Atotech Limited (MKSI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the conference call to discuss MKS Instruments agreement to acquire Atotech. [Operator Instructions] I would now like to turn the call over to your host, David Ryzhik, you may begin.

Thank you, Kevin. Good morning, everyone, and thank you for joining us on short notice. This morning, we announced we have entered into an agreement to acquire Atotech for $5 billion. With me today are John Lee, our President and CEO, and Geoff Wild, Atotech's President and CEO; and Seth Bagshaw, our Senior Vice President and CFO. Please note that this call will include forward-looking statements including statements regarding our expectations, regarding the acquisition, including expected synergies, future financial and operating results of the combined company, expectations regarding accretion, benefits to customers, the expected timetable for closing as well as strategies of the combined company and the markets in which we operate, including trends in those markets and growth opportunities. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review the factors described in today's joint press release in our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q and in Atotech's annual report on Form 20-F and any subsequent reports, which are on file with the SEC. These statements are based on our expectations as of today and should not be relied upon as representing our views as of any date subsequent to today, and MKS and Atotech disclaim any obligation to update these statements except as required by applicable law. During this call, we may also discuss non-GAAP or non-IFRS financial measures. These non-GAAP and non-IFRS financial measures are not prepared in accordance with U.S. generally accepted accounting principles or IFRS, respectively. A reconciliation of the non-GAAP and non-IFRS financial measures to the most directly comparable GAAP or IFRS measures is available in the presentation posted to the Investor Relations section of our website. A recording of today's call will be available on MKS and Atotech's website shortly after the conclusion of this call. I will now turn the call over to John. John?

Thanks, David. Good morning, everyone, and thank you for joining us today. We're excited to announce that we have reached an agreement to acquire Atotech for $5 billion. Throughout MKS' 60-year history, we have enabled the trend towards miniaturization. First, in the semiconductor market and now extending into the many steps that enable advanced electronics. This transaction creates a unique capability to optimize the interconnect where chips are integrated into devices. We see the interconnect as the next frontier for miniaturization and complexity, the same trends that we saw driving semiconductors over the past 60 years. That was the basis of our strategic move into advanced markets, which we highlighted at our Analyst Day in December. These same trends also led us to today's transaction. Another important step in our journey which we believe offers compelling value for our shareholders, customers, partners and employees. Atotech is a company we know well. As you'll hear in today's presentation, they sit adjacent to MKS in the via formation workflow, an area where customers are demanding more creativity and faster solutions to address the relentless challenges of miniaturization and complexity. In fact, our engineers have engaged in technical collaborations with Atotech for roughly a year because of these trends. The possibility of combining forces has been intriguing to MKS, and we're excited to make that a reality today. Before diving deeper, let me first turn it over to Geoff for some remarks. Geoff?

John, thank you very much. I think this deal marks an important milestone in the continued growth and evolution of our great company. It also provides meaningful immediate value for our shareholders as well as the opportunity to share in our continued success as part of MKS. Atotech is a leading specialty chemical technology company delivering chemistry equipment, software and service to support diverse end markets -- to support end market use. Our products can be found in almost all technology applications today, including printed circuit boards, package substrates and semiconductors. We also provide plating solutions for numerous industrial and consumer applications, such as automotive, heavy machinery and household appliances. Joining with MKS presents an opportunity to accelerate our growth and development around the world. We have complementary customer solutions in key advanced electronic markets with Atotech's expertise in electroplating and chemistry and MKS' expertise in via drilling. We share MKS' view that the PCB interconnect is the next frontier for miniaturization and complexity and have been developing lean edge products in this space for many years. The roadmap for next-generation interconnect continues to accelerate the need for more integrated solutions that enable yield and throughput gains and our combined companies will be poised to lead in this space. Now both companies have an R&D-driven culture of innovation in advanced electronics. We are also both committed to partnering with us partnering with us -- partnering with our customers to solve the most critical problems and lead the way with their new solutions. And at this time, if I may, I'd like to take a moment to thank our associates. Their hard work and dedication made today's news possible, and I'm deeply proud of what Atotech has accomplished to date. With those remarks, John, back over to you.

