Element Solutions Inc (ESI) Earnings Call Transcript & Summary

Greetings. Welcome to Solstice Advanced Materials' Acquisition of Element Solutions Call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the conference over to Mike Leithead, Vice President, Investor Relations. Thank you. You may begin.

Great. Thank you, Rob, and good morning, everybody. My name is Mike Leithead, Vice President of Investor Relations at Solstice, and thank you for joining us on short notice here this morning. As you may have seen this morning, we announced an agreement for Solstice to acquire Element Solutions. And we're looking forward to walking you through why we're so excited about this transaction. The slides we'll be using for this webcast are posted to the Investor Relations sections of both companies' websites. Following our prepared remarks, we will open the line for your questions. Before we begin, please turn to Slide 3. Today's discussion includes forward-looking statements that are subject to risks and uncertainties, and our actual results can differ materially from what we describe today. Please review the cautionary language on Slide 3 and in this morning's press release and in both companies' filings with the SEC. We will also reference certain combined and/or non-GAAP financial measures you will find descriptions in the forward-looking statements and other disclaimer slides. We undertake no obligation to update these statements. Turning to Slide 2. With me this morning are David Sewell, Solstice's, President and Chief Executive Officer; Tina Pierce, Solstice's Chief Financial Officer; and Ben Gliklich, Chief Executive Officer of Element Solutions. David will begin with the strategic rationale and the unique value the combined company will bring to all stakeholders. Ben will provide some prepared remarks from the Element Solutions perspective. Tina will take you through the financial profile and our capital plans. And David will wrap up with some closing remarks. With that, I'm happy to turn the call over to David.

Thank you, Mike, and good morning, everyone. This is an important day for both companies, and I'm excited to walk you through what we are going to build together. When we became an independent company last October, we told you Solstice would be a differentiated growth and innovation business with a clear right to win in the markets we serve. Today's announcement is an acceleration in that strategy, and we couldn't be happier to combine with Element Solutions for this next leg of the journey. I would like to frame the strategic rationale around 5 core areas that will drive value for shareholders. First, scale and leadership. This transaction creates a global advanced materials leader with combined 2025 net sales of approximately $6.8 billion, adjusted EBITDA of $1.7 billion, and leading positions across attractive end markets backed by more than 8,300 patents and pending applications. Second, we believe this combination creates an unmatched electronic materials platform. The portfolios are highly complementary across semiconductor fabrication, packaging, assembly and thermal management. Together, we will be able to deliver broader solutions, greater performance and deeper co-innovation with customers. Third, this combination further enhances our exposure to generational secular tailwinds. AI and the build-out of data centers are intensifying and the need for advanced packaging, thermal management and next-generation material solutions. The combined Solstice portfolio will be uniquely positioned to help solve these bottlenecks across the value chain, including electronics, refrigerants and nuclear applications, and bring innovation to market faster, which is what the markets are calling for. And fourth, we see this as a highly synergistic combination. We have identified more than $180 million of annual run rate synergies, which we expect to realize within 3 years of close. In addition, we see significant revenue opportunities. We will be able to have greater strategic dialogue with our customers, the world's leading foundries on the front end and their leading suppliers on the back end. We will have expanded channels and greater collaboration and ability to co-innovate and increase our value add across the portfolio. And fifth, we think this combination will meaningfully accelerate the combined company's financial growth trajectory. This transaction should lead to faster sales and earnings growth as well as enhanced cash generation. Notably, we are improving our growth rate and cash conversion in a transaction that is accretive in year 1. Tina will provide more detail on the financial framework in a few moments. Underlying all of this are 2 things that really make the combination work: our people and our customers. Both companies have spent decades earning the trust of some of the most demanding customers in the world. Together, we will have the technology, scale and talent to help those customers solve increasingly complex challenges. And when our customers win, we will win with them. With that strategic overview, let me turn to the transaction itself. Turning to Slide 5. This is a cash and stock acquisition. Element Solutions shareholders will receive $10 in cash plus 0.5 shares of Solstice common stock for each Element Solutions share, which represents a transaction value of approximately $14.5 billion at announcement, including the assumption of net debt. This represents a premium of 15% on Friday's closing price. Upon closing, Element Solutions shareholders will own approximately 44% of the combined company. Because most of the consideration is Solstice stock, both sets of shareholders will participate in the significant value we expect to create together. On governance and structure, the combined company will operate as Solstice. I am honored and humbled to serve as Chief Executive Officer, and our Board will comprise of 11 directors, including Element Solutions CEO, Ben Gliklich, and 2 other designees from the Element Solutions Board, subject to standard governance procedures. We have fully committed financing in place, and we expect to close in the first half of 2027, subject to the approval of both companies' shareholders, regulatory approvals and customary closing conditions. At this point, let me turn it over to Ben, Chief Executive Officer of Element Solutions, to say a few words.

