Ecolab Inc. (ECL) Earnings Call Transcript & Summary

Greetings, and welcome to the Ecolab Acquisition of Purolite Acquisition Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Monahan, Senior Vice President, External Relations. Thank you. You may begin.

Thank you. Hello, everyone, and welcome back to Ecolab's second conference call of the week. This is time to discuss an exciting acquisition that of Purolite. With me today is Christophe Beck, Ecolab's CEO; and Dan Schmechel, our Chief Financial Officer. Please take a moment to read the cautionary statements in the press release and slides, which can be found on our website at ecolab.com/investor. These state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the Risk Factors section in our most recent Form 10-K and in our posted materials. We also refer you to the other cautionary statements on the slides which encourage caution in the use of reliance upon the non-GAAP financial information and industry and market information contained in the slides. Also, please note, we refer to the transaction slides on our website for this call at ecolab.com/investor. With that, here's Christophe Beck.

Thank you so much, Mike, and good morning, everyone. Happy Friday. Good to be back together with you as well during the same week as mentioned because after a very strong quarter and full year outlook for Ecolab, I'm really excited to announce Ecolab's acquisition of Purolite. So let me share with you why we're so excited about that new opportunity and then we'll open it up to your questions. Purolite is a fast-growing global leader in biopharma and industrial purification and separation solutions with very high margins. Ecolab is all about high profitable growth, as you know, and so is Purolite. So this deal is not just about acquiring a high-performing company, it's about helping us create a brand-new growth platform for Ecolab, one that brings together our respective strength to create new comprehensive solutions for our customers, one that opens up major incremental growth opportunities as we always do in our company. In other words, we're building a major new growth engine to our company as we did with Water just a decade ago. Purolite is an extremely attractive acquisition for us as it adds further significant growth opportunities to our already very successful 300 million global life sciences business, a business that we just started 5 years ago that's growing double digit with margins north of 30%. At the same time, it will also strengthen our capabilities in industrial, which is pretty cool. It's a strong fit with Ecolab's customer value proposition. They do focus on premium product and service solutions across high-end, mission-critical customer applications. They do emphasize corporate accounts relationship to deliver the best results at the lowest cost. They are a leading global provider of high-tech recurring purification and separation solutions that substantially enhances end product quality. While Ecolab focuses on clean production processes and safe environment, Purolite focuses on the core product itself. So by combining Ecolab's state-of-the-art capabilities in clean and safe processing with Purolite's revolutionary smart resin technology, we can provide a comprehensive and game-changing offering that will make the end product better, safer, healthier and more effectively while also reducing customers' environmental impact and total costs in fast-growing, high-attractive markets. This unique combination adds a new $5 billion total addressable market and creates additional our famous circle the customer, circle the globe opportunities for Ecolab. Like we've demonstrated earlier by bringing water and hygiene in food and beverage, our past in cleaning and sanitation being institutional over the years. Bringing together Purolite and Ecolab further deepens and leverages our respective capabilities in the large and very fast-growing life sciences market. In life sciences, especially one of our most successful businesses, Ecolab ensures that processing lines and cleaning rooms remain clean and safe, while Purolite once again ensures end products like drugs, vaccines and monoclonal antibodies remain pure and safe. Together, we bring the Holy Grail by protecting the processing lines, the clean room environment and the end product itself, like vaccines and drugs and no one else can do this. But also from a geographic perspective, Purolite has our life sciences business gained critical mass in North America. Well, Ecolab helps them gain further critical mass in Europe, leading to further growth for both. For instance, out of the top 100 pharma companies out there, only 1/3 of them overlap between Ecolab and Purolite, giving us a slew of large and lucrative new customers to cross-sell, which we know very well how to do, which is one, and that's why it's one of our largest and quickest single opportunity. Then in Industrial, Purolite brings yet another strong adjacent global growth platform in critical industrial markets like food and beverage, microelectronics, nuclear power and precious metals. And finally, Purolite helps us to create a new high-growth and high-margin enterprise platform, building on our successful life sciences businesses. This is a platform to which we can add further organic business expansion and acquisitions. We've got new breakthrough innovations like differentiated digital offerings to help customers produce even better, safer and healthier products, while reducing the environmental footprint and total cost, which is our value proposition. So bottom line, we feel like we're adding a new $400 million global platform, growing double digits and EBITDA margins north of 40%. A new platform that uses our same business model and allows us to deliver even greater value to customers, while also generating additional attractive long-term returns for shareholders. So looking closer at the transaction details on Slide 4. Hopefully, you can follow with me here. This clearly shows that it's a growth acquisition, not a cost synergy plan, which makes it easier as well, so from an integration perspective since there won't be much disruption and risks related to that. So Ecolab will pay approximately $3.7 billion in an all-cash transaction, which represents 19x '22 adjusted EBITDA, reflecting Purolite's strong EBITDA growth trajectory. We also expect to realize tax benefit from the transaction structure with an estimated net present value of $300 million. And with this considered, the '22 EBITDA multiple goes further down to 18x, way lower than what you would pay today for great companies like Danaher and Thermo Fisher that are in the same industries. The transaction is expected to be neutral to our '22 adjusted EPS and nearly $0.10 accretive to '23 adjusted EPS, which includes, by the way, an estimated transaction amortization of $0.26 per share. Further, we expect transactions contribution to our adjusted EPS, we saw rapid growth beyond '23. Importantly, this transaction is expected to be accretive to our sales growth, too. EBITDA margin and generates attractive returns significantly above our weighted average cost of capital. So now let's take a closer look at Purolite and its exciting growth opportunities on Slide 5. This business has a very strong track record with sales compounding at a 14% CAGR and OI EBITDA at a 30% CAGR. Purolite is expected to generate nearly $400 million of revenues in '21, up strong double digits over 2020, driven by very strong double-digit growth in the life sciences markets and high single-digit growth in industrial, which is also generally consistent with Purolite's recent historical performance. Today, the business base is split roughly 40% life sciences and 60% industrial. However, this mix is increasingly moving toward