REG - Spectris PLC - Acquisition of Micromeritics Instruments

SpectrisAnnouncement

16/07/2024 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240716:nRSP4940Wa&default-theme=true

RNS Number : 4940W  Spectris PLC  16 July 2024

16 JULY 2024

 

SPECTRIS GROUP PLC

 

ACQUISITION OF MICROMERITICS INSTRUMENT CORPORATION (MICROMERITICS)

 

Spectris plc (SXS: LSE), the expert in providing insight through precision
measurement, today announces that it has agreed to acquire Micromeritics
Instrument Corporation (Micromeritics) for an upfront consideration of $630
million (£485 million) plus a deferred element up to $53 million (£41
million) based on agreed financial performance metrics in 2024 and 2025. This
consideration equates to a multiple of under 14x based on expected 2024 EBITDA
of $35 million (£26.9 million) and run rate cost synergies of $12 million
(£9.2 million).

 

·    Consistent with our Strategy for Sustainable Growth, the combination
of Micrometrics and Malvern Panalytical will create a global market leader in
particle characterisation for advanced materials analysis with a
comprehensive, fully integrated and differentiated offering with strong
competitive positioning

·    Micromeritics is a proven, high-growth, high-margin business with
forecasted mid-teens revenue CAGR over the medium-term and will be immediately
accretive to Group growth rates and margins

·    Strong value creation opportunity:

o  Highly synergistic with run-rate cost synergies of $12 million (£9.2
million) with significant revenue synergy upside

o  Accretive to earnings per share in the first year, post completion

o  ROIC is expected to exceed our cost of capital in the third full year post
completion, with strong double-digit returns thereafter

·    The acquisition is to be funded by a combination of existing cash
resources and new external debt, utilising Spectris' strong balance sheet.
We would expect leverage for the Spectris Group to be c.1x by the end of 2025
including the completion of the remainder of our £150 million buyback
programme and acquisition of SciAps

·    The transaction is expected to complete in the third quarter

 

MICROMERITICS IS A HIGH-QUALITY, HIGH-GROWTH BUSINESS

 

Headquartered in Norcross, Georgia, with 470 employees, Micromeritics is the
world leader in analytical instrumentation for the physical characterisation
of particles, powders, and porous materials across research, product
development, and quality control.  Micromeritics has a strong portfolio of
industry-leading, gold-standard technologies, covering a wide range of
fundamental particle measurements including: surface area; particle activity;
porosity; powder flow; and density.  Micromeritics also has a strong track
record of innovation and pipeline of new products.

 

Micromeritics serves a diverse customer base in a range of end markets, with
over 80% of sales sold directly to customers, with c.40% of sales in
clean-tech which is growing at a rapid pace including batteries, hydrogen/fuel
cells, carbon capture/storage; and c.60% of sales in industrial-tech covering
the material science of chemicals, pharmaceuticals and semiconductor, plus a
diverse set of other high-growth industrial technology end markets.

 

Micromeritics has a proven track record and is growing rapidly, delivering a
sales CAGR of 17% for the period 2021-2024E and is expected to grow
double-digit, on a standalone basis over the medium-term.  Micromeritics'
exposure to structural growth markets of industrial-tech and clean-tech is
expected to provide further strong growth opportunities.

 

Operating at the premium end of its markets, Micromeritics is a high-margin
business expecting to generate an EBIT margin of 25% in 2024 which is expected
to increase over the medium-term as the company grows.  Micromeritics is
expected to deliver EBIT of $33.4 million (£25.7 million) in 2024.

 

COMPELLING STATEGIC RATIONALE

 

This acquisition is strongly aligned with Spectris' Strategy for Sustainable
Growth.  Together with Malvern Panalytical, the combination will create the
leading particle characterisation business for advanced materials analysis,
with a highly differentiated and fully integrated offering.