Thank you, David. I appreciate your kind words, and I echo your excitement about this combination. It's been clear from the outset that this transaction makes great sense for both sides. These are 2 highly complementary organizations across the board. And together, we can deliver better on our commitments to customers, employees and shareholders alike. David and I share a people-oriented, customer-centric philosophy. This mindset will be a key asset. It will be foundational as we bring these companies together. At Element Solutions, we've been driving each of our businesses towards faster-growing, higher-value customers and markets, adding capabilities and resources to serve them better and enhance our value propositions. We've also been purposeful in strategically curating our portfolio. We divested our graphics business, added high-value electronics capabilities through our Micromax acquisition, established a foothold in specialty gases serving the highest growing sectors of the economy with our [ ESC ] acquisition, and added game-changing material science technologies like Kuprion. All of this work has positioned our company to catch powerful tailwinds and benefit disproportionately from AI data center build-out, vehicle electrification and advanced packaging market development. And Solstice also has exposure to these tailwinds in complementary ways to our portfolio. At a high level, Element Solutions generates just over 70% of its revenue from electronics, with the remainder from our specialties businesses. Within electronics, approximately 75% of sales come from B2B markets, meaning enterprise end markets that have more predictable, higher value demand. More than 20% of our sales come from the data center market, and that percentage is growing. Nearly everything we sell is consumable, and our business is highly qualified with high switching costs that insulate us from the volatility of capital cycles. Our business mix being heavily weighted towards electronics is a strong complement to Solstice, which has less overall exposure to that end market. So this transaction provides the combined company with a strong position in that attractive growth market. And we also bring tremendous expertise in formulation, process chemistry and in applications development, which when combined with Solstice's expertise in synthesis and engineering should accelerate time to market for innovations. We've built a highly efficient operating model that has led to consistent outperformance relative to our end markets and deploy capital prudently to grow per share earnings. Taken together, these actions have delivered strong long-term value creation for our shareholders. And this transaction is directly in line with that value creation model. This is very much a 'better together' story, one that comes at the right time to meaningfully accelerate all facets of our business. The transaction itself offers a significant and compelling premium, both through the cash portion and the meaningful stock component, which will allow our investors to participate in the synergistic benefits. And finally, to my Element Solutions team, this announcement is recognition of what we've built and will be an accelerant to what we are on track to deliver in the future. We can be both incredibly proud and excited. This is and will always be a people-based business. Since our inception in 2019, I've told you that all we are is what you've done and will do in the future, and this remains true. You are the source of value in our business and, along with the team at Solstice, will be the key to the success of this combination. So to that end, we're excited to join forces with the team at Solstice, and we've agreed that Element Solutions management team will be well represented amongst the leadership of Solstice at close to ensure continuity of leadership and a successful integration. Personally, I'm really looking forward to joining Solstice's Board, along with 2 of my fellow directors and to working closely with David and our combined capable team to deliver on the promise of this transaction. And with that, I'll hand it back to David to walk through the strategic rationale and value creation for our shareholders. David?

