ILC Dover LP (IR) Earnings Call Transcript & Summary

Good morning. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ingersoll Rand acquisition of ILC Dover Conference Call. [Operator Instructions] I will now turn the conference over to Matthew Fort, Vice President of Investor Relations. Matthew, you may begin your conference.

Thank you, and welcome to the Ingersoll Rand conference call to discuss the purchase of the life science-based company, ILC Dover. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; Vik Kini, Chief Financial Officer; and Corey Walker, President and CEO of ILC Dover. We issued a press release and presentation about our newest acquisition earlier this morning, and we will reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today. Before we start, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on Slide 2 for more details. In addition, included in this presentation are certain non-GAAP financial measures designed to supplement the financial information provided in accordance with generally accepted accounting principles as management believes such measures are useful to investors. Reconciliations of non-GAAP measures related to full year 2024 estimates have not been provided due to the unreasonable efforts it would take to do so. During the Q&A session, we ask that each caller keep to one question and one follow-up to allow time for other participants. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning. Over the past 4 years, we have made over 40 strategic acquisitions on our journey of making life better. These strategic transactions have expanded our product portfolio, enhanced our geographic reach and improved our go-to-market positions. Ultimately, they have improved the overall durability of our portfolio by increasing our exposure to high-growth sustainable end markets and adding more than $7 billion to our addressable market. As we mentioned at our Investor Day this past November, a distinct focus of both our organic and inorganic growth strategy is to continue to diversify our products and portfolios into high-growth sustainable end markets. Today marks an exciting milestone to expand further into Life Sciences through the acquisition of ILC Dover. ILC Dover has a rich 75-year heritage and will be Ingersoll Rand's largest acquisition to date. Turning to Slide 3. In terms of the financial profile of the deal, this is a very attractive acquisition with an upfront purchase price of $2.325 billion which represents an approximate 17x purchase multiple of 2024 estimated adjusted EBITDA. The ILC Dover business has a dual role financial profile with an organic revenue growth CAGR that has been in the mid-teens over the past 3 years and adjusted EBITDA margins in the mid-30s. This business will join the Precision and Science Technologies segment and will be immediately accretive to the segment in terms of both growth and margins. ILC Dover is a leader in Life Sciences with differentiated technology in powder management, single-use solutions and liquid handling products for the use in the biopharma and pharma markets, as well as specialty solutions for the design and production of silicone, thermoplastic and specialty components for medical devices. This acquisition will increase Ingersoll Rand's access to existing life science solutions through highly recognized brands and established direct channels and strong solutions oriented customer connectivity in biopharma, pharma and cell and gene therapy, which is highlighted later in this presentation. Today, the Life Sciences end market represents about 15% of Ingersoll Rand's revenue, our largest end market and is one in which we continue to see great long-term trends and opportunities. ILC Dover is well positioned to both expand our presence in and create a more substantial life sciences platform that we can leverage. ILC Dover will expand our total addressable market by more than $10 billion. Pairing ILC Dover's established market position and brands with Ingersoll Rand's existing liquid handling technologies and positive displacement pumps will drive sustained growth and maximize value creation for both customers and shareholders. Once finalized, we will welcome more than 2,000 ILC Dover team members across 11 manufacturing and engineering facilities located across North America, Europe and Asia. As we move to Slide 4, let's talk more about this new business. As I mentioned earlier, ILC Dover is a leader in the innovative design and production of solutions for biopharma, pharma and medical markets where 75% of the revenue is currently positioned. In addition, approximately 75% of total ILC Dover's revenue consists of consumables, like-for-like replacement and recurring revenue. This is much higher than our current mid-30s aftermarket profile for total Ingersoll Rand. The ILC Dover business has a global scale with 11 engineering and production facilities located across North America, Europe and Asia. In terms of future growth, ILC Dover has more than 100,000 square feet facility of clean room capacity locations where we have unique capabilities of low-cost manufacturing presence as the company has invested heavily into new facilities in Mexico, Poland and China. The middle of the page shows a few of the core products ILC Dover is best known for including single-use bags for powder containment, transfer and disposables, which are mission-critical components for biopharma and pharma production. These end markets make up roughly 60% of the Life Science segment. The remaining 40% of the Life Science segment is focused on the development and manufacturing of highly complex components for medical devices. The core expertise of this piece of the business is silicone and thermoplastic molding and extrusion which enables ILC Dover to produce the components seen at the bottom center of the page. Manufacturing these highly complex components is tied to strong growth trends in medical device manufacturing, particularly in areas like cardiovascular and neurology, which are 2 key end markets where ILC Dover has solid market share. This creates opportunities to expand existing Ingersoll Rand Life Science products into new applications and customers. Overall, ILC Dover has an attractive financial profile and is expected to deliver approximately $400 million of revenue in 2024 with mid-30s adjusted EBITDA margin. Turning to the next slide. Let me talk about the alignment of ILC Dover against our stated strategic importance for M&A. First, we start with the core of our technologies. In this case, the mission-critical flow such as peristaltic technology pumps, blowers, compressors and vacuums. We then move into adjacencies. With the Life Science end market, we have, for years, targeted the consumable portion of bioprocessing which focuses on single-use technology, including bags, tubing, isolator protectors and many others. With ILC Dover, we get exactly that, a very clear adjacent market in which we can attach our pumps to those consumables. For example, using our peristaltic pump technology, combined with the newly launched ILC Dover tubing technology to deliver liquids to single-use devices also made by ILC Dover is just one simple example of how we can help control that entire ecosystem. Another great aspect of this transaction is that we get a highly recognized brand with ILC Dover, an access to customers with their direct approach and scale, which means that we will leverage their consumable products to sell more of our pump technology that we currently have at Ingersoll Rand and we will speak more to that in a minute. With this acquisition, we also touch on the aligned category on several fronts. First, we're getting mission-critical equipment like isolators for biopharma. Isolators made by ILC Dover are best-in-class single-use and an essential step in the aseptic isolator step to ensure operators are safe and produce the most precise dosing for therapeutic production environments. Second, medical devices. ILC Dover provides us with unique and niche technologies in high-precision silicone and thermoplastic consumables. Third, ILC Dover is giving us optionality to access a fast-growing market in aerospace with not only opportunities in revenue growth, but also in recurring revenue. I would like to remind everyone that ILC Dover is the only company that has built a space suit that has put a man on the moon safely. ILC Dover has a deep relationship with NASA and many of the customers in the space market. We believe that the space and aerospace market, whether commercial or government sponsored, will grow at high single digits over the next decade. We plan to leverage this customer access for new flow creation technologies like high-compression technology which is already being used for fueling rocket ships or our dosing pump technology from Dosatron to establish hydroponics in space with ILC Dover developing inflatable habitat. Clearly, all aspects of this acquisition offer us an amazing opportunity to leverage making life better in life sciences and beyond. Next, on Slide 6, let's talk more about the synergies between ILC Dover and Ingersoll Rand by leveraging ILC Dover manufacturing expertise in silicone and thermoplastic extrusion which will drive insourcing opportunities. ILC Dover has leading expertise in biocompatible silicone extrusions and intimate relationships with premier medical technology companies to support the fabrication of devices such as catheters, drainage and feeding tubes. ILC has taken their niche silicone knowledge to develop and launch silicone tubing specifically designed for various applications across the biopharma manufacturing process. We believe that these capabilities and relationships with end users, combined with Ingersoll Rand's flow creation technology creates a very strong integrated offering for our customers in a very cost-effective manner. And until now, this type of combined offering of peristaltic pumps and tubing was not readily available for either company. On Slide 7, let's talk about the evolution of the P&ST segment. Following customary regulatory approvals with an expected close at the end of Q2 2024, the addition of ILC Dover will significantly increase the profile of our P&ST business bringing it to approximately revenue base of $1.7 billion for the total segment. As a result, we are going to take the opportunity to run the business in 2 pieces within the P&ST segment to ensure we provide the appropriate focus to drive growth on their 2 established and very capable leaders. First, we'll create a Life Science Technology platform with approximately $700 million in revenue which will consist of ILC plus Ingersoll Rand Life Science-focused brands including Thomas, Welch, Zinsser Analytic, TriContinent, Air Dimensions and ILS. Corey Walker, ILC Dover's current President and CEO, will lead this platform and join the Ingersoll Rand leadership team reporting directly to me. Corey has nearly 2 good decades of experience, accelerating the growth of Life Sciences and Advanced Materials businesses, holding leadership positions, most recently at Avantor, where he helped take the company public and led a very large segment. Our current P&ST segment leader, Santiago Arias Duval, will continue to report to me and lead the precision technologies platform, which represents approximately $1 billion in revenue. Under Santiago's continued leadership, the team will build upon the trajectory and momentum of its premium brands, including Aro, Dosatron, Haskel, Ingersoll Rand pumps, LMI, Milton Roy, MP, Oberdorfer, SEEPEX and YZ Systems. We believe this new structure will put the business in a position to continue to play offense in this market. With that, I'll turn it over to Corey Walker to talk through our research to production model and an example of where our combined products can be and are currently in use within pharma manufacturing processes.