 

The addition of Micromeritics' technologies alongside Malvern Panalytical's
capabilities - encompassing particle distribution, particle count and zeta
potential - will enable the comprehensive characterisation of particles by
detailing their size, count, surface properties and behaviour, thus supporting
the entire customer workflow from R&D to QC/QA applications.

 

With highly complementary product portfolios, the combination will also
strengthen Spectris' offering in the rapidly growing, clean tech markets and
will deliver significant synergies.

 

In addition to the recently announced acquisition of SciAps, the acquisition
of Micromeritics further broadens Malvern Panalytical's customer offering and
strengthens Spectris Scientific's product portfolio.  In the Scientific
division, where Malvern Panalytical sits alongside Particle Measuring Systems
and Servomex, we are bringing together a number of complementary precision
instruments businesses.  Each business has leading positions at the premium
end of common markets, where their deep domain knowledge and capability along
with high levels of customer centricity play a vital role in solving some of
our customers' toughest challenges.

 

Furthermore, as one division, this provides real opportunities to collaborate
by sharing best practice in areas like operational effectiveness, including
common IT systems and the Spectris Business System as well as Research &
Development.

 

STRONG SYNERGY POTENTIAL

 

The alignment of the two businesses is expected to drive substantial cost
synergies and economies of scale across a number of areas including sourcing,
go-to-market, and back-office functions.  We estimate the annual uplift in
EBITDA associated with the cost synergies on a run rate basis to be in the
region of $12 million (£9.2 million).

 

We also anticipate the amount of additional EBITDA generated from revenue
synergies to be broadly equivalent to that derived from cost synergies.

 

Malvern Panalytical and Micromeritics are natural partners, frequently
referenced together in academic research, and with their instruments sitting
side-by-side in the same customer facilities.  The combination will provide
the broadest particle characterisation offering in the market, with a single
suite of integrated instruments, from a single manufacturer, improving
workflow efficiency and enabling deeper analytical insights, helping to win
totally new customers.

 

There are also significant opportunities to sell new instruments to existing
customers that only buy from Micromeritics or Malvern Panalytical today and
from a geographic and go-to-market standpoint.  We expect to realise
synergies by leveraging the respective strengths of both companies in key
territories; Europe and Asia (where both have a strong presence), Japan (which
has a strong Malvern Panalytical presence) and North America (where
Micromeritics has a strong presence).  Additionally, we see an opportunity
for Micromeritics to benefit from Malvern Panalytical's position in research
and academia.

 

In terms of services and aftermarket revenue, we anticipate increasing the
level of coverage for Micromeritics towards that of Malvern Panalytical
(~30%), whose complementary products have comparable levels of complexity.

 

VALUE ENHANCING FINANCIAL PROFILE

 

The transaction is expected to deliver strong financial returns:

 

·    Micomeritics revenue CAGR over the medium-term of mid-teens is well
ahead of our medium-term financial framework with margins expected to be in
excess of Spectris' medium-term target of at least 20%

·    Accretive to earnings per share in the first year, post completion

·    ROIC is expected to exceed our cost of capital in the third full year
post completion, with strong double-digit returns thereafter

·    Transaction multiple of under 14x 2024E EBITDA including run-rate
cost synergies of $12 million (£9.2 million)

 

The acquisition will be funded by a combination of new external debt and
existing cash resources, utilising Spectris' strong balance sheet.  We would
expect leverage for the Spectris Group to be c.1x by the end of 2025 including
the completion of the remainder of our £150 million buyback programme and
acquisition of SciAps.

 

PRESIDENT MALVERN PANALYTICAL

Upon completion of the transaction, Terry Kelly, CEO and President of
Micromeritics, will be appointed President of Malvern Panalytical.  In his
role, Terry will lead Malvern Panalytical and oversee the integration of both
Micromeritics and SciAps.  He will be a member of the Spectris Scientific
leadership team, reporting to Derek Harding.

 

TIMETABLE AND REGULATORY

 

Completion is subject to customary regulatory approvals and conditions with a
targeted completion date in the third quarter.

