ATS to Acquire Leading Global Automation Services and Solutions Provider M+W Process Automation
Headquartered in Germany and established 28 years ago, M+W PA addresses the needs of a wide spectrum of manufacturing and process-based industries including automotive, pharmaceutical, biotechnology, chemicals, oil & gas and food with services that include consulting, system engineering, integration, lifecycle management, process control and manufacturing execution systems, as well as enterprise programs, where M+W PA acts as the main automation contractor ("MAC").
The acquisition is aligned with ATS's stated strategy of scaling its position in the global automation market by adding to its services and life-cycle management capabilities across several core elements of the customer value chain. The addition of M+W PA is expected to enhance growth opportunities in both new markets and with existing customers.
"M+W PA's capabilities complement ATS's solutions in strategic customer markets and open new opportunities in several attractive industries," said Anthony Caputo, ATS Chief Executive Officer. "We welcome M+W PA's highly skilled people, global and local customers, high value service offerings, scale and worldwide presence to our automation business and look forward to continued successful collaboration with M+W Group."
M+W PA's workforce of 1,000, including approximately 750 engineers, serves customers from 51 locations in 16 countries around the world, and is led by a highly experienced management team based in Europe and the U.S. As part of ATS, M+W PA is expected to continue to enhance its portfolio, serve existing M+W PA and ATS customers and build new customer relationships together with ATS.
"We are pleased that our automation business is becoming part of ATS," said Dr. Olaf Berlien, CEO of M+W Group. "ATS is ideally suited to maximize the business area's potential for further worldwide growth. As we will be focusing more on our core business the change of ownership will be very beneficial both for M+W and all employees of the automation business."
In calendar 2013, M+W PA had revenues of approximately €166 million and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") of approximately €20 million. Over the past three years, M+W PA's revenues have grown organically at an average annual rate of approximately 19%. Sales by industry segment in 2013 were 41% automotive, 26% chemicals, 13% pharmaceuticals and biotechnology, 3% oil & gas and 17% other industries including food and beverage, water, wastewater, consumer care, paper, metal and semiconductor. Europe accounted for approximately 70% of global sales, North America 27% and Asia 3%. In calendar 2013, M+W PA's order bookings were €188 million, and at the end of May 2014 it had approximately €120 million of backlog.
Subsequent to the completion of the transaction, the Company expects M+W PA to benefit from the adoption of ATS best practices in approach to market, key account management, front-end-of-the-business processes, performance management and corporate strategy. M+W PA's significant capability and market position is expected to benefit ATS and its strategy to grow its business. The Company expects meaningful revenue synergies through an expanded ATS offering, which will now include M+W PA's process controls, software integration, MES, remote monitoring, lifecycle management, modeling and simulation capabilities. M+W PA provides an imbedded engineering, service and sales force, with early insight into customer preferences, developments, problems and programs, allowing M+W PA to act as first responders for post-automation services and equipment maintenance. M+W PA is expected to have increased opportunity to expand its MAC offering by utilizing ATS on a subcontractor basis to address capability gaps across a number of industries. Further, both ATS and M+W PA are expected to have opportunities to engage customers on a more comprehensive basis. Cost synergies are expected to be nominal.
The purchase price based on enterprise value of approximately €248 million (CDN $362 million at current exchange rates) is subject to net debt and working capital adjustments and will be funded from a new fully committed C$600 million credit facility underwritten by The Bank of Nova Scotia and The Toronto-Dominion Bank to be available at closing. With net assets of approximately $20 million, management expects that $342 million of the purchase price will be allocated to goodwill (approximately 60% to 65%) and intangibles (approximately 35% to 40%), subject to completion of the purchase price allocation, which may take up to one year to complete subsequent to transaction closing. Amortization of intangibles is expected to be $10 million to $14 million per annum. In addition, the first six months after acquisition will include substantially all of the amortization of acquired backlog which is expected to be in the $7 million to $10 million range.
On a pre-synergy basis, we expect the following:
- Dilution at the Earnings per Share ("EPS") level in the high single digits assuming two quarters of inclusion of M+W PA's results in fiscal 2015, due to the incremental amortization of backlog which is not expected to continue beyond fiscal 2015;
- In fiscal 2016, EPS accretion in the high single digits;
- On a Cash Flow per Share basis, in fiscal 2015 we expect immediate accretion, in the high single digits; and
- Cash Flow per Share accretion in fiscal 2016 is expected to be in the mid teens.
ATS expects to complete the acquisition by the end of September 2014, subject to customary closing conditions, including applicable antitrust approvals.