Thank you, Vicente. Very excited to be part of the Ingersoll Rand's team and the journey that's ahead of us as we continue to build out our Life Science portfolio together. Why don't we turn to Slide 8. Here, we illustrate how the combination of Ingersoll Rand and ILC Dover enabled a research to production model that's repeatable across our existing and our future customers. Life Sciences customers value the ability for a supplier to travel with them through the journey of the therapy life cycle to maintain repeatable, consistent and high-quality outcomes from the lab scale work to commercial production. With the combination of Ingersoll Rand and ILC Dover, we can provide our customers with exactly that. Our newly acquired ability to support the drug life cycle, combined with iconic brands and well-established channels to market, enables us to support customers in a fully integrated end-to-end model. As you see in the charts below, Ingersoll Rand and ILC Dover are both complementary and well positioned across the research and development and production phases of Life Science workflows. There are powerful points of leverage between both businesses, including market-leading products, strong channels, differentiated technologies and well-established brands, which will generate opportunities to penetrate more phases of the drug life cycle and broaden our position across the workflow. We are very encouraged by the combination of capabilities and believe it provides for a unique positioning in the life science end markets. Next, on Slide 9, we illustrate the pharmaceutical manufacturing process and why we see such a great fit between ILC Dover and several of the current offerings from the existing Ingersoll Rand portfolio. ILC Dover has historically supplied many of the world's most prominent drug manufacturers and their therapies. The example provided here today relates to the production of GLP-1, a critical therapeutic area which serves diabetes applications and more recently, weight loss and obesity applications. As you can see, ILC Dover already actively provides numerous products for use in production. We're leading GLP-1 manufacturers. And in combination with Ingersoll Rand, our ability to further support this very attractive therapeutic area across numerous key steps in the workflow is exciting. On the top of the schematic, ILC Dover provides offerings in terms of single-use powder and containment bags, liners and other consumables that are used across a variety of steps in the drug manufacturing process. In addition, Ingersoll Rand has several current offerings for both its Life Sciences and industrial portfolio that can provide a more holistic offering and value proposition for existing and future customers. Simply stated, the technologies at Ingersoll Rand of creating flow for solids, like powder or liquid are essential for moving, filling and discharging the very precious materials that pharmaceutical companies use for making medicine and therapeutics. Another natural synergy between our companies is ILC Dover's ability to manufacture single-use tubing, which is also a key consumable for Ingersoll Rand's peristaltic pump offerings. I will now turn it over to Vik to review the transaction highlights.