Thanks, Geoff. As you know, our acquisition track record is both disciplined and focused on creating value through strategic opportunities, sound management and a focus on the growth of the newly acquired business. This transaction is compelling strategically and financially and is consistent with our acquisition criteria. Atotech is an established global leader in specialty chemicals, with a razor, razor blade business model that both differentiates its offerings and leads to sticky long-term relationships with their customers. The pairing of Atotech's expertise and chemistry with our laser systems business and related expertise in motion and optics will give us the deepest understanding of the via drilling and plating workflow, positioning us to lead the way in optimizing the interconnect. We expect this transaction will also strengthen the financial profile of MKS. It's expected to be accretive to our non-GAAP EPS within the first year, and we expect it will deliver a steady consumables revenue stream to complement our equipment and subsystems businesses. We're confident that the capital structure of the deal is manageable, and we anticipate continuing our track record of deliberate delevering. We shared the graphic on this slide with you at our Analyst Day. We shared again here to show you that our strategy hasn't changed. We talked a lot about miniaturization, complexity and novel materials. Atotech's industry leadership and critical chemical processes that deliver highly reliable interconnect materials is key to enabling the roadmap of advanced electronics. This slide shows a little more detail about Atotech. As Geoff said, Atotech is a global leader in specialty chemicals, equipment, software and services for PCB's semiconductor IC packaging and surface finishing. They operate in 2 segments. In the electronics business, Atotech is a leader in plating and packaging for the PCB market. In fact, they serve 28 of the top 30 manufacturers. Atotech's equipment performs best when used with Atotech's chemistry. Customers see the value, and that drives a strong recurring consumables business that grows along with the installed base of equipment. Overall, we believe the electronics segment is growing at 4% to 6% CAGR, excluding FX and commodity pricing pass-throughs and is levered to the advanced electronics drivers such as 5G, AI and IoT. Atotech's general metal finishing business or GMF, leverages the company's chemicals expertise into surface finishing across a variety of end markets, including automotive manufacturing. It's a business with GDP type growth over the long term. Together, these businesses serve important end markets with the lion's share addressing advanced electronics, an area we've singled out in the past as a strategic focus for MKS. On the bottom, you'll see this is a strong margin profile specialty chemical company that enjoys a strong patent position with tremendous commitment to R&D. In fact, they have perhaps the largest R&D operation in the industry with a global footprint of 16 technology centers and approximately 1,900 technical experts at customers' sites. This fosters deep customer intimacy, which also happens to be a key pillar of MKS' culture and success. With well over 7,000 customers, Atotech is trusted around the world with a firmly established competitive position and strong profitability. When it comes to PCBs, increasing device complexity is driving innovation and is developing in the same manner as we saw in the semiconductor market with the same challenges around shrinking geometries and increasing density. To get a little more specific, with the increasing density of electronic components, there's a need for more complex packaging into smaller and smaller form factors. This requires the ability to create denser arrays of circuits and interconnectivity on PCBs and substrates, achieving the qualitative demands of miniaturization consistently is challenging. Accuracy, know-how and highly developed technology are required to enable the connection of chips and devices. Currently, different pieces of this workflow are provided by different specialists like MKS in drilling and Atotech in plating. We believe that by combining this expertise, we will accelerate the delivery of differentiating solutions more quickly. We put together an animation here to give you a sense of how MKS and Atotech will combine forces from a technical perspective. PCB manufacturing is a cyclical process of photolithography, lamination and interconnect formation. Vias are the conductive connections between layers. So via formation plays a critical part in ensuring PCV performance, productivity and yield. Here's how the process works. The first step is to coat the surface with an oxide layer to help absorb the laser energy and Atotech offers the best-in-class oxide treatment. Laser drilling is where MKS comes in, rGO via drilling system is the market's most advanced solution for high-density interconnect throughput. Pulses from the CO2 laser will absorb quickly with the offside treatment and remove the copper and underlying nonconductive material leaving a whole or via to the next layer. Laser drilling can lead behind residues and particles. The next step is to clean up the via and lay the groundwork for a plating-ready surface. This is called copper splash removal and desmear. Both processes where Atotech has highly developed solutions. After desmear, the via is ready to receive a very fine copper seed layer onto the nonconductive material. And after a successful copper seed layer, the surface is ready for robust growth using flash copper plating. Atotech's expertise in pulse plating ensures that capability to grow the precise amount of copper where it's needed. In some cases, the plated vias will need to be filled with additional copper, again, using a galvanic process. The finished via is what ultimately determines the vice performance and reliability, all at micron's scale and millions per device. By optimizing the via formation workflow, MKS and Atotech have the ability to optimize the shape, size and performance of the PCB while providing the lowest cost of ownership. Now as you look at our representation of the finished process for a multilayer PCB, you can see how this gets very complex, with increased density, including potentially different via sizes. Of course, all of this must be done with extreme precision, so you can get a sense of something I said earlier. The direction of the PCB market and the interconnect in particular, is one of complexity, not commodity. And optimized process workflows will be more and more critical to enable the features and functionality required by next-generation devices. Now let's move from the technical view of the market to where we are showing complexity as a function of via size. Our companies serve adjacent portions of the packaging value chain as complexity levels increase and Via sizes shrink. Today, MKS operates in the advanced PCB and IC packaging markets. These are the markets where our innovative laser systems offerings are gaining design wins and market traction. Atotech's SAM is broader, starting in a more mature multilayer PCB market and moving up the value chain to wafer redistribution layer packaging. As you can see, our complementary overlap is most relevant in the advanced packaging of PCBs. In thinking about the value creation potential of this transaction, the key is the differentiation we will now be able to offer in delivering equipment and chemistry together to optimize process workflows for increasingly complex PCBs. And that potential in our view, is pretty compelling. We estimate the combined laser drilling and PCB chemical processing SAM at a combined $4 billion growing at a 3% to 5% CAGR annually. And we believe the combined company has less than 25% share of that market today. There are a couple of ways we will be uniquely positioned to grow that share, which I'll touch on in the next slide. An important part of uniting lasers with chemical processing is that it helps get MKS's laser drilling expertise to the customer table alongside Atotech. This will enable us to deliver better, more creative design approaches for our customers. Today, we can bring each other to the table across both flex PCBs where MKS is strong, and rigid, high-density interconnect PCBs where Atotech is a proven leader and where MKS is starting to make market share in those. The timing is right as next-generation design cycles post-5G are starting soon. Millimeter wave 5G and ultimately 6G and beyond are on the horizon, getting into this game together now puts us in an exciting position. Now I'll turn it over to Seth to run you through the financial story.