Thank you, Ben, and very excited to have you continue on our Board. Turning to Slide 7. When you bring Solstice and Element Solutions together, the result is a materially stronger, more diversified advanced materials platform. You can see the combined metrics on the slide, and I touched on the headline figures a moment ago, so let me focus on what sits behind them. Importantly, this is not just more scale. It's better scale. We expect the combined portfolio will be better aligned to durable high-growth end markets, including advanced packaging, copper interconnects, thermal chip management, data center cooling, uranium conversion and related nuclear services. At the same time, we will be diversified across end markets and geographies with balanced exposure across the U.S., EMEA and the rest of the world. That combination of growth and diversification will give us both upside to powerful secular demand and resilience through cycles. We believe this transaction will create a stronger Solstice, more innovative, more balanced and better positioned to invest for customers and create long-term value for shareholders. Slide 8 frames the transaction against the 4 strategic pillars we laid out for Solstice at our Investor Day last year. Each pillar is underpinned by a strong and resilient secular trend, and we believe this transaction is centered squarely on the first of them: the acceleration of advanced computing. The focus is deliberate. Denser, higher-power chips are driving demand for new materials and next-generation thermal management, and this is one of the most powerful trends in our portfolio. We believe Solstice is already positioned to win here and Element Solutions will meaningfully accelerate that position, deepening our capabilities in semiconductor materials and thermal management and shortening our time to solution. This acquisition will also bring established customer partnerships and real innovation potential with benefits that extend across the wider platform. And it is that advanced computing opportunity and how the demand is developing across the value chain that the next slide details. So turning to Slide 9. The rapid growth of advanced computing is changing what our customers need for material science. Chips are running faster, sitting closer together and generating more heat. And each of those durable trends directly drive more demand for our solutions. Starting on the left with connectivity. AI demand is pulling leading-edge semiconductor growth ahead of the broader industry. And as chips get faster, the performance and reliability of every connection becomes critical. But performance is no longer one on the chip alone. Designers are packing chips closer together through 2.5D and 3D heterogeneous integration. And everything the industry gains in density, it pays for in heat. With each new GPU generation, power and heat density step up again, pushing data centers from air toward liquid cooling and making system-level thermal management a central component of design. These demands do not exist in isolation and neither can their solutions. That is the opportunity in front of us and what Solstice will be positioned to provide across the value chain moving forward. Slide 10 shows where each of our portfolios play across the semiconductor value chain and why, together, we expect to cover it end-to-end. Solstice's strength sit at the front end in advanced node chip fabrication. Our chemistries enable deposition, patterning, etching and cleaning, the steps that build the chip itself. Element Solutions largely picks up where we leave on, in advanced packaging, one of the fastest-growing steps of the chain, and in PCB building through assembly. And at the points where the portfolios meet, such as in deposition and in thermal interface materials, we believe our offerings are complementary rather than overlapping. That is the real message here. On its own, each company serves a place of the chain. Together, we can follow our customers' devices from the blank wafer, through packaging, to the finished board and bring integrated solutions at every step, something very few material companies in the world can offer. Slide 11 lays that same story out at the product level. You can see how the 2 portfolios fit together. Solstice brings the fab side chemistries; Element Solutions will bring the packaging and assembly materials. And where the portfolios do touch, in areas like deposition and thermal management, each of us is extending a position the other already holds, creating synergy opportunities rather than overlap. The result of our combined company is expected to be a comprehensive, end-to-end offering that neither company can provide to customers on its own. Turning to Slide 12, where we take a closer look at copper, the material that connects our chips and preserves signal integrity as devices grow smaller and faster. Both of our companies enter this combination with well-established copper capabilities. Solstice deposits the tantalum barrier and the copper seed by physical vapor deposition. Element Solutions provides the electrochemical fill that completes the trench. Together, we deliver end-to-end metallization from the transistor all the way to the interface. That gives our customers higher yield and reliability. It gives them compatibility assurance because the seed and the fill are qualified together with tighter purity control across the stack. And it lowers the burden because a single certified single-source set cuts match testing and cross-vendor analysis. Just as important, it positions us to lead the next-generation seed-free interconnects, hybrid barriers and advanced packaging. This is a capability that none of us could offer alone. Slide 13 shows just how complementary our thermal portfolios are. Across the stack, Solstice and Element Solutions will bring offerings that fit together rather than overlap, which we believe gives us end-to-end thermal coverage to better solve our customers' increasingly complex heat challenges. And let me put that in the broader context of the data center. So turning to Slide 14, as a combined company, we will become a thermal management leader from the die to the data center. At the chip level, our heat spreaders and thermal interface materials, including Element Solutions' Electrolube and Kester brands, and Solstice's direct-to-chip materials, pull heat off increasingly dense, high-powered chips. At the data center level, we cover both ends of the cooling spectrum: air cooling with low-GWP refrigerants for chillers, heat pumps and computer room cooling and liquid and immersion cooling where we have a discovery program developing a proprietary 2-phase direct-to-chip immersion fluid from our existing molecules. And our reach extends to how these facilities are powered. As data centers increasingly rely on nuclear energy, Solstice remains well positioned to provide uranium conversion services, positioning us to serve this build-out from the chip to the power source. As rack densities and chip power climb, thermal management is becoming a central design constraint in computing and one of our fastest-growing opportunities. And Slide 15 speaks to something that gets us especially excited: the next-generation innovation this combination unlocks. A great example is Element Solutions' Kuprion product, which they have discussed frequently in recent quarters. Built on its innovative active copper technology, Kuprion is a nano copper material that delivers improved advanced packaging yield and throughput. And we agree with Element Solutions' assessment and view this as a game-changing, disruptive technology. There are additional exciting opportunities in the Solstice portfolio. We've talked at length in recent months about our sputtering targets for advanced node production, but we continue to develop new metal alloys for advanced packaging applications and new deposition solutions. Additionally, we highlight new applications for our thermal interface materials such as for optical, where we continue to solve our customers' greatest challenges. These 3 examples all highlight how the combined innovation pipeline will only be stronger, but we believe will place Solstice at the forefront of industry innovation. Slide 16 addresses another reason why we expect this combination to work so well. The 2 companies bring complementary capabilities to every stage of the customer relationship. Solstice brings industry-leading synthetic and fine chemistry, deep application expertise and long-standing spec-in relationships with leading electronic customers. Element Solutions brings formulation expertise, roughly 2,600 patents, and a technical service model with more than 40% of its people in technical roles working side-by-side with customers on their production lines. Together we can take a molecule from synthesis through formation, qualification and on-site technical service from early co-development to high-volume manufacturing. And most importantly, this puts us and the customer at the center. Our innovation is customer-led, co-developed on their lines. And together, we deliver end-to-end solutions that help our customers build a future-ready value chain. Turning to the next page on Slide 17, we quantify the cost synergies and highlight where we expect revenue synergies to emerge. We have identified more than $180 million in expected annualized run rate synergies on a net basis, roughly $100 million from operational initiatives and operating model integration, including efficiencies across G&A, sales and marketing and R&D, about $25 million from supply chain improvements, including raw material and procurement scale, and recovering copper from our deposition processes, around $20 million from footprint optimization and about $35 million from other initiatives. In addition to the cost synergies identified, we also expect meaningful potential revenue synergies to develop as the integration progresses. This includes cross-selling and deposition by serving both front-end and back-end metallization with complementary copper applications, dielectric to copper co-optimization in advanced packaging, and combining our complementary thermal management portfolios, all across a shared base of blue-chip customers. And with that, I'll turn the call over to Tina to take you through the financial profile. Tina?