the Life Science one, given its very strong market demand and top line growth in a rapidly expanding market, as you know. As you can see, Purolite is a truly global business, operating in over 30 countries. It's not only a very fast-growing business, but it's also a very profitable business with a 41% adjusted EBITDA margin and a 37% adjusted OI margin expected in '21, so this year. Now turning to Slide 6. Purolite adds a strong adjacent global growth platform to Ecolab by adding $5 billion of new opportunity in fast-growing markets, roughly $3 billion of that new opportunity sits in the life sciences market, driven by very strong growth in biopharma due to strong demand for emerging technologies to produce monoclonal antibodies, cell and gene therapies, immunological treatments for chronic diseases like cancer and mRNA vaccines like we unfortunately well too much now for COVID-19. As such, biopharma is expected to reach 40% of the total $1 trillion market in just a few years. The other $2 billion of opportunity is in industrial fluid purification, which is extremely complementary to our existing technologies across our water F&B markets. Purolite's technology and expertise, which is centered on high-end purification and separation applications, creates new opportunities for us to help produce ultra-pure water for microelectronics, where we're very strong in and power generation. These technologies are also used to improve the quality of our customers' food and beverage products even as well as solutions to address critical environmental issues, and I'll cover that in a second. As shown on Slide 7, Purolite shares our same approach to customers. They're passionate and focused on customers and have a very similar customer value proposition, a technology-driven sales and service culture with very unique and patented IP and R&D capabilities. They also emphasize corporate account relationships to deliver the best results at the lowest total cost across high-end, mission-critical customer applications. As a result, 95% of Purolite's revenue comes from consumable recurring product as Ecolab does, as you know. Looking at Slide 8, Purolite also further enhances our ability to help customers address critical environmental issues, that's even better. Their technology brings to us new solutions for our industrial customers that improve the sustainability of many industrial manufacturing processes. For example, they have advanced technologies that improve the remediation of PFAS at the lower cost, which is a market that's going to grow. It can also remove toxic compounds in wastewater and help reduce VOC emissions. Then as you can see on Slide 9, the global pharma manufacturing market is one of the largest and fastest-growing markets, with biopharma manufacturing being the fastest segment growing at a 15% CAGR. As mentioned earlier, the biopharma therapy market is expected to represent 40% of all drug therapies by 2025 already, so it's moving that fast in that direction, which is good for us. New technologies, including gene and cell therapy for vaccines like -- for COVID-19 and personalized medicines are being developed, and these are driving the fast-growing biopharma market in which Purolite is one of only 2 leading players with arguably the very best technologies. Turning to Slide 10. Ecolab and Purolite share a common property account sales approach. More importantly, the combination creates an enhanced value proposition for customers by bringing together Ecolab's environmental quality and safety technologies with Purolite's product quality and safety technologies. In other words, Ecolab focuses on the outside, which means the production process and the environment, while Purolite focuses on the inside, which means the end product, as such. So we can further maximize customer outcomes with improved human health and safety to higher-quality products, we can minimize the environmental impact to reduce water and energy consumption as well as waste reduction, and we can optimize customer costs by improving operational efficiency and manufacturing productivity, being even more of a total solution and therefore, more strategic partner to our long-term customers. On Slide 11, it shows how Purolite brings important new markets and unique capabilities to Ecolab's life sciences business, which is one of our fastest-growing and most profitable business that has more than doubled over the last 4, 5 years with nearly 30% margins. Purolite adds what we didn't have, a new purification growth platform that expands our combined life sciences opportunity to $10 billion and creates the base for further expansion of the high-growth platform. Together, we now can bring shared value proposition, centering the business continuity, risk mitigation, sustainability and operational efficiency. We also can leverage our respective footprints where Purolite provides a large North American business base, while Ecolab's Life Science business is much larger in Europe, opening new obvious sales synergies. And we now have an even broader portfolio to be a more significant provider for customers, and we'll build on that position through further expansion of our offering for the life sciences market. Turning to the Slide 12. Within the biopharma purification market, there are essentially 2 global players serving fast-growing biopharma customers in a market that's mostly limited by manufacturing capacity. So the demand outstrips the supply quite a bit. This is one of the reasons why Purolite is in the process of finalizing new production capacity in Europe and in the U.S. As a result, in a high-demand global market, Purolite will add the equivalent of $500 million of incremental sales capacity and will become the only player with capabilities on both continents, reducing supply risk, especially today for life-saving industries. Also, Purolite is extremely well positioned and focused to take share within this growing market as they form key partnerships with many leading pharma companies because of the unique and patented technologies, like the Agarose jetting technology that substantially improved the purification of monoclonal antibodies, while greatly reducing cost and environmental impact. It's also important to note that most of their drug purification solutions are usually part of the FDA drug submission filings, thereby providing high stickiness in other words, so high customer retention. As you can see on Slide 13, the application of Purolite's technologies across our industrial markets is also very attractive as it adds $2 billion of opportunity and further strengthens our market-leading position. Purolite adds very complementary purification technology applications across the microelectronics, power generation and F&B markets with emerging opportunities to capitalize on the growth, for instance, in electronic vehicles through unique lithium extraction technologies. So we're very excited by the enhanced position and capabilities Purolite brings us to better serve these critical industries. As mentioned earlier and shown on Slide 14, Purolite has a similar value proposition and business model to ours and we expect to drive very attractive growth synergies by bringing these businesses together as we leverage our large global customer base, enhanced and complementary product technologies and advanced digital offerings, while also accelerating our combined technology and new product innovation. This is the same playbook we have so successfully used over the years with water, with pest elimination and other Ecolab businesses as we circle the customer with more solutions. So as such, Purolite is expected to enhance our long-term financial performance, which Dan now, our CFO, will discuss more on Slide 15. So Dan, if you can hear us, you would be next.