Thanks, John. Good morning, everyone. Let's jump right in. Move to the next slide. Let me summarize the 4 key points that make this a compelling financial opportunity for MKS: First, Atotech is a great business with strong growth and EBITDA margins. Second, their razor blade business model is attractive for us and further balances out our revenue streams with the addition of the recurring consumables business. In fact, with every $1 spent in Atotech equipment, you can expect an attractive attach rate of high-margin chemistry consumables as well as service offerings. Third, this transaction is expected to be accretive to EPS within the first year, and we expect to generate an estimated $50 million of run rate cost synergies within 18 to 36 months of closing. And fourth, we expect to generate strong free cash flow on a pro forma combined basis. This, plus growing EBITDA allows us the type of flexibility we like looking at deleveraging post closing, which if you know our past performance is always an important consideration. It's also worth noting that under the anticipated financing package, we'll have no material debt maturities for 5 years. Here's a quick look at some high-level pro forma data. The MKS today column is pro forma, our recently announced Photon Control transaction, which we expect to close in the third quarter. You can see that Atotech brings strong adjusted gross and adjusted EBITDA margins. Pro forma, about 40% of our combined sales will come from highly predictable and stable revenues. The pro forma combined adjusted EBITDA margin includes the $50 million of cost synergies. Overall, we'll have a broader, more stable revenue stream, combined with share expansion opportunities over the long term. We see this as a great combination for MKS investors and stakeholders. We have a proven track record of deleveraging quickly. Maybe remember this chart from our recent Analyst Day presentation. Because the stability of the combined business, we are comfortable having leverage that is a little bit higher than our prior acquisitions. The time closing, we expect that the pro forma leverage will be under 4x on a gross basis and a 3-point times on a net basis. We're projecting a strong liquidity position with cash of $800 million and a $500 million revolving credit facility as well. As I've noted, we expect to generating strong free cash flow and solid EBITDA growth. The long lead time on maturities brings to play a proven track record in managing balance sheet optionality and in a proactive approach to debt repricing. Here is a quick summary of the key terms. We've all seen the details in the press release. You heard the walk through just now, we just reiterate some key points. We are confidently achieving the announced synergies. We expect to achieve these synergies within 18 to 36 months of closing and had a long-standing track record of successful integrations. Additionally, the technical and strategic fit that John just went through makes this a transaction that we believe is uniquely valuable to MKS. MKS shareholders are expected to own 84% of the pro forma shares. As I mentioned, we are comfortable with the objected debt leverage levels. We expect to close by year-end, assuming timely receipt of regulatory approvals and satisfaction of other customary closing conditions. We expect the deal to be accretive EPS in the first year or bring compelling strategic and financial benefits to MKS. With that, I will turn the call back over to John to wrap up.