Thank you, David, and good morning, everyone. Please turn to Slide 18. The headline here is simple. This combination will not just create a larger company, it is expected to create a faster-growing one with a stronger margin and cash generation profile. On a combined basis, including the run rate synergies David described, we expect an adjusted EBITDA margin of approximately 26%, an improvement over both companies on a stand-alone basis, reflecting the higher margin character of the combined electronics platform and the cost synergies. Upon closing, we expect revenue to grow at a mid to high single-digit rate over the medium term, with adjusted EBITDA growing faster than revenue as those synergies phase in. And the business converts earnings into cash very well with the cash conversion percent of approximately 75%. Finally, we would remind investors that we additionally expect this transaction to be accretive to adjusted EPS in year 1. Taken all together, that is a higher growth, higher margin and a more cash-generative profile, and it is the financial foundation for everything we want to do for our customers and our shareholders. Turning to Slide 19 and our capital structure and allocation policy. We are funding the approximately $14.5 billion transaction through a balanced mix of Solstice equity issued to Element Solutions shareholders, new debt and cash on hand. We expect net leverage of approximately 3.5x at close. Given our strong combined free cash flow and the expected synergies, we anticipate we will be well positioned to delever to below 3x leverage within 18 months of closing the transaction, with a longer-term net leverage target of 2 to 3x, in line with our current credit rating profile. When we look at our capital allocation priorities, first, we will invest in organic growth for our customers because that is where we create the most value. Second, we will deleverage to our target. And third, over time, we will return capital to shareholders while continuing to grow our dividend. This is a balance sheet and capital plan built to create value through the cycle, with the flexibility to keep investing in the growth ahead of us. With that, let me turn the call back to David for some closing thoughts.