Thanks, Corey. On our final slide, I'll provide some highlights for this transaction. This deal will be a $2.325 billion upfront purchase price plus a contingent payment of up to $75 million based on the delivery of 2024 forecasted results. This equates to an approximately 17x adjusted EBITDA upfront purchase multiple which is increased by approximately half a turn, assuming full achievement of the earnout. We believe that this is very much aligned with our previously stated acquisition criteria of prudently deploying capital as we're buying a premier life sciences business at an attractive purchase multiple. I would also like to mention that we were able to get to this point on an exclusive basis and without a process which once again speaks to the uniqueness of our strategic and proactive M&A process, whether it's with family-owned companies or, in this case, private equity owned. The deal is not subject to any financing contingencies given our healthy balance sheet and cash profile today. We expect our net leverage to be less than 2x at the time of deal closure, and we anticipate net leverage to finish the year below 1.5x. In terms of the financial impact, the deal is expected to be immediately accretive to all relevant metrics, including adjusted EBITDA margins and revenue growth as well as adjusted earnings per share. The deal is targeted to reach a high single-digit return on invested capital by the third full year of ownership, which is generally in line with our cost of capital. We anticipate a range of $10 million to $15 million in cost synergies by year 4 on a full year run rate basis. Some of these opportunities include insourcing and optimization of the underlying cost structure. The onetime costs to achieve these synergies are expected to be nominal. As far as time line, as Vicente mentioned, there are normal and customary regulatory approvals required, and we expect closing to take place by the end of Q2. And now I'll turn it back over to Vicente for a few closing comments.

Thank you, Vik. As we wrap up today's call, I want to reiterate that Ingersoll Rand remains focused on mission-critical flow creation technologies and digital solutions which enhance our value proposition. We believe the addition of ILC Dover will be an accelerant to future growth within life sciences and gives an incredible access to a growing aerospace segment. With ILC Dover, we're getting a premium world-recognized brand with a direct channel to an amazing customer base and a team that is top notch. Together, we have opportunities to grow revenues, reach more customers and make a greater impact on the markets we serve. In addition to being a strategic match in business, we share a similar culture and entrepreneurial mindset. The combination of our highly engaged workforces in conjunction with the use of IRX all while being focused on Making Life Better is setting the foundation for an exciting next chapter for Ingersoll Rand. With that, I will turn the call back to the operator to open the call for Q&A.

[Operator Instructions] Your first question comes from the line of Julian Mitchell from Barclays.

Congratulations. Maybe just the first question around that high single-digit ROIC goal in the first sort of full third year post the deal. Maybe help us understand a little bit more some of the financial elements behind that math. So are you assuming sort of high single-digit organic growth and I don't know, 400, 500 points of margin expansion. Is that the right framework?

Julian, thank you. I'll take that. So we're assuming low double digit over a 5-year time frame. So just over about 10% growth rate projected over the mid- to long term in these businesses. And from a margin profile, it's already very healthy in the mid-30s. But having said that, I mean, we believe adjusted EBITDA margin profile for this business can get to the 40% or slightly higher, which will imply roughly 50% incremental. So in terms of margin expansion by year 3, you're in the right ballpark. So yes. [indiscernible] And we also feel very good about the growth expectations here in terms of being fairly prudent and the model does not include any revenue synergies.