Thanks, Seth. Before we get to questions, let me quickly recap. We're extremely excited about the opportunities in front of us. Any acquisition needs to make good strategic and financial sense. Let me summarize the strategic rationale. Atotech gives us important domain expertise in chemistry and electroplating, which we see as very complementary to our via drilling business. It is also critical to our view of the same miniaturization and complexity trends that are shaping our semi and advanced markets businesses. Further, we know Atotech well and have been collaborating for some time. Optimizing the interconnect is the next frontier in advanced electronics. And this deal will make us a leading expert on the key process workflows for PCBs around interconnect. Equally important at MKS, one of our guiding principles is to win as a team, and we could not be more excited to welcome Atotech's dedicated employees who are the bedrock of the company's rich history of innovation and world-class service for their customers. With all of that, we are in a great position to optimize the interconnect and deliver long-term value for our shareholders, customers, partners and employees. Thank you all for listening. And now let's open it up for questions.

[Operator Instructions] Our first question comes from Krish Sankar with Cowen & Company.

John, I had 2 questions. First one is, in the past, you guys have done like a very good job in acquisitions, but most of them have been on the hardware side. This is more a chemical business a little bit outside your core expertise. How do you handicap that, given the fact that some of these businesses have potential environmental and regulatory risk, you have to -- you are subject to cost fluctuations from input chemical feedstock. So I'm kind of curious, how do you get comfortable around the fact that with regards to you running a chemical company? And then I have a follow-up.

Yes, sure. Well, certainly, Atotech's management team has been very good at running a chemicals company. And in all of our acquisitions, the management teams, we rely on, they bring expertise to MKS. With respect to commodity pricing, of course, palladium is one of the biggest costs in the business, but the industry uses a pass-through model. So Atotech has been public about that. So we have no concerns about that. And then with respect to environmental challenges, Atotech has world-class teams as well as a record of dealing with any kind of issues there. So they're one of the most environmentally friendly types of companies in that industry. And they're also a leader in developing new chemistries to replace older, more toxic chemistries. And Geoff has talked to me a little bit about the chromium 4 replacing chromium 6, and that's really an area where they, through their R&D have led the industry to safer chemical use.

Got it. Got it. And then John just as a quick follow-up, were there any other bigger for this asset? And what is the time frame you expect the transaction to close? And are there any geographies which are the specific geographies where you need approval from?

Yes. I mean typically, there are other geographies that require approvals. So that's nothing new. And then we're targeting to close before the end of the year. That's where our teams are working towards.

Our next question comes from Tom Diffely with D.A. Davidson.

John, I was hoping you could talk a little bit about the timing of this deal. I mean why today versus 6 months ago when it was a private company?

Well, I think 6 months ago, we were involved with something that you probably know about. Yes. We have a pipeline, Tom, as you know, all types of potential partners in this electronics supply chain that I talked about, the miniaturization and complexity that drives Advanced Electronics, the supply chain has got SEMES. It's got lasers It's got packaging and their profit pools in that entire supply chain. And when you look at those opportunities, then this is why it makes sense, and this is why companies like Atotech have been partners, technical partners with us in the past and why this makes sense going forward. So the timing was right, and we had a lot of time on our hands, I guess, Tom, after the last event.

