Good morning, ladies and gentlemen, and welcome to the Advanced Drainage Systems conference call. My name is JL, and I am your operator for today's call. At this time, all participants are in a listen-only mode. The conference call will not have a question-and-answer session. I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations.
Thank you, and good morning, everyone. We're excited to be here today to discuss our proposed acquisition of National Diversified Sales, or NDS, from Norma Group SE. With me today to discuss the proposed transaction, I have Scott Barbour, our President and CEO, and Scott Cottrill, our Chief Financial Officer. Before we begin, I would like to remind you that we may discuss forward-looking statements. Actual results may differ materially from those forward-looking statements because of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.
Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. First, I'll start with an overview of the proposed transaction and key terms, as well as a brief overview of NDS. Early this morning, Advanced Drainage Systems signed an agreement to purchase NDS, the leader in residential stormwater and irrigation access boxes, in an all-cash transaction valued at $1 billion. This represents a valuation multiple of approximately 10 times NDS' adjusted EBITDA from the trailing 12 months ended June 30, 2025, inclusive of the expected run-rate cost synergies.
This is a compelling acquisition given the highly complementary strategic fit, alignment with the Advanced Drainage Systems water management strategy, growth profile, and additional exposure to the residential segment and resilient applications such as residential repair, remodel, and landscape irrigation. The company expects the acquisition to be accretive to adjusted EPS in the first year, and Advanced Drainage Systems' proven integration capabilities will help drive $25 million in expected annual cost synergies by year three. For those of you that are not familiar with NDS, I would like to briefly speak about the company, its business model, and its proven industry leadership position. NDS is a water management company who specializes in residential stormwater, irrigation, and flow management and is a subsidiary of Norma Group, a German diversified industrial company.
That being said, nearly 90% of their sales are generated in the United States, and their operations reside predominantly in North America. NDS is a leader in residential water management across multiple product categories with expertise in small-scale drain basins, access boxes, and irrigation solutions. The NDS product portfolio is well-regarded within the retail, distributor, and contractor community, and we're excited to bring together two water management solution leaders that operate in distinct but complementary segments. With that, I'll now hand it off to Scott Barbour, who will speak more about the strategic benefits of this proposed acquisition.
Thank you, Mike, and thank you all for joining us today. Today's announcement marks another important milestone in the company's journey from a pipe manufacturing company to a more diversified water management solutions provider. We have been executing this strategy for some time to increase business resilience, drive profitability, and enable ADS to pursue water management projects across a broader set of applications. For context, in 2016, nearly three-quarters of ADS' revenue came from the pipe segment. Since then, the company has worked to diversify the product portfolio, geographic, and in-market mix to become a higher margin, more profitable business. The 2019 acquisition of Infiltrator accelerated this transition, as does today's announcement. After acquiring NDS, the total percentage of company revenues coming from the higher growth and more profitable allied products and Infiltrator segments will be approximately 50%, double what it was nearly a decade ago.
This growth has been deliberate, and the results have been beneficial for ADS and its stakeholders. ADS has a track record of investing for growth and has been very intentional in positioning the balance sheet for compelling and attractive opportunities that align with the company's strategy. As you can see on slide nine, over the last decade, ADS has invested over $3 billion in growth, including both acquisitions and strategic capital expenditures. At the same time, ADS continues to build a fortified balance sheet with low leverage and ample liquidity, providing the company with the financial flexibility to execute on a transaction such as this one. ADS' acquisition track record has been strong, exemplified by the success of the Infiltrator deal. Since acquiring Infiltrator in 2019, we have driven consistent, best-in-class results.
We invested approximately $230 million into the business, which contributed to approximately doubling annual sales at a 17% sales growth CAGR over that time period. We also significantly exceeded internal initial synergy targets, capturing $60 million in annual run-rate synergies compared to $25 million originally planned. ADS has demonstrated proven success in integrating assets and will employ a similar playbook with NDS to maximize growth and profitability. Mike mentioned the compelling valuation of this transaction, which is underpinned by a very strong strategic rationale. First, this transaction adds complementary new offerings in the higher margin allied product segment, which has grown at a 10% CAGR since 2015, outpacing the core pipe business. Second, it enhances ADS' go-to-market capabilities in the retail and distributor channels of waterworks and turf and irrigation. Third, it expands the addressable market opportunity with a highly complementary product portfolio and segments.
Lastly, through the ADS integration playbook, this deal offers significant value creation potential, driven by over $25 million in expected annual synergies. Let me touch on each of these aspects in more detail. Combining NDS' complementary product portfolio with ADS' creates a more comprehensive solution set for customers, allowing ADS to pursue water management projects across a broader set of applications. In addition to the added diversification of the product portfolio, NDS primarily participates in the residential segment and broadens the company's reach into the landscape irrigation segments. The addition of NDS will also enhance how we support and reach customers. Building on recent efforts to digitize and strengthen the customer experience, NDS will further enhance ADS' multichannel strategy with their e-commerce and direct-to-consumer sale platforms. Shared customers will benefit from the enhanced offering of the combined product portfolio.
The companies also have complementary manufacturing and distribution footprints, especially in areas previously identified as high-growth opportunities, which will drive improved customer service, delivery, and execution. The diversification journey ADS has been on over the past 10 years has allowed us to gain exposure to faster-growing, more resilient segments and applications. The addition of NDS to the portfolio continues this journey as we have the opportunity to grow via cross-selling opportunities, as well as through the previously untapped and fragmented $1.5 billion landscape irrigation market. Looking forward, we will continue to evolve the mix of businesses to improve the business resiliency while driving top-line growth and expanding our margins. With that, let me turn it over to Scott Cottrill to discuss the financial impact in more detail.
Thanks, Scott. As Scott and Mike mentioned, we see significant value creation opportunities with expected annual cost synergies of over $25 million coming by year three post-close. We expect to achieve these cost synergies through material procurement, as well as optimizing logistics, manufacturing, and SG&A expenses. Additional upside from revenue synergies exists through cross-selling products and expanded market opportunities in new segments and applications. We look forward to identifying additional areas where we can enhance our collective capabilities and create new opportunity for our customers. The combined entity will have pro forma revenue of over $3 billion with an adjusted EBITDA margin of approximately 31%. In terms of end market exposure, the combined entity will have a more balanced mix between residential and non-residential of 40% and 41% of net sales, respectively.
From a financial perspective, the acquisition is expected to enhance growth, generate meaningful synergies, and be immediately accretive to adjusted earnings per share, supported by ADS' proven integration capabilities and operational discipline. I'd like to highlight once more that the proposed acquisition is an all-cash transaction funded through cash on hand at closing, as well as our existing revolving credit facility. Pro forma net debt is expected to be 1.6 times at closing, well within our targeted leverage range of between one and two times. In addition, the transaction value of 10 times NDS' adjusted EBITDA is net of an estimated $125 million tax benefit and inclusive of expected run-rate synergies. We view this as a very compelling multiple given the highly complementary strategic fit and alignment with the ADS water management strategy.
We expect the transaction to close in the first calendar quarter of 2026, subject to customary regulatory approvals and other closing conditions. In the meantime, both companies remain separate and will continue to operate independently. In closing, we're very excited about the value we can deliver from this proposed acquisition. It not only expands our addressable market but also enhances ADS' go-to-market capabilities and position in the broader water landscape, allowing us to better serve customers and drive long-term value creation. The combined talent, capabilities, and operational expertise of the two companies give us confidence in our ability to effectively integrate and drive growth. Thank you for your attention, and we look forward to updating you on our progress.
This concludes today's conference call. You may now disconnect.