Understood. And then just my follow-up would be around the sort of market size and the exact positioning of ILC Dover. So I think you talked about the deal adding in aggregate, a sort of $10 billion plus TAM to IR. And so the sales base of ILC Dover, it's a sort of mid-single-digit percentage market share very crudely. Clearly, though, it's a market made up of numerous niches, and I'm sure ILC Dover's share is very high in certain niches. Maybe any color around that or the competitive landscape in the businesses where it's strongest.

Yes. I'll say within the Life Sciences, Julian, I mean ILC Dover is a market leader in powder technology, isolators and silicone and thermoplastic solutions. And -- so you're absolutely right. I mean there's actually some very critical niche applications on that, and ILC Dover commands a great presence. And then there's other ancillary things that they're doing. For example, entering the bioprocessing tubing organically as they have been able to now recently launch that product line. So all of that just continues to give us great visibility in terms of great, great accessible market with high, high level of fragmentation that we think are bolt-on strategy, M&A engine that we have, we'll continue to play a very crucial role on expanding the solutions that we can do in the Life Science side.

Your next question comes from the line of Jeffrey Sprague from Vertical Research.

Congrats. Just wondering on the, I guess, kind of two things on the growth. First that CAGR, how much of that is organic? Or is it all organic? And then, did this business avoid the biopharma downturn of '22 and '23? Maybe just give us some perspective on how it navigated the recent drawdown that we've seen in these pockets of the market.

Yes. On the first one, yes, basically, the CAGR is organic. And the second question, I mean, I have here Corey next to me, and I think he'll be able to kind of tell you more about it. Corey?

Jeffrey. Nice to meet you. This business is exposed to the trends that generally everybody saw in bioprocessing given that we have a large presence in single-use product lines, especially for biopharma manufacturing. However, what we experienced was muted relative to what you've seen probably from others in the space and expect -- we expected to see on par or more accelerated recovery as we work through the situation of bioprocessing.

Right. And Vicente, just back to you. Big deal, obviously checks a lot of boxes. How about the remainder of the IR pipeline now? What should we expect over the balance of the year? Does this kind of crowd out some other things for the medium term, just your bandwidth to kind of continue to deploy capital?

Yes. I think that continues. It definitely continues. I mean -- I mean when you think about this transaction, our net leverage is going to be at or below 1.5x by the end of the year. So again, it shows still pretty resilient in terms of where we are from a financial profile. And so we still see plenty of capital available to continue investment in M&A. So no change in bolt-on strategy and the execution of the 10 LOIs that we previously told you about in the last earnings call. And as a reminder also as well, ILC Dover was not included in those LOIs. We always talk to you about the couple of billion dollars that we had on the sidelines. And ILC was definitely one of those. But business integration is kind of a core engine for M&A. And so that's going to continue. So we have plenty of people capacity to continue these flywheels and as you have seen that we do all the time with the leverage of IRX, we should be able to continue with this M&A engine forward.

Your next question comes from the line of Rob Wertheimer from Melius Research.

I wonder if I can circle back to that growth question and the muted disruption versus what other Life Sciences experienced. Is that partly just due to the lack of channel inventory on the single-use aspect of the product line? Or is the product actually still taking share or conquering new territories or providing new solutions and so is expanding faster than the overall market? And maybe the same question really on the forward outlook -- on revenue. Is that just end market related? Or is there an outgrowth on penetration or some other factor that's driving the very strong revenue growth?

Yes, let me take through your questions. Rob. So first of all, the position that we have in the bioprocessing workflows is largely today focused on powder and isolation technologies in nature where we have a market-leading position. And that has allowed us to weather the storm, I think, better than others where you -- especially on the liquids and management side of the business where you see others see a more pronounced decline in destocking impact. So we've benefited from that, and we expect that to also be a tailwind as we've come out of the bioprocessing overstocking that the oil industry has seen. When you think about organic growth, we have some great tailwinds at our back. One of the areas that we're really excited about, and you saw it in the presentation is the GLP-1 workflow where we are squarely positioned well across multiple steps in that workflow that is expanding dramatically for us as an opportunity. In addition to that, there are also other rare disease applications where we are specified into the manufacturers process and are benefiting from the investments they're making in the growth that they expect to see here as we move through this year into the following years.

Okay. And so you have some [indiscernible] on the forward look just based on what you're sort of spec [indiscernible] could you talk about the confidence curve? And I'll stop there.

Sure. I mean what I would say is we are seeing green shoots that are encouraging as we move through the first half of the year with customers. We are still working through some the destocking like the rest of the industry, so I wouldn't call ahead of the back half of the year, but we are seeing positive signs both in booking trends and in the discussions that we're having with our customers as we look forward.

Your next question comes from the line of Joe Ritchie from Goldman Sachs.

