how FEI has distinguished themselves by supporting both the lab development of these devices as well as the critical QA/QC application during production.
Let me spend a couple minutes on slide nine discussing how we think about the new opportunities this combination creates. Simply, this is a story of high-end, high-tech capabilities that are highly complementary. You know of our exceptional track record in developing the Orbitrap mass spectrometry technologies used for protein identification and characterization. The addition of FEI's Cryo-EM system for structural analysis of proteins will put us in the best position to capitalize on the growth in structural biology. Another very important benefit here is that with our unmatched presence in life sciences, we will be able to accelerate the adoption of FEI's microscopy products within our customer base, especially in the biopharma end market. In material science, you're familiar with our broad molecular spectroscopy and elemental analysis portfolios. With FEI's scanning and transmission electron microscopes, we significantly increase our depth of capabilities in material science.
Growth in this market is driven by the increased use of polymers, new engineered materials, and smaller and more complex devices, such as semiconductors. These trends are driving growth in the field of nanotechnologies served by FEI. Just a couple examples of the great fit that will strengthen our strategic position, expand our opportunities to continue to gain share in life sciences, and significantly expand our offering into attractive material science markets. The acquisition of FEI is also compelling from a financial perspective. I'll turn it over to Stephen Williamson, our CFO, to run through these details with you. Stephen?
Thanks, Marc. I'm also very excited about the transaction, happy to review some of the financial aspects with all of you. Turning to slide 10, as you saw in our press release this morning, we're paying $107.50 per FEI share for an expected total net cash consideration of $4.2 billion. This amount is net of approximately $400 million of FEI's net cash assumed to be available to us at close. The transaction delivers attractive financial returns. It will be immediately accretive to adjusted earnings per share, and we expect it to deliver $0.30 of accretion in the first full year. We also expect the adjusted ROIC to exceed our weighted average cost of capital hurdle rate of 8.5% by year five.
We expect to generate a total of $80 million of adjusted operating income synergies by year three following the close, comprised of $55 million of cost synergies and $25 million from revenue-related synergies. Cost synergies will come from eliminating redundant public company costs, leveraging our combined global infrastructure, and deploying our PPI business system. As I'm sure you're aware, we have a proven track record of efficiently and effectively integrating businesses. In terms of revenue synergies, we expect to accelerate the growth trajectory of FEI's life sciences business, and we also expect to derive benefit from the unparalleled commercial reach of Thermo Fisher Scientific. Finally, in terms of tax, as we've done in the past, we expect to benefit from leveraging our combined global structure and anticipate materially lowering FEI's tax rate. We expect that we can reduce that tax rate roughly in half to about 10%.
All in all, the financial profile here is very strong. Moving to slide 11, let me review some of the important transaction details. In terms of financing, we have a fully committed bridge in place to support our all-cash offer. Permanent financing will be put in place nearer the close date, and we expect that to be a combination of our available cash plus the issuance of new debt. In terms of leverage, if we don't undertake any further capital deployment in 2016, we expect a pro forma leverage ratio of about 3.6 times total debt to combined adjusted EBITDA at the closing date. Given the strength of our cash flow, we would be back down to our target leverage ratio within 12 months of close. We've discussed the proposed permanent financing structure with the ratings agencies, and we fully expect to retain our investment grade rating.
Given the fragmented nature of our industry and our long-term capital deployment strategy, we will continue to actively evaluate future M&A opportunities. In terms of next steps, FEI shareholders will need to approve the transaction, and we will also need to obtain customary regulatory approvals, and we expect to close the deal by early 2017. Closing with the last slide, we think this transaction is a great fit for the two companies. It's financially compelling and will create significant value for all our key stakeholders. At our recent analyst meeting, we highlighted our capital deployment strategy, and this deal is a great example of that strategy at work. This is a deal that strengthens our strategic position of the company, enhances our customer offering, and creates significant shareholder value. With that, I'll turn it back over to Ken.
Thanks, Stephen. Operator, we're now ready to open it up for questions.
At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from the line of Derik DeBruin of Bank of America Merrill Lynch.
Hi. Thanks for taking the call. Quick question on the fact that FEI's business is a little bit more cyclical than you guys are used to dealing with. I guess, how do you think about sort of dealing with the cyclicality? I guess, sort of, can you talk about, did that sort of play a factor in terms of looking at valuation and like that? I'm just sort of saying, it's a little bit of a different move than what you've normally done.
Derik, thanks for the question. When you actually look at the results of FEI over the last few years, the organic growth rate has actually been very stable. Obviously, there are parts of the business that have some cyclical nature, but the business in aggregate actually has been growing steadily organically. As I think about adding this business to our company, it really is very in line with the capital deployment strategy we've had. Very complementary acquisition in terms of capability. And when you look at where that business is moving, we're the natural owner of it.