Thanks, Tina. And let me close on Slide 20. We expect this transaction will create significant value for our shareholders, and we have a clear plan to capture it. We sit at the crossroads of generational tailwinds poised to benefit from [ secular ] growth across electronics, data centers and nuclear. Against those tailwinds, we are building a comprehensive integrated electronics platform with end-to-end offerings for the manufacturing of semiconductors and industry-leading solutions we can bring to a global customer base through established channels. This transaction also represents an opportunity to add great talent to our company with deep expertise and know-how, which will help us deliver on an incredibly exciting next chapter for both of our businesses. And on a personal note, together with my team, I have greatly enjoyed getting to know Ben and the entire Element Solutions leadership team and learning about their approach to building such an outstanding business. This company has been one of the great success stories in our industry, and I am excited to welcome this exceptional organization into our company. We have a highly synergistic business despite negligible direct product overlap. We expect actionable synergies of more than $180 million with additional revenue opportunities on top. And together, they underpin an attractive combined financial profile with enhanced growth, stronger margins and improved free cash flow conversion. And I'll leave you with the same thought that I opened with. We have a rare opportunity to take 2 companies with complementary technologies, a shared commitment to innovation and decades of trusted customer relationships, and to build the clear leader in electronic materials right as the world needs exactly what we make. We could not be more confident in the strategy and our combined team and in the value we will create together. And we look forward to working with Element Solutions and their team to bring this combination across the finish line. And with that, operator, let's open the line for questions.

[Operator Instructions] And the first question is from the line of John McNulty of BMO Capital Markets.

Congratulations, David and Ben. It sounds like a really solid combination. I just wanted to ask, I guess, David, maybe the first question for you, what precipitated the move and the timing of it in particular? It seems like you've got a lot of wind in the sails, but you're still a relatively new company. So I guess, can you help us to think about that? And then also, I guess related to that, do you see this as somewhat of a drop-in type acquisition? Or is there going to be some real heavy lifting in terms of the integration? And how do you think about the team just given your newness as a company and their ability to really execute on that?

John, thanks for the comments as well as the question. I'll take your question first on kind of why now. And I think it's -- with any M&A activity, you never know on the timing when perfect worlds collide, so to speak. And we knew advanced electronics was incredibly strategic to our long-term strategy portfolio. When we presented to our Board shortly after the spin, we wanted to really drive our advanced electronics business, as you saw on that slide, which we shared on Investor Day. And with just the secular growth trends that's just starting to explode, it was really important because our customers are just pulling on us so much for solutions. And that's on the Element side as well as the Solstice side. And by coming together, it was just so apparent that we can provide something no one else can provide. And more importantly, we could solve those complex challenges that our customers were bringing to us. And so it was just a perfect fit. And it kind of dovetails into how we'll integrate is we really look at this as -- a drop-in might be a little bit too easy to say, but it's just so complementary. And I think our approach is going to be how do we leverage, and you saw in some of the slides, a more integrated solution? Because that's what's going to improve our customers' yields, their cycle times. It's going to help them meet those challenges with heat and solving that problem. So we just felt that this was a great time to do this transaction. It worked out perfectly for both companies. We see this as really driving the innovation together in these solutions. As you know, Element has had 2 recent acquisitions that have integrated very successfully. Our team as a recent spin, I think we've had great success separating from Honeywell very quickly. Our project management team is in place. We'll roll that right over. And we're looking at this as a growth story. So it's going to be about innovation. It's going to be about the customer. And we're just going to be able to drive that solution. And I'll even turn it over to Ben to give his perspective on it.