Congratulations. Yes. So my first question, Vicente, as you kind of think about this acquisition, it wasn't part of 1 of the 10 LOIs seems like it kind of came together fairly recently. How are you thinking about the risk associated with this transaction? And does it compare to anything you guys have done in the past?

Yes, Joe. So I can tell you that we have been cultivating this one for some time. So it was definitely not included in the LOIs just because of the magnitude of the size. It could clearly change how we think about the total funnel. So we have done a lot of good work. Again, it speaks more pronouncedly on our M&A process that we've spoken a lot about that we're very proactive, cultivating, building relationships and, therefore, preventing to go from a process. So keep in mind that -- so that was actually very well done and very well executed. I think I can tell you too as well, Joe, that as part of the process, this one was that hit all the marks in terms of why in this case, New Mountain decided not to go through the process, which is obviously everything that we have always said in the past, including the fact that the 1-year anniversary after close, employees will become owners, and we continue with the ownership mindset, and we see a lot of that we can build here. Currently, we have no revenue synergies tied to the model. As you know, we -- every time we do the ROIC on anything that we can control. So clearly, there's aspects about insourcing and leveraging the capabilities that ILC has, leveraging also organizational structure and things of that nature and we still contemplate prudent growth expectations in the Life Science space. Keep in mind, Life Science space, for this business, it's a good portion of biopharma, but also med devices and the med devices continues to see some pretty good growth trends. And then as we said, the optionality of space that continues to drive pretty good growth vector. So yes, I think we feel good, very excited about bringing this one to the Ingersoll Rand family, Joe.

That's great to hear Vicente. And maybe my quick follow-up. You guys referenced GLP-1 multiple times. And there's some really big kind of like market TAMs out there on how big that market can get. Maybe just talk a little bit more about your capabilities serving that market? How competitive is it? And ultimately, like maybe how big that business is for this asset today?

Joe, this is Corey, and I'd like take the question. So as all therapies in bioprocessing, workflows typically unfold, being in early with the customer where you're a trusted brand and you're specified into their process is critical, and we've been working with these customers for decades, and we are the trusted set of technologies across multiple product lines for us. And so we're quite excited about not only what they're doing but what they're doing with the rest of their ecosystem to support the growth in GLP-1 and given the fact that we've been on -- and in the discussions early, we have a great position in these product lines, and we expect to be able to enjoy the growth that the market is expecting there.

Your next question comes from the line of Nigel Coe from Wolfe Research.

This is Brad Hewitt on for Nigel. So I wanted to ask about the margin profile. I was curious if there was any meaningful mix difference between the life sciences and the engineering and space side of things within ILC?

Yes, Brad, this is Vik. I'll take that one. Simple answer is no. Both very healthy margin profiles that I would say whether it's gross margin there or EBITDA margins play very much in line with total business average. So quite healthy on both sides.

Okay. Great. And then on the pricing side of things, curious if you could talk about kind of the pricing power and the ILC business? And then as we think about the mid-teens organic CAGR over the last 3 years, how much of that has come from price?

Yes. On the pricing side -- just the nature of our products, we are largely the sole supplier to our customers in their applications. And we drove -- sort of a critical nature and their workflows as well as we are a meaningfully low piece of the cost for them to be able to execute their workflows. So we have a great position, and we're -- given the importance to our customers, we obviously are great partners to them, but we -- we are -- but we are well positioned within their workflows. From a growth perspective, you would expect to see in the kind of 3% to 5% pricing range on an average and in line with market.

Your next question comes from the line of Joe O'Dea from Wells Fargo.

I wanted to start on -- the business has been owned under private equity for the past 20 years and just to better understand some of the progress and maybe Corey can talk to some of the past 4 years? But then to think about what's been accomplished and then under your ownership, what those biggest opportunities are, scale-wise, R&D-wise as it transitions to Ingersoll ownership?

Joe, this is Corey. I'll take the first question. We, under the ownership of New Mountain Capital, have made significant investments in the business, both expanding our capacity to give us further reach and more room to grow within our manufacturing capabilities as well as we've invested in both inorganic and organic new product lines, including liquid management, new isolator technologies, the medical device manufacturing capabilities that we have as well as the ability to manufacture in every continent. So we're quite bullish about the investments that we've made, over $50 million, into the business over the last 3 years, which I think is atypical for what you may see from a lot of PE ownership.

And so 75% Life Sciences today, I mean, what was that 3 or 4 years ago?

Yes, it was the minority.

Okay. Got it. And then just in terms of the organic growth profile this year versus the out-years and visibility to it, I mean nearly 20% revenue growth expected in 2024. I think the ROIC math would suggest something that's more in the kind of high single digits territory in the out years. And so what -- what the line of sight is to the contributors of that growth in '24 and then the step down into the out years?