I guess, and I may have missed this, but did you say where you thought you can potentially get the operating margins of the business longer term?
The operating margins are in the low 20s, and over time, our plan is to get it in the mid to high 20s as you fully realize the synergies and the business continues to grow.
Great. I will get back in the queue. Thanks.
Thank you, Derik.
Your next question comes from the line of Tycho Peterson of J.P. Morgan.
Hey, thanks for taking the question. I guess, first one, I'm just wondering if you could talk a little bit more about the process. Was it a competitive process and I've had a number of people bring up the fact it's only a 14% premium. Can you maybe just talk a little bit, Don, maybe if I direct it to you, as to why you're willing to sell now given the semi-data points have been improving?
Let me start, Tycho. The two businesses from a process standpoint, we've known each other for many years. We have great respect for FEI. Don and I have known each other for many years on a personal note as well. This was the right time. In terms of the process itself, obviously there'll be a proxy that'll get filed and more details will come out. We think it's an attractive acquisition for the shareholders of Thermo Fisher Scientific and an attractive acquisition from the shareholders of FEI.
On the close, it's an early 2017 close. I had a few people ask why you wouldn't be able to close it this year. Are you expecting a more antitrust review? I'm just wondering why you won't be able to close till early next year.
The FEI team has done a phenomenal job of reaching the global marketplace, and because of that, there are quite a number of regulatory filings. While there's really very limited to no overlap directly from an antitrust perspective, we have a significant number of filings, and including likely that we will need to file in China, although that we're still reviewing that, and hence the longer timeframe in terms of when we expect to close.
Just one last one. FEI is beginning to get some nice traction in pharma with their Cryo-EM business. Can you maybe talk from the Thermo perspective as to whether you think you can maybe accelerate the adoption of the technology in pharma given your good touch with that customer base?
I think the FEI team has done a really nice job of driving momentum. If you look at the number of publications written around the Cryo-EM, it's really tracking even more rapidly than what we saw with Orbitrap. The one thing that will be the next phase of growth is really going from the life science academic research, moving aggressively into the biopharma market. Given our north of $5 billion of revenue and huge relationships there, we'll be able to help open some doors clearly from an FEI perspective. It really is a very exciting market. The feedback from the customer base is really tremendous about what this technology is opening up in terms of new science.
Okay. Thank you.
Thanks, Tycho.
Your next question comes from the line of Ross Muken of Evercore ISI.
Hi, good morning, guys. Maybe going back to sort of Derik's point, obviously a slightly more cyclical asset. You haven't, at least in size, done much in the instrument market from an M&A standpoint the last few years. This is sort of going back to the core and beefing up Analytical. As we think about synergy realization, whether it's on the cost or maybe probably more so on the revenue side, how does a deal like this differ versus some of the recent transactions you've done in terms of realization? There's less obviously of a channel play here. How do you think about confidence level in the returns? We were getting certainly, to your point, Stephen, something north of the 8.5 area. It seems pretty competitive. How should we put that in context?
Yeah. A couple thoughts. One is when we think about strategic fit of acquisitions, we leverage our strengths, right? The last big instrument deal was Dionex, and that has been a huge home run. We've done little things along the way subsequent to that, but Dionex was the last big one a few years ago. This is a natural acquisition there. We are always looking to leverage our strengths and take advantage of the scale and depth of capabilities. Really, in aggregate, FEI is not particularly cyclical. As I said earlier, not a concern there. From the synergy perspective, very strong revenue synergies to start. When we look at that, the ability to help accelerate penetration in life sciences, that's an obvious one. The combined offering in the material science is also very obvious.
When you think about the reach that we have for our molecular spectroscopy and elemental analysis, and you think about adding the scanning electron microscopy to that's another great fit. Because of our strength in China, that's another opportunity in terms of the call patterns there. The revenue synergies are going to be very high. On the cost synergies, I'll let Stephen delve into that a little bit, but here it's very straightforward in how we'll achieve the $55 million of cost.
Yeah, I think about the profile of this acquisition, we don't have a direct business overlap, so the cost synergies as a percent of the total cost is smaller than a couple of the previous deals, like Affymetrix. We do think we can take out the public company cost duplication, but we do think we can leverage our global scale and then deploy our PPI business system to help drive more efficiency and effectiveness within FEI. One of the particularly interesting areas for us is the manufacturing facility that FEI has in the Czech Republic. Low-cost manufacturing site, but really world-class capabilities and world-class talent availability.