Yes, yes. Good morning, and happy Friday. Well, yes, as you can tell, we're incredibly excited about Purolite as a future growth opportunity for Ecolab, and we have the financial metrics to match our excitement. So it is accretive to our long-term sales growth, as Christophe has indicated. It will be accretive to our adjusted EBITDA margin and to our EPS growth. Importantly, with this transaction, we will generate returns which are significantly above our weighted average cost of capital. As we've discussed recently, we have ample financial flexibility to pursue this transaction. We will finance it with approximately $800 million in cash off of our balance sheet, and we'll finance the remainder with low-cost debt. Very importantly, we remain very focused to our consistent financial management principles. We are committed to returning to a range metrics over the near term. We'll prioritize deleveraging post close and utilizing cash flow to repay short-term debt, which would be part of the financing structure, and manage our way back toward our intended long-term target of about 2x net debt to adjusted EBITDA. We will also continue to be unchanged in our cash priorities. And so we view this as an absolutely terrific opportunity to take advantage of Ecolab's financial strength, our experience in the life sciences business and to get together with a terrific partner to drive future growth at very attractive returns. And with that, I'll turn it back to Christophe to summarize on Slide 16, more on why we're excited about the acquisition and the long-term growth opportunity.

Hey, thank you so much, Dan. So before we conclude, well, as you can tell, we're very excited about this acquisition as a team and as a company and together with Purolite. At Ecolab, our future is all about high profitable growth, and Purolite is a great outgrowing company with very high margins. So that fits very well with us. It adds a new major growth opportunity to Ecolab blood by pharma and biopharma, one of the largest and fastest-growing global industries. And most importantly, it allows us to create a brand-new growth platform that serves both life sciences and industrial by bringing outside quality together with inside quality, like we did with water and hygiene so successfully over the years. It's a double-down on our highly successful life sciences businesses and a major growth booster to our industrial segment at the same time in a way that no one else can deliver and all of that with attractive long-term financial returns for shareholders. So with that, we'll open it up for your questions.

Thanks. That concludes our formal remarks. Operator, please begin the question-and-answer period.

[Operator Instructions] Our first question comes from the line of Tim Mulrooney with William Blair.

Congratulations on the transaction here.

Thank you.

Christophe, I know that there aren't any synergies in any of the numbers associated with this deal. But I was curious how you'd characterize the potential for any revenue synergies with this deal? There were 2 I wanted to ask about in particular. I mean, number one, creating more of a total solution platform in life sciences. And also, though, number two, maybe cross-selling to your large industrial customer list. So I'd love to hear your thoughts on either of those opportunities.

Yes, great question, Tim. So it's really a growth play, which is why we don't have cost synergies as well in here, which makes everything much easier. We can really focus all our attention in fueling their growth -- Purolite growth while leveraging so the combined value proposition between the 2 businesses. When we think back as well what we did with water the last 10 years as well, it's been an unbelievable journey, where we could bring water and hygiene together customers who were asking that for years, ultimately, and the rest is history, you've seen so how much growth and profit we've generated as well with water and hygiene, so together. With life sciences, it's going to be the same. So we need to know more, obviously, but the fact that we have just 1/3 of overlaps between the 100 customers that we can have out there in the pharma and biopharma industry. Well, that's an obvious synergy play because 2/3 is the circle the customer, circle the globe play, which we know exactly how to do. We have a connection, we bring them in. They have a connection, they bring us in ultimately. On the other hand, as mentioned as well, we're strong in Europe, they are strong in North America. So obviously, like that, so we can create geographic as well, synergies on both sides of the Atlantic, which is really cool. And last, but not least, as mentioned before, the fact that our current life sciences businesses is really focused on processing lines and clean rooms. So the outside of the production Purolite is focused on purifying the product itself, the vaccine, the drug ultimately. So to bring it all together, it's a 1 plus 1 equals 3, which drives further growth and higher margins because it's creating incremental value. So what we have in our numbers today is basically sort of fueling the growth of Purolite, and we believe that we will have major growth synergies that will come on top of that.