Yes, Joe, this is Vik, maybe I'll start and I'll let the guys add on as well. I think the way you characterize it is quite accurate. Very simply stated, as Corey kind of lined out, when you think about kind of the different elements, the core life sciences piece, some of the biopharma related items there, the medical device piece that Vicente spoke to as well as, quite frankly, still good solid momentum on the space and engineering side of the equation. I think the answer here is continue to see good momentum. I'd say things have started off well in line with those expectations. It should be noted that, as Corey indicated here, we expect a gradual recovery, nothing that would imply some huge second half ramp or something like that. So by and large, I'd say it's following the trends that have been spoken to, but also speaks to the mission-critical nature and those leading positions that Corey spoke to in some of these very niche process flows and with certain those larger customers you would expect. So generally stated here, we feel quite comfortable about where things are trending and playing themselves out. And then you're absolutely right in terms of the '25 and kind of onwards, the growth profile is a little bit more in line kind of what you indicated. But I think, again, that speaks to, I think, growth rates that would be indicative of these markets that we're playing in.

Your next question comes from the line of Chris Snyder from UBS.

I wanted to follow up on those questions about top line. So the business has been doing about mid-teens the last 3 years. Now this is going to accelerate to 20% in 2024. I guess what's the driver of that? Because it sounds like there are no revenue synergies baked in. And then, I guess, kind of in that same vein, longer term, is there any way to think about the revenue synergies above that high single-digit longer-term organic framework? Just because it does sound like revenue synergies were a big motivating factor for the deal.

Chris, this is Vik. I'll take the first one there. So in terms of the roughly 20-ish percent growth in 2024. Again, it speaks to, I'd say, all the drivers I spoke to. And remember, it's coming off a little bit more of a "depressed baseline" just given what's been going on in the market, right? So again, nothing that we're implying is some meaningful step-up recovery, I think it's just a factor of comps in some respect. So that being said, I think we feel really good about the outlook across the board in terms of all the major end markets that are being played in. And so again, I would look at that as '24 really kind of coming off of some of the depressed items of '23 and then it's kind of just a normal course thereafter. And Chris, can you repeat the second part of your question?

Yes. Just on the revenue synergy potential because it sounds like that's not in that longer-term high single-digit forecast.

Correct. That's correct. It is not in the forecast. That's right. But you can imagine that, I mean, we have done a lot of good, deep work on that, not to be similar, if you remember back to the GD, Gardner Denver, Ingersoll Rand that we went out externally only with a cost synergy, but clearly we had a major funnel built for revenue synergies and same thing here. We kind of gave you a high-level one example on one of the -- on Slide 9, where we talk about that GLP-1 growth workflow where we play as ILC Dover and where we see the capabilities of Ingersoll Rand coming through and by ILC pulling through the technologies that we have.

I appreciate that. And then maybe just following up. The life science platform now has a $700 million revenue base. How do you feel about the scale in that business? Is there any sort of target level that you would like to see Life Science get to from just a size perspective.

I mean, so clearly, I mean, we feel much better than before, Chris, already without doubt. I think it provides a really good global scale. I mean ILC brings, as we said, 11 manufacturing sites, over 2,000 employees. And that, combined with our team, it's going to be great for us to continue to accelerate the bolt-ons that we can do, that we know how very well to do, that we believe that as we kind of go forward, we can create even more meaningful cost synergies with bolt-ons that we continue to make as we have always demonstrated that we can do, right? And I think the other exciting piece here is that, I mean, commercially, we're getting a commercial team here that is 4x bigger than what we had in our prior life science medical business. So -- and not only more footprint on the commercial side in terms of feet on the street, but also the fact that they go direct -- and they have direct conversations with not the procurement teams, but actually the production teams or the facilities and the customers, which is another exciting piece of why we think this could be great meaningfully for our revenue synergies moving forward.

Your next question comes from the line of Mike Halloran from Baird.

This is Pez on for Mike. Vicente, I know you touched on this a little bit earlier, but maybe let's take it back to the strategic M&A framework. It seems like this is the first deal size, more in that kind of aligned category of the chart you have on the slide there. Typically, we've seen things that are closer to the core with greater synergy opportunity. Can you maybe talk about why this asset was the right one to go after in that aligned category that's more of size beyond some of the value that you highlighted earlier? Why this asset? And why now to begin to go into that aligned portion of that framework versus closer to core? And what gives you comfort?

Absolutely Pez. No, great question. I mean as you kind of saw from one of the slides on the deck, we highlighted that it is not only aligned but also adjacent and one of the things that we've been talking a lot about over the many years is that how do we take our peristaltic pump technology or our vacuum technology or compression technology and attach devices to it that are kind of next to it. And here for peristaltic pump is clearly liquid handling bags, single-use bags, liquid handling for the tubing that ILC Dover. So that's really right there, adjacent, because those get connected to our pump technology. And then on the align, even in the Life Sciences, Corey mentioned about some of the isolators that are used in this GLP or any of the future sale and gene therapy that is mission-critical because today -- in the future, you're going to see more of a pretty harsh chemicals used for creating this personalization of medicine. And I think the isolator technology that ILC has is best-in-class. So we see that as kind of more on the align. And then clearly, space being on the aligned side too as well as it's giving us that optionality for another growth vector. What we have seen in our funnel, some pump technology can be applied into the aerospace side. And this just gives us great access to a customer base that ILC Dover currently has. So I think it hits all the marks on this one, Pez, in the terms of being very close to the core with this adjacency that have high margin, high consumable as well as some of the aligned pieces that not only on equipment side with isolators, but also on a new end market that they're highly, highly recognized with the aerospace side.