I see this very similar to the Lithuania site that we have, that we acquired through Fermentas that we grew up for the company in terms of expanding capabilities of manufacturing reagents, consumables, some diagnostics products, as well as R&D. See that being very similar here in this facility in the Czech Republic from an instrument standpoint, and leveraging the capabilities that FEI brings us from that standpoint for other areas within our analytical instruments business.
That's helpful. Maybe, Marc, just to put a finer point on it, I think the biggest question I've got from investors is just how to think about peak-to-trough growth on the semi portion of the EM business specifically. Obviously, that would give us a sense of where you think we are in that cycle. I think that's the point that everyone's frankly debating.
Yeah, I think, the better growth prospects are ahead right now in terms of where we are in the cycle, and in terms of some of the smart moves that FEI has made to add to its capabilities. We think the business is well-positioned to have good growth serving the semiconductor market. I think that we feel good about. The one thing here we have said less about so far in the call is the growth prospects. When we look at the combination here, this business should grow a little faster than our company average, in terms of what we believe the outlook is here. This will be accretive to our organic growth over time. That's a nice aspect of the deal.
Great. Thank you.
Thanks, Ross.
Your next question comes from the line of Isaac Ro of Goldman Sachs.
Hey, thanks. It's actually Joel in for Isaac today. Talk about any opportunities to use FEI's existing cost structure to reduce maybe FX volatility across the entire Thermo portfolio.
Yeah. Thanks for that question. It's an interesting aspect of this deal. As you may know, at Thermo Fisher Scientific, compared to the company average, in EUR, we have more revenue than we have cost compared to the rest of the company. You have pull-through of about 35% on our EUR P&L. FEI Company actually has the opposite. Particularly when you take into consideration the Czech Republic manufacturing site, the Czech koruna roughly tracks to the EUR as well, so it's very similar to the EUR. When you compare FEI Company to us, they have actually more cost than they have revenue in EUR. Put the two together, and our combined EUR, Czech koruna P&L is basically around the company average from a margin standpoint. We'll be less impacted by changes in the EUR overall.
Thanks. Just as a follow-up, appreciate the comments on your ability to reduce FEI Company's tax rate. Could you maybe discuss how this deal would actually impact the core Thermo Fisher Scientific tax rate going forward?
Yeah. Basically, it's in line with what I outlined at the analyst meeting last week. This is one of the factors that will enable us to maintain the tax rate down, basically up to about 15% in 2019, is how I presented it at the analyst meeting. This is one of the factors that we'll be able to maintain the tax rate at such a low rate.
Thanks.
Your next question comes from the line of Jack Meehan of Barclays.
Hi, thanks. Good morning.
Hi.
I want to start and just ask, can you maybe give a little bit more color on the underlying growth rates for FEI Co. and how you think they relate to the framework you laid out for Thermo Fisher last week at the Analyst Day?
Yeah. Looking forward, we would expect that the business would grow in the 5%-7% range in terms of organic growth, which we believe is quite achievable. It should be a little bit accretive to the organic growth rate, where we talk for the company being 4%-6%. We're excited about the combination here.
Got it. Then, one more, just on the leverage post the deal. I think you mentioned going up to 3.6 on a pro forma basis. Just maybe the flexibility from here. I know the business model assumes no further deployment from here, but if a nice tuck-in comes up, what's your appetite to do further transactions from here? Thank you.
Jack, thanks. Our first and primary focus is to successfully close and execute a successful transaction with FEI and deliver a lot of shareholder value. That's always our first focus. And as Stephen mentioned a little bit earlier, given the financial strength of the company and given our strategy, we'll continue to look at M&A opportunities, and we have the capacity. If something comes up that makes sense, then you'll see us continue to actively evaluate transactions. But our focus is, it's been a really busy and good start to the year. We've deployed almost $7 billion or committed $7 billion in capital between FEI, Affymetrix, share buybacks, and dividends. We're going to make sure we do a great job with the two that we bought, and we'll keep an eye out for other things as well.
Your next question comes from the line of Jonathan Groberg of UBS.
Good morning, John.
Hey, Marc. Marc, on the growth rate of FEI, and then the revenue synergies, can you just clarify, do you think this year FEI should grow. I'm sorry, let's say one year after the close, can it accelerate its growth, or is that kind of year three, once you really get into some of the new combined products and capabilities and synergies?
John, two different things. One is the average growth we expect over the next several years is 5%-7%. The second thing is, as a reminder, the organic growth doesn't get into the calculation in the first year. It really will be, let's call it, 2018 is when it'll actually mathematically affect the organic growth calculation of the company. Nonetheless, we look at the backlog, the pipeline, and we would expect good growth, certainly post-close for this business.