Excellent. I appreciate that. And just as my really quick follow-up for Dan. I was just curious what your goal was, Dan, in terms of the time frame to get leverage back to close to 2x? I know it's a moving target, but just looking for how you're thinking about it.

I think that Dan just got disconnected, unfortunately. So Tim, can we maybe sort of keep your question, and we'll get back to as soon as he's back on.

Sure.

You're welcome. Sorry about that.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

Congrats on the deal. I just wanted to focus on the industrial side. Can you also talk about how much overlap there is on a customer perspective? And also, as we think about the smart resins, you obviously highlighted a number of applications with industrial, but are there other opportunities that you could explore just given the broad presence that you have in the industrial market?

Yes, great question. We have a pretty high overlap in terms of customers in industrial, which is really good because we both have some connections with similar customers. What we do not have is an overlap in terms of capabilities, which is really good. When you think about microelectronics, for instance, which is a very interesting business, high growth and high margin. What we do is, again, so cleaning the processing lines to produce wafers, it's protecting the environment as well in those clean rooms. But we do not touch the water, for instance, that is cleaning the wafers in microelectronics production. Purolite, with their technology, help us get that done. So we can ultrapurify the water that's going to clean the wafer and making sure it's polished at the right level as well. So it's -- again, this outside that Ecolab focuses on, added to the inside that Purolite focuses on that's creating this incremental value for microelectronics. As such, you can take another one like in mining and especially saw in high-end type of mining with lithium, which is pretty hard to extract. What we do as Ecolab is to take care of the waste water, is to take care of the extraction, so in the mine. Well, Purolite is helping extracting the lithium from the brine, the water where the mineral is. Ultimately, this is something we cannot do to the Ecolab. Well, Purolite does it in a very efficient way. So with that technology, can extract the lithium in a way that's environmentally friendly, that's cost competitive as well, and that's creating high value-added batteries of the world, so for the EV production. And I can give you one example, so a few weeks ago, they just closed a contract with the only mine in the U.S., which is in California, where Purolite is going to be the partner of that mining production for lithium batteries as well. There were in competition with others, and they won as well on that. So just one example on how we can work together here.

That's very helpful color. And maybe just a quick follow-up, maybe on the biopharma side. As you mentioned, there are only 2 players there. Can you just talk about Purolite's market share? And then the combination just with -- given your strong sales force, how should we think about that market share in the biopharma market?

So what's really interesting so with the market in biopharma is that they are generally 2 global players. It's Cytiva and Purolite. So it's a $1 billion market, especially saw India high-tech monoclonal antibodies and mRNA types of vaccines. Cytiva is #1 today. Purolite is the close #2 today, growing fast as well and interestingly enough. So we know that our competitor or our future competitor, I should say, is maxed in terms of production capacity until '23. It's on their website, so it's not exactly secret information. And Purolite has available capacity because they built new capacity in the U.K. and now are adding early next year a new production plant as well in the U.S., so which will help obviously the continued growth of Purolite versus its competitor. But as mentioned, the market is so big, growing so fast that there is room for 2 and more.

Congrats once again on the deal.

Thank you so much. And I've heard that Dan just joined us as well again. So Dan, if you could maybe address the question of the leverage and when we get back to our levels of 2?

Yes, thank you. I apologize, I dropped there for a minute. I didn't hear the question, but I understand it, Christophe, as you paraphrased it. So look, this is, as we've described it, a terrifically accretive opportunity which will add to Ecolab's ability to generate free cash flow. Our anticipation is that we will be returning to our intended credit metric in the neighborhood of 2x debt-to-adjusted EBITDA by the end of 2023. So it's about a 2-year plan to get back to where we prefer to be.

Great. Thank you, Dan.

Our next question comes from the line of Chris Parkinson with Mizuho.

Great. Christophe, while everybody's knee jerk reaction on day 1 is obviously to focus on multiples and accretion, at least in our world. You understand a little bit in your prepared remarks, I'd love to dive in a little bit further. But just can you get into the kind of the fit and the strategic rationale, specifically in life sciences? Just any color on how this specific portfolio technology augments your existing platform with everything from your service levels, the certified, the bioflow and just enables you to even more proactively compete in that industry? So anything you could share on that would be greatly appreciated.