Yes, that's super helpful. And obviously, maybe piggybacking off that peristaltic pump example. You highlighted a lot of opportunities to attach an IR product to an ILC Dover product. Maybe talk about how you think about where that penetration is today? Obviously, understanding that you're still in the process and you're still evaluating what those revenue synergy opportunities look like. But how do you think about the penetration of that opportunity as we enter day 1? And how long of a runway you think that could be in terms of time line?

Yes, great question, but very low penetration in the sense that -- one of the things that we like in the Life Sciences is having a strong brand with a direct channel. And I think we're getting that -- and not only we're getting that, we're getting also a phenomenal team with deep experience in life science across the entire workflow, not only in GLP-1, but any of the other modalities that are kind of getting developed now. So I think this has given us a great potential runway for that penetration because we see that the brand that this brings to the table in terms of being premium and highly recognized, it's going to create a pull-through of that pump technology as we create holistic solutions for the customers that will enhance the productivity and cost efficiency for them.

And one last follow-up on that, if I may. Has this due diligence process and as you're going through it, has that uncovered maybe new potential opportunities in new hunting grounds for M&A or maybe confirmatory, if you could discuss maybe the inorganic opportunity it brings to the table, new hunting ground versus maybe confirmatory?

Absolutely. We even -- Corey and I here, we're smiling because I mean we even got a chance to look at the entire M&A funnel and the ideas that we have. And I'll tell you, it's pretty substantial, not only Life Sciences but also med devices, as we think that this kind of niche key componentry being able to do more for our customers. And by the way, those are customers that we never had before, access to. So it's giving us also access to a new customer clientele that is the best in the healthcare and medical technology side. And so we see that as a great opportunity for even selling a simply stated compressors. I mean -- I made a commentary that ILC Dover team, they sell to these production teams in the factories, and we like that because not only we see that growth in the Life Science as we talked about in this peristaltic but hey, they can give us a great access to a compression technology in the compressor room that we can have a conversation about that too as well. So it's got multiple vectors, and I think it's all about now executing, and I will tell you in the execution side, we have shown Corey our IRX and he's really excited about leveraging that throughout ILC Dover and our new created Life Science business.

Your next question comes from the line of Vlad Bystricky from Citigroup.

Congratulations. So just in terms of incremental M&A capacity. Obviously, you guys have talked about adding sort of $275 million to $350 million annualized inorganic revenue this year. This obviously is above that. And you still have the 10 LOIs out there. So can you just talk about your capacity to move forward with those 10 LOIs or other incremental M&A just from a management standpoint?

Yes, Vlad, this is Vik. I'll start. I think from a balance sheet perspective, capacity, balance sheet remains quite healthy. Obviously, we remain committed to be an investment-grade profile company as we were upgraded last year. And as such, the bolt-on strategy will fit very nicely with that. I think the 10 LOIs as we indicated, continues to show that's the strength of the funnel and the health of kind of the M&A process. So again, I don't think anything has changed in that respect, whether it be balancing capacity or frankly, our ability to execute on those LOIs. And then in the context of the actual integration piece, I think this is the piece that we've always spoken about, that's quite exciting. We've now done inclusive of this will be over 40 bolt-on acquisitions. And as we said here, the point of impact really happens at the business. That's where the integration happens under kind of the framework of IRX. And so ILC Dover will be no different in that respect as well as the future bolt-on M&A. And now we have frankly, hundreds, if not thousands employees across the company who have been involved in the M&A integration process from the last 40-plus deals. So again, I think it's positioned us very nicely to be able to continue the bolt-on kind of routine as well as the integration thereof.

Great. That's really helpful. And then maybe just one other one for me. Can you talk about the free cash flow profile of the ILC Dover business and how that compares to sort of core Ingersoll?

Yes, Vlad. Very high level, I'd say it's a healthy free cash flow profile, very much in line with the total company. No big outliers there. And it's probably worth noting here that we see some nice opportunities on a go-forward basis, particularly in areas like working capital that at current levels still remain at relatively elevated levels which I think provides a nice little tailwind as we move forward. But again, really excited about the opportunity set here in terms of the additive nature on the financial profile.

Your next question comes from the line of Nathan Jones from Stifel.

I guess just a follow-up on revenue synergies. Do you have kind of what you need to attach these markets here? Are they clear paths to adding product capabilities inorganically or opportunities to invest organically to create some of those -- some of those opportunities to accelerate their revenue seeing the funnel?