Yes. Look, I think that the integration here is reasonably straightforward from what we've done in terms of [ outside-in rework ]. The synergies are real. The capabilities are complementary. The businesses are better together. And we'll be sure to preserve what makes these businesses special. And those are different skill sets, sort of the point that David was just making around, core innovation and synthesis and large complex manufacturing on the Solstice side, and then technical service, application development and really deep customer intimacy from our side. They're very complementary skill sets, and we, again, believe the businesses are better together.

The next questions come from the line of Josh Spector with UBS.

Congrats on the deal. So I just want to follow up on the synergy side of it. I guess if I look at everything you guys went through, I mean, Solstice today has $400 million-ish in sales in electronics. Element has $3 billion plus. I guess this is obviously Solstice acquiring ESI, but when I look at the base where there's really that overlap and the cost potential, outside of the corporate cost side of it, like where do you get the real scale in this to have high confidence in that $180 million in savings?

Yes, Josh, thanks for the question. Where we -- we've done a lot of work on the synergies, and we stand behind this 100%. It's very in-depth, very detailed. We've done a lot of work collaboratively to align on what this is. And I'll answer your question in 2 ways. There is just -- with the footprint we have around the world, we see opportunities for some optimization in there. We have some great operating models that are going to drive a lot of value creation. Our scale on procurement, there's a nice crossover there that's going to drive significant opportunities, as well as supply chain. When we spun from Honeywell, we were able to really drive and take the best of Honeywell and that legacy in a lot of the supply chain and logistics. And I think with the global footprint we have, we'll be able to consolidate our opportunities there. And then also just the piece that Ben talked about is, on top of that, we're really going to have a growth opportunity here. So it's not just about cost, it's also about growth. And you see that in our forecast with higher revenue, higher EBITDA growth. And that's just because of the solutions that we can provide.

Okay. And if I could just follow up on just broader portfolio, what does this mean for Solstice longer term? Are you thinking that the business is going to be refrigerants, nuclear, electronics, everything else maybe is a lower priority? And obviously, you're getting some other businesses in specialty and other industrial businesses with ESI. So how does that all fit together?

Yes. It's a great question, Josh. And I go back to the strategy we laid out for our Board. And we have a vision of where we wanted to take this company. And it was a 5-year plan. This obviously accelerates that. But this was a key priority to our strategic footprint -- or portfolio that we wanted to be as a new company. I think because of this acquisition, it does allow us flexibility to tailor our portfolio to the vision we have. But I would also tell you, we really see some strong synergies in areas like EFC gases, even in some of the oil and gas pieces with our hydrogen fluoride. So we are really excited about this. But in fairness to your question, I do believe this gives us an opportunity to tailor the portfolio to the vision we have to achieve that strong growth profile and, very importantly, the leading-edge margin profile that we have.

The next question is from the line of Chris Parkinson with Wolfe Research.

Ben, perhaps, can you give a little bit more color in terms of the process and how this all came about? I mean it's been -- there have been several new stories over the last several years about exploring various opportunities. So I'd love to hear your perspective about kind of just the history here and why you believe this is ultimately the best of the best opportunity and the financial consideration is fully valued on behalf of Element shareholders?