Okay. Thank you, Chris. So 4 things I would say here. So the first most obvious thing is that we're adding a fast-growing, high-margin business to our company as a stand-alone basis, growing double-digit, margins in the 40s, serving to high-growth markets driven by high-tech like mRNA vaccines and monoclonal antibodies, which is really sort of the new drivers in the pharma industry. So the first point is really that as a company as such, well, it's a growth engine that we're acquiring. The second one is that we're creating a new growth platform. And as mentioned before, this is something that we've done very successfully in the past as a company. When we acquired Nalco so in 2011, we added water to hygiene. When we built pest elimination, well, we created a global growth platform for institutional, for food and beverage, for health care and all the end markets that we have. So it's kind of a platform that's serving so many end markets as well. When we acquired Nalco, we got the digital technology, capabilities and platforms that Nalco had and we've expanded it in all our industrial businesses and now starting as well in institutional. And you mentioned Bioquell as well, which has been a great story where we've leveraged that growth platform in life science, obviously, in health care in other public spaces as well, especially so during these crazy times of COVID. So that's the second point. It's really start creating this global growth platform. So talking to life sciences as mentioned earlier, it's creating this 1 plus 1 equal 3 incremental value, which is a pretty cool thing. So like water and hygiene is helping you produce much better, much safer food while reducing the environmental impact and reducing your total operating cost, well, in Life Science, with both together, well, life sciences today, which is a $300 million business, growing double digit with margins in the 30s as well, is ultimately with the same customers focusing on the processing lines, making sure that they are safe and sterilized that we can focus as well on the clean rooms, the environment where it's being produced. But we do not touch the product itself, the drug or the vaccine. Well, Purolite does that, making sure that the vaccine and/or the drug ultimately are in perfect quality standards, are totally safe as well so to be used in human bodies where they used to ultimately. So you bring the outside together with the inside of the production which is really creating this incremental value that no one else out there so can do, which is pretty cool. And the last thing is that we can leverage that in industrial, Chris, as mentioned before, so we can help produce safer food and better food as well you can remove. So bad taste from food and beverage, for instance, as well as mentioned on the lithium as well in mining, which is helping us move our mining business towards high tech, high margin, fast growth type of businesses, as I mentioned, with this example in California as well; microelectronics, digital power and all that, so a bunch of examples of such there. So a great growth business added to our company, creating a growth platform for many end markets, especially in life sciences, will be over the next few years reaching $1 billion with high margin and fast growth type of business, pretty cool thing. And you add to that, Chris, all the leverage that we can bring to industrial. So I hope it helps a bit.

That's very helpful, especially your remarks on point 3. So just as a corollary of that, I mean, just given the attractive margin profile projected growth rates, can you just quickly just the ability to hold or even potentially improve the margin levels of the portfolio just given the higher value consumables? You mentioned -- you had -- in your preliminary remarks, you mentioned some aspects of being respective with the FDA. So just anything on the margin sustainability in the long-term growth trajectory would also be helpful?

Right. Thank you, Chris. Well, first, they're growing fast because they're serving a fast growth market. That helps. It's not always the case, obviously. Sometimes it's just a share play. Well, in that case, they're serving a high-growth market, which clearly helps. Why is it growing fast is that these new technologies as we've experienced with mRNA vaccine from Pfizer and Moderna, well, everybody knows it, the demand is much higher. Interestingly enough, Purolite is very small in that field right now, which is all upside going forward as well, but pretty strong. So in monoclonal antibodies, which are all the drug for cancer treatment, diabetes, arthritis and all that. This is the new pharma technology, which is growing really fast, and that's going to be 40% of that market, so in the next few years as well. So it's serving a fast growth market. Same time, as mentioned, it's 1 of only 2 leading players out there. And ultimately, so they are in a situation where the demand is outstripping the supply, which is obviously all driving growth and margins at the same time, which is a good segue for me to talk about the margins, as mentioned, so supply versus demand, which is a positive equation for that, and it's going to be so for a long term the case as well. It's also high margin, Chris, because it's serving mission-critical part of the production. It's really making sure that those drugs and vaccines are ultimately so really safe for human consumption, which is pretty cool as well. So it's also that they have a very differentiated technology. And to put it in simple terms, this agarose jetted technology, which is purifying those drugs and vaccines. In the simplest way to express it, those are small beads that you can program to attract exactly what you want, really making sure that at the end of the pipe, you have the exact vaccine or the exact drug that's coming out in the purity level that you're looking for as well. So this is a very unique technology that we use in biopharma and can be used elsewhere as well. And you've mentioned as well, so the FDA approvals. This technology is part of the FDA approval as well. It's a long-term relationship that you have for customers that helps obviously to maintain margins as such. And last but not least, on the sustainability of growth and margins. As I mentioned before, the fact that we have limited overlap in terms of customers in life sciences is a huge growth opportunity. The fact they're strong in North America, we're strong in Europe, while there is a natural opportunities here as well. And in the end, so bringing the 2 values, the inside, the product itself and the outside, the environmental clean and safe ultimately is creating this 1 plus 1 equal 3, which only us will be able to deliver. So that will be driving sales and growth in terms of margins as well in the years to come.

Our next question comes from the line of John McNulty with BMO Capital Markets.

Congratulations. Just a quick one on the differences between the Life Science and Industrial segment, can you speak to the differences in the margins in that particular business? I think I have a hunch in terms of how they lay out, but can you give us a little bit of clarity on that?

Yes. So the margins are high on both sides. Interestingly enough, so if you look at the sales of Purolite today, it's kind of 60% Industrial, 40% Life Science. And if you look at the margin, it's a reverse ultimately. So 60% Life Science and 40% Industrial as such. But in the life sciences market, the margins are north of 60%, up to 75% of the most high-tech applications, so very high. And when you look at the industrial market, it's closer to 45% to 50%.