I'll say, Nathan, yes, definitely. I mean clearly, between now -- between sign and close, we're going to go and do more deeper integration planning as we always do, so that when the time we close, day 1, we're off to the races. But yes, I mean, you could tell that -- I mean, we're pretty quickly here, showing the ILC Dover team, our pump technology and get feedback from them based on feedback from their customers like what are the best areas that we need to go a deeper dive and develop faster too as well. So absolutely, a lot of good conversations. And clearly, as we go between now that we were able to sign between sign and close, we're going to go and do a deeper dives into that integration planning.

And so we'll hear more about that as we go along. And just a quick follow-up. What's the -- what are the metrics that need to be reached for the earnout to be paid out?

Yes, Nathan, we can -- we'll just say it's delivery of what you would expect, financial metrics and operational metrics tied to 2024. So again, we'll keep it at a high level there, but it's essentially delivery in line with the expectations for this year.

Your next question comes from the line of David Raso from Evercore ISI.

I'll try to be quick here. This deal is obviously a bit unique in size, but I'm just trying to get a sense of what you see on those LOIs and just sort of your thought process around -- this deal is obviously a growth year deal with maybe not the highest returns on capital. I'm just curious, is that what we should be looking for from the LOI deals that are in the pipeline? Again, we should see a string of kind of more growthy leaning deals or maybe some higher ROICs. And I just have a couple of quick follow-ups after that.

Sure. David, this is Vik. I'll take that. If you're referring to the 10 LOIs that we announced at the last earnings call, I would characterize those as bolt-ons in nature, very similar in nature to the last 40-plus that you've seen us do, and that would include the returns criteria as well. So think of that mid-teens threshold above our cost of capital and bolt-ons across both segments, I should mention, but very much in line with historical. So again, I would say they're very much like what you've seen us do historically.

Okay. So this is a little unique that just given the growth profile, the lower returns.

Which -- yes, and David, it should be mentioned that you're right. But again, immediately accretive effectively to growth and the margin profile of P&ST, which is -- means it's playing above 30% EBITDA margins already. And so we're quite pleased with kind of the profile that it brings in the door from day 1.

Absolutely. And then on that, just if you can help me with some math, if I missed it, I apologize. What are you assuming for the cost of money for the funding? And then also how much is the D&A relative to a sense of the EPS impact, the sense of the EBIT, not the D&A?

Yes. So I'll answer in an inverse order here. So the core D&A of the business, you can pencil in approximately $9 million. That's obviously not inclusive of any purchase accounting implications, which obviously we'll be working through that in due course. But $9 million, what I'll call normal course D&A. And then in the context of the cost of debt or the financing, obviously, we're going to be going through that process here as we get closer to close, but we would expect a combination of debt and some existing cash on hand, specific amounts to be confirmed. But the cost of debt, you can expect it will be comparable in that mid-5s percent range, very similar to what you saw us be able to kind of refinance that first tranche that we did last year when we placed the first tranche of bonds in August of 2023. So that's probably not a bad proxy to use and indicative of current rates out there.

Your next question comes from the line of Andrew Buscaglia from BNP Paribas.

This is Ed on for Andrew. Earlier, you provided a framework for 50% incrementals and targeting eventually a 40% EBITDA margin. We discussed at length, the revenue synergies, but can you add a little bit of color on the cost synergies as well, please?

Yes, sure. This is Vik. So Andrew, pretty simply stated here. I think as was kind of -- it has been out in a few times, I think of it as things in the realm of some potential insourcing type opportunities just given ILC's kind of inhouse capabilities, some cost structure type items as you would kind of find appropriate in a deal of this size and then potentially some in the procurement realm as well. So again, I would call it all fairly normal course. It should also be noted, obviously, that, that doesn't include any of the potential revenue synergies or working capital opportunities or things of that nature, which we would view as kind of incremental to the deal model.

That's helpful. And in your prepared remarks, you mentioned you're able to get to the deal on an exclusive basis. Given [indiscernible] as an attractive asset operating in a high-growth segment, is there anything you could share about the broader competitive dynamic for deals within the Life Science and pharma spaces?

Yes, Andrew, I'll speak to it here. I mean high level, I think, listen, we'll speak to kind of the -- what we've been able to do. I think it just speaks to the process that we've been able to run, the cultivation process that Vicente and Corey both spoke to and the ability to find -- stitch a solution that made sense for all parties here. So again, it kind of speaks to our process, speaks to the nimble nature of IRX, like you've heard us say before. So again, that's kind of how we've been operating historically. And I don't think this deal is any different in that respect.

We have no further questions in our queue at this time. I will now turn the call back over to Vicente for closing remarks.

Yes. Thank you so much. As you have seen, I mean, this marks an exciting step on our journey to continue to expand into high-growth sustainable end markets. I'm very happy to welcome the 2,000 employees from ILC Dover to the Ingersoll Rand family and clearly look forward to meeting many of you during our trips that we will be doing to kind of get together. So again, thanks again for the support, and look forward to speaking soon. Take care. Bye-bye.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.