 

Commenting on today's announcement, Andrew Heath, CEO of Spectris said:

 

"The acquisition of Micromeritics fits perfectly with our strategy to build
world-class businesses compounding growth and generating strong value creation
for our customers and shareholders. Micromeritics is a high-quality business
with a strong track record of growth and innovation with excellent growth
prospects.

 

The combination of Micromeritics with Malvern Panalytical is highly
synergistic.  It will create the global market leader in particle
characterisation for advanced materials analysis with a differentiated
offering and strong competitive positioning in end markets benefiting from
long-term, secular and sustainability growth trends. Together with SciAps,
this adds to our confidence in being able to deliver against our medium-term
financial objectives of 6-7% growth and margins in excess of 20%."

 

Commenting on today's announcement, Terry Kelly, President and CEO of
Micromeritics, said:

 

"Our market-leading technologies are used daily in the labs of the world's
most innovative companies and institutions.  Our end markets are strong and
growing, and we have a robust new product pipeline.

 

The combination with Malvern Panalytical is very powerful. I am really looking
forward to working together to unlock more answers for customers and provide
expert applications and technical support that cannot be matched by any other
company or combination of companies.  Becoming part of the Spectris Group is
a perfect fit for our technologies, our customers, and most importantly our
people."

LISTING RULES DISCLOSURES

 

The proposed acquisition constitutes a Class 2 transaction for the purposes of
the UK Financial Conduct Authority's Listing Rules

 

During the full year ended 31 December 2023, Micromeritics generated sales of
$117 million (£90 million) and EBIT of $30.5 million (£23.5 million), and
the business had gross assets of $173 million (£133 million).

 

Analyst presentation

A conference call for analysts and investors will be hosted by Andrew Heath,
Chief Executive, and Derek Harding, Chief Financial Officer, at 08.00 BST
today to discuss this statement.

To view the webcast please use the following link:

https://www.investis-live.com/spectris/668fea313b800c54001c644e/gaeet
(https://www.investis-live.com/spectris/668fea313b800c54001c644e/gaeet)

To participate in the Q&A, please dial +44 20 3936 2999 - Participant
code: 342740.

 

 

For and on behalf of Spectris plc.

 

LEI number: 213800Z4CO2CZO3M3T10

 

END

Contacts:

Spectris plc

Mathew Wootton

Investor Relations Director

+44 7500 078 880

Teneo

Martin Robinson/Giles Kernick

+44 20 7353 4200

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

This Announcement contains inside information for the purposes of article 7 of
the Market Abuse Regulation (EU) 596/2014 which is part of UK law by virtue
of the European Union (withdrawal) Act 2018. The person responsible for
arranging for the release of this Announcement on behalf of the Company is
Rebecca Dunn, Company Secretary.

 

About Spectris

Spectris combines precision with purpose, delivering progress for a more
sustainable world. We provide critical insights to our customers through
premium precision measurement solutions combined with technical expertise and
deep domain knowledge.  Precision is at the heart of what we do - our
leading, high-tech instruments and software equip our customers to solve some
of their greatest challenges to make the world cleaner, healthier and more
productive.

We are focused on two key divisions - Spectris Scientific and Spectris
Dynamics, which are placed in technology-driven end markets, with strong
fundamentals and attractive growth trajectories. We have leading market
positions in premium segments and employ 7,000 people located in more than 30
countries, all united behind our purpose to deliver value beyond measure for
all our stakeholders.  For more information, visit www.spectris.com
(http://www.spectris.com) .

About Micromeritics

Micromeritics Instrument Corporation is the world's leading manufacturer of
high-performance systems to measure density, surface area and porosity, powder
rheology and catalyst activity. The company is headquartered in Norcross,
Georgia, USA with manufacturing sites in the U.S. and Europe, and direct sales
operations throughout North America, Europe, and Asia.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  ACQQKPBBDBKBFOD