Got it. No, that's helpful. And then maybe just a little bit of clarity on the $300 million tax benefit, I guess, how should we think about how this flows through either from an earnings or cash flow perspective as we kind of look out, does it immediately hit? Is it something that you take advantage of over the next couple of years? I guess, maybe a little bit of color on that would be helpful, too.

Yes. So I could cover that, but I would prefer having Dan, if he's connected, to cover that, our CFO. Dan, are you on?

Yes, I'm here. Yes. Thank you, John. So the nature of the benefit, let's start there, is that this is an asset deal. And so for tax purposes, you get a step-up in the asset base. You're right, it's recovered over time over the normal tax amortization period. And the present value of that at the weighted average cost of capital is for $300 million that we referenced, okay?

Got it. Okay. So this is really tied to the amortization side of things and in terms of the write-up?

It's exactly right. You get the step-up. You take that into your return and the present value of it is $300 million. So it's not an immediate cash benefit, but it is clearly a cash benefit to the transaction.

Our next question comes from the line of John Roberts with UBS.

Congratulations. On Slide 11, how much of the $160 million in Life Science sales is agarose resin versus the more traditional synthetic ion exchange resins?

It's roughly 80% is jetted agarose and it's growing. It will move towards 100% over time.

Wow, that's bigger than I thought because that $40 million at the start of 2017 would have all been the synthetic resins, correct?

That's correct.

Okay. And then is Purolite asset-light, you mentioned new plants in both the U.K. and the U.S. Do you have a 2020 CapEx number?

I don't have the exact number, but they are in terms of capital spend very close. It's close to the 2% to 3% as well. So it's very similar to what we do. So it's capital light, if we may say. But it's a big focus for us or for them. Since as mentioned before, so it's a capacity-constrained market, the faster you can bring capacity in the market, the faster you can grow. Interestingly enough, so since competition is kind of fully booked until '23, we have available capacity in the U.K. and the new plant in the U.S. that will add to that. So again, an equivalent of $500 million of sales capacity that we can add over the next few years.

Our next question comes from the line of Gary Bisbee with Bank of America Securities.

Congratulations, looks like a strong deal. I guess the 19x multiple of EBITDA in '22 suggests fairly meaningful EBITDA growth in '22. And I guess I wanted -- it sounds like you're talking about mid-teens type revenue growth. But what is -- it seems to imply margins expand quite a bit. So as we think the '22 and '23, how are you thinking about margin trajectory here? I know you said no synergies. I guess it sounds like life sciences is higher margin and growing faster. So maybe that's the answer. But do you think these margins actually scale from these levels in the next few years, and how much?

Yes, it's part of the answer for sure. So he has mentioned before, since the life sciences margins are even higher than the industrial one, so the portfolio shift will drive higher margins so by definition. When we look at their current trajectory in terms of earnings progression, it's in the 30s-plus, so already that is very good. The fact that while there is limited capacity helps obviously protect and grow the margins. But most importantly is the fact that, that technology, as mentioned before, so with this agarose jetted technology is really so focused on one specific drug that's being produced. You program those beads, if I may say, to really extract what you want. So which means it's part of the development of the drug as well. So just imagine how critical that is in the end product. That means that it's helping drive the margins as well in the right direction, ultimately. For the pharma companies, this is not the cost question. It's producing the best vaccine, the safest vaccine or drug so for human and reducing any environmental impact, which is all a good story for margins.

That's helpful. And then so you talked about the market growth on Slide 6, but it sounds like it's growing a lot faster or that greater than 10% maybe meaningfully faster in the biopharma category. And I guess I just wanted to think about how much of the growth is because -- your business has capacity and is added capacity and the competitor doesn't versus sort of underlying growth rate that would support both if they both were adding capacity. Like is this -- are you growing because you sort of got the capacity at hand now and you're going to help them grow it faster? Or is the market really growing in that mid-teens trajectory and the capacity is not as much a consideration? And obviously, I'm not asked about the next 6 months, I'm asking about the next several years...

Yes. Absolutely, Gary. And you answered the question actually here. So the market is growing faster than what the supply can produce. So that's why you have kind of a disconnect in here and the more capacity you can bring on the market, the faster you can grow. So that's why we're saying the market is growing sort of 15%-ish. And when we look at that Page 6 there, that's why we were talking about 10, which is the supply market as such. And obviously, you have one that's growing faster than the other one because there is available capacity to produce.

Our next question comes from the line of Kevin McVeigh with Crédit Suisse.

Congratulations. Christophe, really, really good margins. It sounds like they've ramped up about $500 million of incremental capacity. I'd imagine that's in the expense line already, so as that starts to come online, does that mean the margin scale higher? I guess, is there any way to think about how much of that incremental capacity has impacted the margin already? Because, again, really, really strong margins, but it feels like maybe there's some -- just that capacity is probably bringing it down.

Actually, no, it's the other way around because well, that's the first a simple equation that the more volume you have in the plant, the higher the cost absorption is. So you have your cost of production going down. So in very simple terms as such. So you have that that's helping on the margin side. And second is, as mentioned before, is new drugs and vaccines are requiring more high-tech solutions, the way I described before, so with the jetted agarose piece that you can program and ultimately, that's driving margins up. Keep in mind that you'd also put in perspective, if you look at that technology in 1 gallon, it's the same gross margin as a full track of what lower-end producers would in resin technology. So just to keep in mind a little bit what kind of margins we're talking about for that type of technology.