Chris, thanks for the question. So you'll get the whole background to this in the proxy when it comes out in short order. I would say that Element did not put itself up for sale. We were approached by Solstice. And with regard to value, I would say a few things. The first is that Solstice, it's a really high-quality business. It's got solid, idiosyncratic growth vectors. And as we said before, some real complementary skill sets. It's a better together story. On the electronics side, they've got a rock-solid portfolio. What they have in the front end will open doors for us, and what we have in terms of packaging capabilities will open doors for them. The synergies are real. As David went through them, these are real, hard cost synergies that we're talking to. And we're not underwriting to substantial revenue synergies, but we believe there will be some. Just anecdotally, as you know, we've got a decentralized model and things like procurement and logistics reside close to the customer in the country. And when you look at what the Solstice team is able to do around purchasing and coordinating logistics, there's tremendous low-hanging fruit savings there. And so we've got high level of confidence that it's not just a sort of corporate cost, public company cost synergy opportunity here. There's real operating cost synergies that we can deliver. Putting these businesses together, you get the best materials company in the market with leading growth rate, leading margin, substantial cash flows and really substantial scale. And so this is a great offer for our shareholders. We're getting a real upfront premium. We're getting cash upfront and our shareholders are going to be in a position to benefit from real long-term value creation. And so we think this is a great offer and a great opportunity.

Great. And just as a quick follow-up. You mentioned probably 3 or 4 times even in the prepared remarks, but also in the PowerPoint, about some of the other synergy opportunities across thermal and deposition. Could you just give a little bit more color on what exactly those could be and how you're thinking about them on a preliminary basis?

Thermal management is such an incredible pain point for the electronics supply chain writ large. Solstice brings great capabilities with heat spreaders and other TIMs. And we have great capabilities both in our interconnect business, in our assembly business and in our semi-assembly business. The soup-to-nuts suite of offerings here is unrivaled in the market, and materials compatibility is an incredible challenge given the range of materials that are being used and the iteration cycles for innovators in this market. And so by combining our portfolios, we think we have a differentiated value proposition in the thermal space, and that will drive market share our way.

Yes. Ben, I couldn't agree with you more. And I loved our example that we walked through on copper to improve the connection and signal strength. When you look at the integration of Element and Solstice and what we bring in that application, you now have a complete multiproduct provider that could truly innovate where the customer really needs innovation to massively improve yields in this critical area. So we think this single source just provides tremendous opportunity to solve some of the customer challenges that they've really brought forward.

There's no one in the market that has vapor deposition and electrochemical deposition onto silicon. And those materials interface with one another. And so we, just like in thermal management, have a portfolio where we can offer a broader set of solutions than anyone else in the market.

Our next question is from the line of Kevin McCarthy with Vertical Research Partners.

David, it strikes me that through this combination, you're making a substantial bet, obviously, on electronic materials, moving from 11% of the portfolio to, I guess, 35% to 40% on a pro forma basis. So in that context, can you talk a little bit about the degree of cyclicality or lack thereof in what you're acquiring? And maybe as a follow-up to Josh's question, should we think of the combined company as one that's likely to march toward a pure play in electronics? Is that meant to be kind of the incremental home for capital moving forward?

Yes, Kevin. First, on the latter part of your question, to be a pure play, we want to be a solutions provider. And when we look at our portfolio, we think refrigerants ties so extremely well into our electronics, and nuclear is critical as part of that whole data center infrastructure. So the answer is we actually think that differentiation is so vital because it's just another step on things we can provide that nobody else can provide. So as we work with hyperscalers, we're talking to them about everything. We're talking to them about power. We're talking to them about cooling. We're talking to them about what do you do with the heat that you're emitting from the chip. And then we're talking to the semiconductor teams that talk about all the solutions we provide there and then how do you get the heat off the chip. So it's all very integrated. And I think that differentiation is core to our strategy. And that goes right to your question on cyclicality. We are so balanced that, that refrigerants business, as you've seen with the strong IP portfolio we have, that's going to continue to drive tremendous growth. And we have really unique molecules for the data center and refrigerants in air cooling, so that's a tremendous value asset for us. And nuclear, if I could just emphasize, is absolutely critical to our core strength. And then what we've demonstrated by taking those core technologies and finding new applications like in medical devices and inhalers with HFOs, that's created a brand-new organic market. That's another way that we're avoiding any type of cyclicality. And then in our safety and defense business, we're doing some really game-changing things in that area that are also now potentially tying into health care and in PCBs. So it's all interconnected. It gives us great diversity, which is why we're so confident in our growth rates. And we are thinking of ourselves as a complete solutions provider in these very attractive growth markets.