Okay. Marc, are you seeing, as you just mentioned a second ago, you've been pretty aggressive at the beginning of the year. Potential increase in rates? I don't know what you're paying on the debt, what you've got committed here from a debt rate standpoint. Is there anything, I'm just curious if there's anything specific you're seeing that really makes you want to be more aggressive here?
We've always been active, right? What you're seeing is we de-levered after Life Technologies. We far exceeded the objectives that we had set out at the beginning of the transaction. The company is performing very well. As things have come up, we've looked at many things, we've been very selective. We've only done the two transactions, we're super excited about them, right? We look at a lot, at the end of the day, when the right one is there and in the right strengthening of the company, our customers will understand and benefit from it, ultimately we create shareholder value as we execute. It's been an active pipeline, nonetheless, we were able to get two of them over the finish line.
Okay, thanks.
Thanks, John.
Your next question comes from the line of Doug Schenkel of Cowen.
Hey, good morning, guys. My first question is really just how we think about the impact of FEI on the long-term growth rate. I guess it's a little bit of a follow-up on John's question. If we look at FEI's growth rate over the last several years, it's been fairly volatile. They've done a great job, but it's still a business which sells into cyclical end markets, and it has a high mix of capital sales and even the consumables part is less true consumables. It's more services, if you look at it closely. You don't seem real concerned about the risk associated with this profile in terms of its potential impact on your longer-term growth rate and quarter-to-quarter volatility.
Is this a function of something that you guys are going to bring to the table that FEI wasn't doing historically, or is it just more of a function of the size of this business in the context of the bigger Thermo business?
Doug, a few things. One, you look back over the last 3 years, holding aside the quarter-to-quarter volatility which you see in all capital equipment businesses, actually the business has grown at pretty much the same rate for 3 years in a row. Different segments have grown at different rates within it, but the business has been very, very stable, so it has not been cyclical at the company level. That's an important point. Part of that is because there's such great adoption of the life sciences products, which will accelerate even further. In terms of what we will bring to FEI, obviously, our PPI business system is going to help with cycle times, and that will help a little bit from a manufacturing perspective and smoothing things out. When we look at the scale of the business relative to Thermo Fisher, it's relatively small.
Even in a period of more volatility, it really doesn't move the needle very much in terms of the effect on the company. It's one that we've thought a lot about and we feel very comfortable with.
Okay. That's helpful, Marc. As you've described what you're excited about here, I think we've heard more about your excitement in terms of what you can do with FEI in the life science markets. There are components of FEI's core that don't seem frankly core to where Thermo has been strongest historically. I'm just wondering if you're willing to share anything in terms of whether or not there might be some subsequent divestitures contemplated as a means of essentially managing where you have exposure and which product lines you're adding here.
Sure. Great question. I'm going to start by thinking about our mass spec business for a moment. Everybody on the call thinks about mass spec, and they think about it in the high-end research market. One of the reasons we make so much money there and we've had such good growth is we serve a number of applied markets, environmental, food safety, pure academic research, even some industrial applications. Core technology platform leverage across many end markets. When you think about FEI, they've done a great job of a core technology. They've gone from material sciences to semiconductor to life sciences. There aren't things you divest because it's effectively the same underlying technology in different applications. We're excited about the technology. We're excited about where the business is in its evolution. It's not one that you cut up into pieces.
It's just a great business with 3,000 fantastic employees that have joined the company. That's how we think about it.
Okay. One last one, maybe thinking about this merger the other way. Is there an opportunity for Thermo to maybe drive more consumables through the FEI channels? I recognize the channels will be coming together here. Again, recognizing that the majority of recurring revenues for FEI has historically been software and services, is there an opportunity for you to essentially funnel more core Thermo products through the FEI channel?
Based on our life science reagents businesses, obviously we'll certainly be involved in sample prep, and that's part of the things that go on. We also believe in some of the real strong areas where FEI has very great strength with certain customers, there'll be an opportunity to pull through additional products from Thermo Fisher, not just instruments, but obviously other products that are more recurring in nature. Over time, we expect because of the strength of the customer base, you'll see us cross-sell very effectively.
Okay. Thank you very much.
Thanks, Doug.
Your next question comes from the line of Erin Wright of Mizuho.
Hey, good morning. I guess, for Don, I was just wondering if you could maybe dive into your customer base a little more and maybe talk about some more specific, how the revenue comes from your life science customers versus your material science customers versus oil and gas and versus semiconductor, just on a little more granular basis.