That's very helpful. And then just real quick, the 14% growth that it had grown historically, is that all organic or is it inorganic? Because again, it looks like the market at least -- according to Slide 6, it seems like they're way outpacing the market, is that kind of the pricing or just relative share shift? Any components as to the delta between the growth and market growth?

It's very aligned actually, but with the advantage of the available production capacity, as mentioned before, they have advantage of having available capacity in Europe and will have so in the second quarter of next year in the U.S. as well. So that will help growth and help margins for all the reasons I mentioned before.

Our next question comes from the line of Shlomo Rosenbaum with Stifel.

Looks like a very interesting deal, Christophe. I wanted to ask a little bit just between them and Cytiva, what -- is there a significant difference technologically? Or is it really a matter of whoever has got the best production is going to sell the most? Is there something more to it than that, at least as of right now? And then I just also want to know if the biopharma area, like does their 40% of revenue in life sciences break down along the lines of the way that you split up the market, like percentage-wise or are they larger in biopharma then this would imply or just trying to see if they map up with the market on the revenue?

Yes. So first and foremost, Cytiva is an extraordinary player. They were the first one on the market as well and Purolite was the second and the other 2 ultimately so global leading players in that market. So that's the overall story. When you talk about manufacturing capacity, yes, obviously, you have an advantage when you have available capacity because you just build it versus for them, so being kind of capped, but building plants as well, which is all good for everyone because there is plenty of space for 2, just to be very clear here. But back to your question on the difference between the 2 products. Purolite has this patented jetted agarose technology, which is different than what Cytiva is doing. That has the advantage of being faster to produce more cost effective to produce as well, it's more environmentally friendly because you don't need solvents to produce it as well. So it's a differentiated technology, protective technology that we believe has advantages versus what Cytiva is offering. But again, 2 great companies serving a market that hungry for more anyway.

And the breakdown is along the lines similar -- roughly similar to what you put out on Slide 6 in terms of the -- in the way the market shakes out?

Yes. They're mostly in life sciences. That's why -- so one way to look at it is that Cytiva is clearly the leader in pharma, biopharma. And Purolite is the global leader in resin-based ion exchange technology, including industrial, which Cytiva doesn't really do today.

Our next question comes from the line of Andy Wittmann with Robert W. Baird.

I guess I just want to address the mRNA vaccine production in '21 and the impact on the business. You kind of touched on it briefly before, but was that a material driver to the 2021 results?

No, interestingly enough, so they haven't started a significant production on mRNA vaccines, which is the COVID vaccine that you're talking about here. So there is there's no bump related to COVID. So it's kind of I see that as a good news indeed because that's all upside going forward. Unfortunately, we know that we're going to stay on boosters and new vaccines on an annual basis as well. So it's a good market. It's a new market. It's a fast-growing market. And Purolite is getting into the vaccine piece. They were much more focused on the drug part, which is not COVID related so far.

Okay. That's helpful. And then I guess just because this is kind of a new market for you guys, and you did mention, I think, in your materials here that you're going to run it as a stand-alone business. I was just wondering about given that this appears to have been at least a largely family-owned company. How much of the management team is going to come over and stay on after the buyout?

So it's a great question. And I'll give you the general picture that the personal considerations, obviously, so in here. Purolite has a very strong management team, very entrepreneurial, very sales-driven, very customer-focused, very well working together and you see it in the results, obviously, and very innovation driven, as you can see as well. The 2 owners, India, the CEO is 81 and the CTO is 76. So there's a limited runway, obviously. They're going to stay with us as long as it makes sense for both of us. And that business is going to be run by our current General Manager in Life Sciences. So it's going to be a very good combination of Ecolab's leadership together with a very strong Purolite leadership as well at the same time. So I feel really good with where we are and where we're going.

Our next question comes from the line of Jeff Zekauskas from JPMorgan.

How will you integrate the business into Ecolab? Will a piece of it go into water treatment and a piece of it into health care? Or will you do something else with it?

It's going to be very easy. And you probably remember that I led the integration of Nalco and Ecolab a few years ago, which was a real integration. In that case, I would put it black and white. There is no integration. It's a stand-alone operating company based out of Philadelphia, which is the hotbed of pharma and biopharma, as you know as well. So it's all about growth. It's all about fueling their own project while we build all the commercial connections with life sciences and industrial which I think is really cool for us, Jeff, because there is no distraction, no integration risk. And if you want to take an example of what we've done in the past, you know our [ K ]. business that's serving the QSR, the McDonalds and Walmarts of that world, we acquired them, I don't know, 20-plus years ago. We've kept them operating independently out of North Carolina, very successful and they work together with our pest team, with our water team, with our EcoSure team in a very smart way. So it's going to be the same with Purolite.

Great. So I just want to follow up and then ask my second question. In other words, the revenues will go into -- part of the revenues will go into water and part of the revenues will go into health care. Is that what will happen to the company?