Okay. No, I understand. And then quickly on the competitive front, who are the main competitors? And what is Atotech's competitive advantage versus them?

Yes. Atotech's competitive advantages, I believe, that the amount of effort and expense they put into R&D. And I think their customers tell us that, that's really how they differentiate. They do have competitors, but we believe that when they published their market leader in the electronics chemistry space, the other competitors are Element Solutions and DuPont, I believe. And then in GMF, I believe they're also market leaders in Element Solutions and maybe another company, which I can't recall are the competitors. So there's competition, I believe, they're market leaders in both the segments.

Our next question comes from Joe Quatrochi with Wells Fargo.

Yes. I was curious, you said you've been working with them from an R&D perspective for over a year. I guess what do you think is maybe the most underappreciated or what surprised you the most that kind of led to the transaction today? And then maybe how do we think about the combined entity, maybe accelerating innovation, maybe some of those areas or you're targeting that?

Yes, Joe, I don't know if there was anything as a surprise because we knew that we're leaders in the via work formation part of why we work with them. So that was something we knew about. And I think during diligence is just to reinforce that leadership, which was, as I said, brought about because of their investments in R&D, the commitment to it to their customers. And I think, as I said, that's probably what we're most excited about is that area of synergy between our Equipment and Solutions Division, laser drilling and all that surround the workpiece, lasers and optics that go around that with the via formation workflow. And so that's an area of collaboration. We have other parts of the business, which are great, too. But in terms of collaboration and potential synergies for solutions faster, that's what we've talked about today.

Got it. And then just as a quick follow-up from the prior question. Was this a competitive bidding process? And then I don't know if I saw is there a breakup fee?

Yes. I think I just referred to when they file a proxy to kind of walk you through what occurred. That's part of the best gains we have on that one. Frankly. Like any other public transaction, it will be in the proxy.

Your next question comes from Ben Kallo with Baird.

First, could you just talk about maybe customer overlap involve specifically in the electronics part. And then on the GMF side, can you talk about how that fits into your business ultimately? It seems like it's maybe less of a bit, but I don't know your business as well. And then the third thing, could you just talk about premium and how you got to the premium. It looks like it's 10% over when the deal was first rumored out there. But just how you got to the price there, if you could share anything with us, that would be helpful.

Yes. There's a lot of questions. So I don't remember the last 2. I'll take that, you can remind me on the first one. In terms of GMF and how that fits, so there's a lot of synergy of technical know-how in the 2 divisions of Atotech, the electronics and the GMF and that chemistry know-how is then applied to different markets, electronics and GMF. So that's where a lot of the synergy is. And the GMF, you're right, it's a little different market than we -- MKS historically has been in. But -- as you probably know, MKS also has been in other industrial markets, leveraging our technical know-how that's been developed for semi or lasers for that matter. And so it still fits our model because we're leveraging the technical R&D and having that go across different markets. In terms of premium, the premium is what it is. It was something that worked for both sides. So I really can't comment more on that. So Ben, what was your first question?

No problem. Sorry, I threw them all at you. The first one was just customer overlap, could you talk about that?

Yes, sure. Yes. So as we talked about in the presentation, Atotech supplies 28 out of the top 30 PCB manufacturers. Our Equipment and Solutions Division certainly in flex, where we -- our leader is working with the same customers because most customers are doing flex in high-density interconnect PCBs. As you know, we have leadership in flex drilling, but not yet high-density interconnect PCBs but they're the same customers, both -- those customers do both. And they all use plating. And so there's tremendous overlap with respect to our customers.

Great. And congrats both of you guys.

Thank you.

Our next question comes from Jim Ricchiuti with Needham & Company.

Question on -- if we think about the combined company, I wonder if you can give us some flavor for the market vertical concentration. It looks like automotive now becomes clearly a much bigger part of the business for you guys. But if you could, maybe you could just give us a feel for how that profile of the company is going to look like by end market vertical.