TD Securities Inc. and Joh. Berenberg, Gossler & Ko. KG Berenberg Bank are acting as financial advisors to ATS. Freshfield Bruckhaus Deringer LLP and Borden Ladner Gervais LLP are acting as legal counsel to ATS.
Conference Call and Webcast
At 10:00 a.m. eastern on Tuesday July 8, 2014, the Company hoste a webcast and an analyst conference call with follow-up question and answer period to discuss the transaction.
The listen-only webcast can be accessed at www.atsautomation.com.
A replay of the presentation will be available on the ATS website following the call. Alternatively, a telephone recording of the call will be available for one week (until midnight July 15, 2014) by dialing (416) 849-0833 and entering passcode 71530627 followed by the number sign.
Notice to Readers: Forward Looking Statements:
This news release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of ATS, or developments in ATS's business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements.
Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. ATS cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements relate to, among other things: the enhancement of growth opportunities in new markets and industries and with existing customers; the enhancement of M+W PA's portfolio; the servicing by M+W PA of its existing customers and ATS's customers and the building of new relationships together with ATS; M+W PA benefiting from the adoption of ATS's best practices; ATS benefiting from M+W PA's capability and market position; revenue synergies through an expanded ATS offering; M+W PA's increased opportunity to expand its MAC offering; ATS and M+W PA engaging customers on a more comprehensive basis; the funding of the purchase price through the new C$600 million credit facility and such facility being available on closing; the amount of the purchase price that is in excess of net assets and the portion of such excess amounts allocated to goodwill and intangible assets; the timing of the completion of the purchase price allocation; the amount of the per annum amortization of intangibles; the timing of the amortization of, and the amount of, acquired backlog; the impact on EPS and Cash flow per share; the amount of expected depreciation and amortization after closing; the effective tax rates of ATS; expected timing of closing the transaction and conditions in relation thereto. The risks and uncertainties that may affect forward-looking statements include, among others: impact of the global economy and general market performance including capital market conditions and availability and cost of credit; performance of the market sectors that M+W PA and ATS serve; foreign currency and exchange risk; the relative strength of the Canadian dollar; impact of factors such as increased pricing pressure and possible margin compression; the regulatory and tax environment; failure or delays associated with the new customer programs; that this acquisition is not integrated as quickly or effectively as planned or expected and, as a result, anticipated benefits and synergies are not realized; that M+W PA's business does not perform as expected during fiscal 2015; that amount to be allocated to goodwill is other than as currently expected; inability to close the acquisition, or delays in closing it, resulting from failure or delays in relation to satisfying conditions of closing; labour disruptions; that one or more customers, or other persons with which M+W PA has contracted, experience insolvency or bankruptcy with resulting delays, costs or losses; political, labour or supplier disruptions; that we are unable to enhance growth opportunities or M+W PA's portfolio, or expand product or service offerings, or that customers are more difficult to engage than expected; that the new credit facility does not become available by closing; that the actual amounts of depreciation, amortization, earnings per share and cash flow per share result in being different than our estimates; risks relating to legal proceedings to which M+W PA and/or ATS is or may become a party; exposure to product liability claims; risks associated with greater than anticipated tax liabilities or expenses; and other risks detailed from time to time in ATS's filings with Canadian provincial securities regulators. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and other than as required by applicable securities laws, ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.
Notice to Reader: Non-IFRS Measures and Additional IFRS Measures:
The terms "EBITDA", "order bookings", "backlog" and "Cash Flow per Share" do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies. "Cash Flow per Share" is defined as EBITDA less interest paid and taxes paid. For a further description of "EBITDA", "order bookings" and "backlog" please refer to our most recently filed management's discussion and analysis.
ATS Automation provides innovative, custom designed, built and installed manufacturing solutions to many of the world's most successful companies. Founded in 1978, ATS uses its industry-leading knowledge and global capabilities to serve the sophisticated automation systems' needs of multinational customers in industries such as consumer products & electronics, energy, life sciences and transportation. It also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. The Company's Solar segment is classified as discontinued operations. ATS employs approximately 2,500 people at 23 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China. The Company's shares are traded on the Toronto Stock Exchange under the symbol ATA.
About M+W Group
M+W Group, with headquarters in Stuttgart, Germany, is one of the leading global companies in the field of high-tech engineering, procurement and construction ("EPC"). From concept development to turnkey solutions, the Group manages projects of all sizes for many industries. Founded in 1912, the company is recognized today as a market leader in several segments, such as the semiconductor and photovoltaic industries. In 2013 M+W Group generated an order intake of 3.03 billion euros and revenues of 2.56 billion euros.