No, it's not what will happen. It's a life science company serving many end markets and it's going to be reported within life sciences. It's a life science company today, and it's going to be a life science company tomorrow. So you're going to see it combined with our life science reporting.

Right. And for my second question, is it a chemistry company rather than a materials company? In other words, is it technology chemistry or is it polypropylene membranes or nylon membranes? What's the thing that it's got that differentiates it?

So there is no membranes, no filters. This is not at all that technology. It's resins. It's very small beads that are the diameter of a hair. So it's very small, obviously, as such. And those small beads up program without going into tech ultimately here to attract the exact molecule that you want to extract like lithium in brine, for instance, before or anything that might be in the vaccine production that you don't want to see in the human body then afterwards. So it's a very different technology than anything that you've mentioned, like filtration or membranes, nothing to do with that.

Our next question comes from the line of Mike Harrison with Seaport Research Partners.

I'm particularly intrigued and we haven't really talked about it yet about the food and beverage opportunity here. Clearly, this separation technology around ultra-pure water is something you can leverage for your food and beverage customers. But wondering if there's also a potential purification opportunity for some of your restaurant customers where they're serving soft drinks that could benefit from water purification?

Yes. Ultimately, yes, but that's really so down the road, so the institutional piece. So just keeping in mind that type of technology is kind of $15,000 a liter. So it's not exactly aligned with restaurants for now. But it's definitely a technology you can dump down for institutional. And when we talk about our beverage filtration to make sure that you Coke or Pepsi that you're drinking has the right flavor, we have that application already now which is much cheaper and working very well with our programs. Now back to F&B Mike, interestingly enough, you can see it in 2 different key applications. On one hand is purifying the water that might be used as an ingredient in food and beverage. Think about PFAS, which is a big topic and unfortunately, a topic that's getting much, much bigger going forward, well, you can purify that quarter before it gets into the product. That's 1-plus. The second is that, as mentioned before, so you can program those beads in order to capture exactly what you want, which means that in food and beverage, you can extract an off flavor, for instance, that you might have in a drink, in wine, in orange juice by purifying that product by selecting exactly what you want to take out. And that's the way they're operating in food and beverage.

Right. And a quick question for Dan. Any thoughts on what the interest rates could look like for the debt that you're taking on?

Yes, sure. So just maybe by way of background, Mike. given what I've said that our intent is to pay down the debt and get back to our intended leverage metric as soon as we can. So looking at 2 years, a lot of this will be quite short term. And so the short answer to your question is about 2%. The curve is pretty flat now currently, but it's a great time to be a borrower for a great transaction.

Our next question comes from the line of Rosemarie Morbelli with Gabelli & Company.

[Foreign Language]

[Foreign Language]

Given the fact that this is a very high growth and especially high-margin business, what is the likelihood of new entrants I mean I realize that it is difficult to get into this particular business, but there are some technology companies, particularly in the pharma industry who could come up with what is needed. Do you have any thoughts on that?

Yes, it's a great question, [Foreign Language]. So a few things. First, it took Purolite 7 years to develop the agarose jetted technology. So it is really hard to develop that technology, it's not an easy one. There may be a way to gain a year or 2. But since it's a very fast-growing market, it's hard to catch up, obviously, ourself. So long development time. At the same time, it's a patented technology. Cytiva technology is patented. Purolite's jetted technology is patented as well. The third thing, Rosemarie is that it's part of the FDA approval as well. So it's really hard to switch then afterwards because you want to make sure you're not taking any risk, obviously, with human safety ultimately. And last but not least, you need to have the production capacity as well to do it. And this is something which takes time to get right as well. So there might well be new entrants going forward since that market is so big and growing so far, but it's done hard to do the same.

Okay. And then I missed the addition in CapEx. I understand that the additional capacity is going to open a potential for $500 million in revenues. What is the dollar amount of CapEx that you will be needed on an annualized basis?

Rosemarie, it's very similar to Ecolab. So what you've seen over the years. So it's between 2% and 3% of sales. It's very similar.

And same question regarding R&D, how high is the R&D investment?

It's a bit higher than ours in percentage of sales, which is similar for us when we look at life sciences as well. But overall, as a company, it's not going to move the needle much versus our overall sales for Ecolab.

Our next question comes from the line of Eric Petrie with Citi.

A question on the 14% top line growth. How much of that is split between volume and price?

I'm not totally sure on this one, but I think pricing is a few percentage points and the balance is volume.

Okay. That's what I thought. And then a quick follow-up question. How large is the Protein A resin market? And what capacity Purolite has? And how long does it take to build new capacity?

So the overall market today, and it's a growing proposition, as mentioned before, so it's roughly $1 billion. It's what's expected today. And by 2024, it's expected to be $1.6 billion. So you see how fast that market is growing, the specific market you just mentioned, Eric, as such. And to build one of those plants, when you know how to build them, which is an important one, it takes roughly a year.

Okay. And how much does that translate $1 billion into leaders in terms of market size?

This is a great question, Eric. I have absolutely no idea. But what's important to keep in mind, it's roughly $15,000 per liter. So I guess, we could do the math.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Thank you. That wraps up our conference call. This conference call and the associated press release and slides will be available for replay on our website. Thank you for your time and participation, and best wishes for the rest of the day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.