Yes. Well, when you think about the end market in some sense, as advanced electronics, Jim. And so you have our semiconductor group target to that for sure that market. You have -- a big part of our advanced markets of the Newport side, as you know, laser-based manufacturing target towards advanced electronics. Obviously, half of the Newport Group is targeting to research in life and health sciences and other markets. And then, of course, Atotech is probably 65% of their business is going towards the Electronics division and kind of 35% over on GMF. So if you add all those parts up, it's a fairly significant portion of our company is targeted towards Advanced Electronics.

Okay. And maybe -- and I apologize, I joined the call a little bit late. But Geoff, maybe this is a question for you. The GMF business I think there was some sizing of the electronics portion of the business. And I'm wondering if you could give us a feel for the size of the GMF market and the growth rate. It looks like you guys have pretty good share in that segment of the market as well.

Yes, Atotech is the leader in the GMS market. It is roughly 1/3 of the size of the company. It works into automotive, industrial applications. It supplies coating materials for wind turbines for solar panels, this kind of application, industrial applications. So a wide variety. And it also overlaps with electronics. It provides plating chemistry, for example, for the antenna for 5G phones because of the surface finishing properties that are needed there. So there's wide overlap with the MKS kind of solutions and even the electronic electronics approach shares common factories, common technologies, as John said.

Got it. And if I could squeeze one more in, and then I'll jump back in the queue. John, you alluded to the consumables portion of the Atotech business, and I'm wondering if there's a way for you to talk to what you see as the combined recurring revenue stream for MKS and Atotech looking out as a combined entity?

Yes, right. So the consumables part of Atotech combined and pro forma, along with services, services is for, as you know, really driven by utilization as well for our semiconductor markets. That combined, whatever you want to call a recurring revenue stream is going to be 40% of the company.

Got it. Congratulations to both of you on the deal.

Thanks, Jim.

Our next question comes from Mark Miller with the Benchmark Company.

I'm just wondering what was the driver or drivers of the GAAP loss reported in 2020?

Sorry, Mark, I didn't catch that. What reported 2020?

The Atotech reported a GAAP loss in 2020. I just was wondering what was behind that.

Yes, you can probably pull out -- this is Seth, Mark. So we can probably pull out obviously they are public filings. But I think it was COVID-19 related to perhaps automotive industry. So -- and that business is obviously performing pretty well. That's a goodwill write-off, I think, is what occurred in that quarter. And that does come back, obviously, quite a bit at the end, yes.

Our next question comes from Scott Graham of Rosenblatt Securities.

Congratulations. I do have a couple of questions for you around the GMF business as well. And I know that one of your responses on the synergy here, John, was technical R&D, but that just does seem like a very different business than we're used to with MKS. And I was just wondering, is that a business that really is core to what you're doing?

We think it's core to Atotech for sure because of the leverage of the R&D that is spend in chemistry. And certainly, the business does very well. As Geoff said, it's a market leader. I think they've even disclosed by division, gross margins and EBITDA margins, and you'll see those are very, very good. And Scott, if you look at some of the MKS businesses, we're using our equipment to make diamonds, using our equipment to make TicTacs and heat pasta. So -- and those are not big markets for us, but our equipment is very useful there, and that equipment has developed for other markets but quite useful in those other markets. So to your point, it's not like a core market today for MKS, but it's certainly sizable. And going forward, we think it has an attractive diversification into industrials and consumer products for us.

Understood. The other -- the follow-up question, this is maybe more for Seth. Seth, so it looks like the EBITDA margin of this business is sort of made up which is comfortably -- first of all, can you tell us the true EBITDA -- not -- I'm sorry, EBIT margin of the business, trailing 12 months. But it also would be -- it looks like it's a lot less than MKS size. And I'm just wondering, does that mean that there's potentially a fair amount of upside to the $50 million of synergies?