Sure. Okay. Let's start with life science has been obviously a very interesting topic in this call. Primarily academic customers right now for us, researchers around the globe at academic institutions, mostly universities, Howard Hughes Medical Institute, certain other integrated, New York Structural Biology Center, another example. That's where the growth has been happening right now. We've made outreaches to the pharmaceutical industry and have established a consortium in the U.K. to help accelerate that adoption. As we look at the coming together with Thermo Fisher Scientific, I think what we're seeing there is their relationships and their already existing sales channel into those customers, I think, can really accelerate the growth of that part of the business, as well as, I think, help us also with the academic side of the business. That's life sciences.
If we go to material sciences, sort of a 75, 25 academic customer base plus an industrial base when a product is sold into the research part of, say, a Dow Chemical Company or somebody like that. What's really exciting for us here is we've been traditionally strong on the academic side, and then been trying to pursue further into the industrial side. Again, I think Thermo Fisher brings great reach for us that which we lack at this point in time. Another opportunity to grow an existing strong business. Let's go to semi. Semi, you guys had a lot of questions about cyclicality. It's mostly a laboratory-based business, labs in the semiconductor company. The volatility is primarily, significantly lower than you would expect from a pure-play CapEx company providing volume manufacturing equipment.
Yes, there's some movements over the cycle, but dramatically less cyclical than a pure play. I think here, there's also other capabilities, particularly integrated services, things like that, additional things that Thermo Fisher brings to the table. Oil and gas business is small, and as we've commented in our calls, we're really on hold until we get some stability in that marketplace. I think together we'll define the right strategy forward for that business when we complete all the regulatory milestones in between now and final closure. I hope that's very helpful.
Your next question comes from the line of Dan Arias of Citi.
Hey, good morning. Thank you.
Morning.
Maybe just one housecleaning question for Stephen. How are you thinking about the net interest expense for the year at this point? I think it was $390 on the 1Q call. Just wondering how that changes at this point.
Yeah. Depending on the time of close, we may be pre-funding a piece of the debt required for the permanent financing. I don't see it being more than $0.02 of impact in 2016 at this point. As soon as we get line of sight to that and the timing, we'll give you more detail.
Okay. Maybe on the buyback outlook, maybe not necessarily this year, because it sounds like those plans are pretty clear, but in the immediate term, do you anticipate being in a position to repurchase shares in the quarters post the close?
Our plan certainly is, you take it from two time frames. Certainly, our plans aren't to do anything right now in 2016 on repurchases. When you look at the long-term model that Stephen laid out at our analyst meeting a week ago, we expect to deploy between 25% and 40% of our available capital to share buybacks and dividends. We'll continue to do that over time, and exactly when we'll get back in the market, we'll figure out as the year unfolds and then start to plan for 2017.
Got it. Okay. Maybe just one last one for Don. Don, I know you want to probably avoid specifics, but just broadly, where do you feel like the company is now in terms of being in a new product introduction cycle? Would you say that over the next 12, 24 months, NPIs look more like the last 12, 24, or is there an acceleration there?
I think we're in the accelerating phase right now. As we've talked with others, we have staged a set of new product introductions. In our industry, the late summer timeframe is the common time for introduction, so one should expect some really exciting new products with some highly differentiated capabilities to be released in that timeframe.
Got it. Okay. Thank you.
Operator, we're going to take one more question.
Your final question comes from the line of Tim Evans of Wells Fargo Securities.
Thank you. Marc, what we're hearing from clients, and clearly you can tell from the tone of the call today, is I think a recognition that this deal seems to be a little bit of a departure from the types of businesses you've acquired over the past five years, both in terms of the revenue mix and the different channels and end markets involved. I guess what we'd like to understand is just how far outside the traditional life science markets and this focus that you've had on pharma, that you're willing to go in your M&A strategy now.
Tim, thanks for the question. Right. This one's right down the middle of the fairway in terms of the sort of markets. When you look at where the business serves the academic research market on the life sciences side and structural biology, same customers from mass spectrometry or high-tech reagents. When you look at the material science customers, you're going to find our molecular spectroscopy elemental analysis portfolio. We do deals when the right time is there, 2012 was the right time for Dionex, and 2016 is the right time for FEI. It's a fantastic transaction. We understand the business well. The companies know each other well, really, it is a very attractive transaction from a strategic strength in the company, from our customer perspective, and clearly from a shareholder value creation perspective, really a perfect fit.
I want to thank everybody for joining us today on such short notice, certainly before a long holiday weekend. We're excited at Thermo Fisher, we certainly look forward to working with Don and the rest of the FEI team to kick off the integration planning process and officially complete the transaction. Thank you, wishing everyone a wonderful weekend.
Thank you. That does conclude today's teleconference. You may now disconnect.