Yes, thanks. So yes, I think if you pivot to Page 16 on the slide, we talked about EBITDA margins, $336 million in our kind of adjusted numbers. So that's in line with the MKS stand-alone EBITDA margin. So I can't give you the EBIT margins separately at this point, but the EBITDA margins and gross margins, obviously, are at or above MKS. We feel very good about that operating model and the financial model going forward, very strong cash generation, obviously. And then the $50 million, I mean, it's a well-run company. We're very impressed in a diligent process, working with the team at Atotech. We think the announced synergies is appropriate given how we view that business. It's been under good leadership for a number of years. We think the opportunities there are pretty low-hanging fruit kind of normal public company costs. You don't need double the audit fees, double the insurance cost, if you will. So that's kind we have arrived at to the $50 million, and it's, again, 18 to 36 months. Working with the team locally. if we find more opportunity for sure, we'll definitely execute on that as well. But we will work with local teams to get their input. We're very interested in kind of collaborating closely with them, as we've done in our other acquisitions as well.

Our next question comes from Pare Misra with Berenberg.

What's a good way to think about incremental margins for Additives business? Or maybe if you could share any kind of fixed versus variable cost structure, that might be helpful, too.

Yes. Thanks, Pare. This is Seth here. I think when we get closer to closing, close the company, we'll get a better view externally on an updated operating model. So I think it's right now a little premature to kind of get that dialogue. But suffice to say, obviously, you see the gross margins and the EBITDA margins a very strong operating model. So we're very much in line where it's additive or in line with the MKS model, which we know is pretty robust. But I think really trying to give you an operating model and that type of clarity until we get closing -- towards closing the business, it's probably the better time to kind of get the level of details if that's okay.

Yes. That's it. Fair enough. And how much of Atotech sales are derived from China? And do you expect to file as a simplified procedure for regulatory approval?

Yes. I think the revenue in China is like around the 35% to 40% range. And then inventory filings, again, we -- We've had experience with a number of acquisitions and filling in those jurisdictions. We're pretty experienced. E&S obviously had a large China -- ESI, actually a large China footprint, and we cleared that pretty quickly as well. So I think we'll just right now do all the filings, work through it and our goal here is to complete all of those regulatory requirements and normal closing requirements by the end of the calendar year. And we'll try to move that forward as best we can, obviously. But that's kind of our expectation right now.

Understood. And if I could ask just maybe one more. In your electronics business -- electronics manufacturing business, in recent years, we have witnessed a digestion period, so to say. Did Atotech's electronics business see a similar cycle or the drivers were different?

Actually, no, that was certainly a sensitive topic for us, and we certainly asked that question. Actually, during the last cycle, they actually did not have a digestion period. Equipment did, but consumables actually continue to grow actually.

Our next question comes from Brian Chin with Stifel.

This is Brian on for Patrick Ho. Congratulations as well. Maybe just a couple of questions from us. First, maybe quantifying this, John, as a step too far, but can you put any parameters around the magnitude and timing of potential revenue synergies you expect, particularly around the PCB market exposure?

You're talking about revenue synergies?

Yes.

It's probably a little premature to talk about that. But I think the only comment I'd make is, we have already been talking to them technically our teams for about a year. So now we can just accelerate that. And of course, it takes time for adoption. But I think when you -- if you look at the roadmap for PCBs and the sizes of the vias and the lines, as they continue, those are just like SEMES, more opportunities for new solutions faster. And so it's not something that's going to happen 6 months. It's something that just like our power, it takes a few years, but you've got to put the money in now and the R&D in now.

Got it. Got it. And then sort of transitioning into sort of advanced packaging. How do you think the chip industries increased adoption of interposer like 2.5D and 3D packaging trends in technologies, how do you think that will benefit and influence growth rates for the overlapping and emerging Atotech products?

Yes. Now a lot of these interposers are what Atotech is doing because those interposers are sometimes are made with materials that are similar to ACI materials, sometimes they are made with chip wafer type materials, and Atotech plays in both. I think this is an area that's got lots of people trying different things, and that's really good because I think most -- all of them are going to require smaller features that are going to require lasers to make them and the plating chemistries that are going to be just much more advanced than they are even today.

I'm not showing any further questions at this time.

Thank you, everyone.

Great. Thank you, everyone, and we look forward to telling you more about the acquisition as we move along towards close. And I want to thank Geoff for joining me today. And we look forward to working with the Atotech's team.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.