Mativ Holdings, Inc. (MATV) Earnings Call Transcript & Summary

Welcome to SWM's investor conference call. Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer. He is joined by Andrew Wamser, Chief Financial Officer; and Mark Chekanow, Director of Investor Relations. Today's call is being recorded and will be available for replay later this afternoon. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Chekanow. Sir, you may begin.

Thank you, Angela. Good morning. I'm Mark Chekanow, Director of Investor Relations at SWM. Thank you for joining us to discuss SWM's announced offer to acquire Scapa Group. Before we begin, I'd like to remind you that the comments included in today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. In particular, the extent to which the COVID-19 pandemic continues to impact our business is uncertain and depends on numerous evolving factors which are difficult to predict, including the duration and scope of the pandemic and of actions taken in response to it. Some of the financial measures discussed during this call are non-GAAP financial measures. Clarifications between GAAP and non-GAAP measures are detailed in the footnotes of the financial tables in this presentation and in their press release included in our 8-K filed this morning. We also need to inform you of the legal requirements and practices associated with SWM acquiring Scapa, a publicly traded U.K. company which is subject to the jurisdiction of the U.K. Panel on Takeovers and Mergers and the City Code on Takeovers and Mergers. Under the code, SWM is prohibited from discussing any material new information or significant new opinions that have not been publicly announced. We encourage you to read the additional disclosures on this slide, the announcement made under Rule 2.7 of the code and published on our -- on SWM's website in the Investor Relations section, which, along with the definitions contained therein, are incorporated into this presentation. To access documents related to this offer, including this presentation, the 2.7 announcement and other legal documents, please visit the SWM Investor Relations website and click through the Scapa offer link and the disclaimer page. Lastly, we will not be taking questions following our prepared remarks as our responses would be limited to the content of the documents we have already made public. If you would like to follow-up with management to discuss clarifications of this content, please reach out to us to schedule a meeting, which will need to be accompanied by a third-party adviser to ensure the discussion adheres to the requirements of the takeover code and does not relate to any additional information that has not already been explicitly disclosed. I'll now turn the call over to Jeff.

Thank you, everyone, for joining us this morning on such short notice so we can share with you our exciting news regarding our announced offer to acquire U.K.-based Scapa. I want to apologize again ahead of time in not being able to address many normal questions as would be typical in a transaction such as this, but we are limited by applicable legal requirements, as outlined by Mark. We certainly respect those commitments and we will work to provide much further detail after formal close. Scapa provides customers in the health care and industrial markets a comprehensive suite of products with best-in-class innovation, product design and manufacturing capabilities. The transaction is highly complementary to our current portfolio and we believe will deliver compelling financial benefits for the combined company. Scapa advances our successful value-added solutions strategy as it expands our core competencies, adds new capabilities and enables us to bring our customers a more comprehensive suite of solutions. We believe we'll be better able to solve our customers' toughest innovation challenges by adding a fully integrated health care model to our current medical materials business, which will give us immediate critical mass in the growing medical materials space with approximately $250 million in annualized sales between us. We would also add an industrial division with highly complementary capabilities. Broadening offerings and technologies is our long-term strategic direction, and this acquisition would mark another significant step forward in our value-added capabilities to support our customers. Notably, the addition of Scapa would expand our AMS segment towards $1 billion of annualized sales, with nearly 65% of our combined company sales generated in growing segments such as medical, filtration, transportation, construction and industrial. We expect this transaction to enhance SWM's long-term growth profile. I will elaborate further on this call around additional details. But in summary, Scapa provides value-added integrated solutions for manufacturers of wound care materials, wellness products, and wearable devices in the health care arena. They also bring an attractive set of industrial products, mainly specialty tapes with strong brands and defensible positions. And much like SWM, they have strategic customer relationships built on a foundation of trust and innovation. Regarding a few financial and transaction highlights, in fiscal 2020, Scapa reported more than GBP 320 million or more than $400 million in revenues, and approximately GBP 40 million or approximately $50 million of EBITDA. The total transaction value is approximately GBP 403 million or $552 million, and the acquisition will be debt financed. We expect to close during the second quarter of 2021, and once we do, we plan to provide financial guidance for the impact on both our 2021 and 2022 adjusted EPS. Now I'd like to help you further understand Scapa's business and expand on why we feel this acquisition is such a compelling strategic fit for SWM. Scapa has best-in-class innovation, design and manufacturing with a reputation for quality, mirroring the same competencies and priorities across our organization. We both pride ourselves on innovation and engineering capabilities, and are focused on solving customers' problems. Their breadth of services and strong reputation as a trusted partner is a key factor in maintaining strategic customer relationships. Focusing on Scapa's integrated solution model, we highlight that their offerings range from adhesive formulations and product design through converting finished products and extend to packaging. Scapa offers customers a full end-to-end health care offerings, starting with joint development and design capabilities, materials manufacturing and formulation expertise through to compliance and regulatory approvals. We see opportunities to capitalize on our combined capabilities in key product areas like advanced wound care where we already have strong product portfolio and excellent customer relationships. Combined, the acquisition would triple our presence in medical, an attractive and strategic growth market for SWM, with participation in advanced wound care, wellness and medical devices as well as several additional existing SWM product lines. A key theme of Scapa's health care portfolio is to focus on innovative skin-friendly technologies. Expertise in the development and production of a broad range of these materials contributes to their ability to attract and retain global blue-chip client base. In advanced wound care, an area we know quite well, given our existing presence in the market, Scapa delivers a broad range of substrates in an innovative formulations for healing products. Like ours, these materials are often used in hospitals as well as outpatient settings. They also produce skin-friendly materials used in medical device fixation. Other capabilities include wellness and topical products such as creams, gels and powders for first aid, beauty and foot care products, for example. All told, we see significant potential to leverage our expertise in performance materials and established medical business within Scapa's integrated ecosystem to better serve our customers' evolving needs. We aim to cross-sell products as well as capitalize on the trends of health care OEMs relying on trusted partners to co-develop, produce and bring products to market. Moving to Scapa's industrial business, we welcome their robust and profitable set of industrial tapes, used in construction, transportation, consumer and industrial end markets, complementing our existing business. Like SWM, Scapa has significant capabilities and scale in key specialty applications and has a well-recognized brand portfolio. As you are aware, our AMS segment sells performance materials used in construction, which we believe pair nicely with Scapa's adhesive-based innovative bonding solutions used in that same market. Additionally, while we participate in transportation and automotive markets, the combination with Scapa offers additional products into the industry. In consumer, we already participate in various consumer-oriented products; however, we will explore opportunities to leverage our existing products with Scapa's customers and vice versa. And finally, Scapa has a presence in the undersea cable market. Just as in medical, we look forward to adding this more diversified aspect of their operations and with Scapa's industrial business as part of SWM's diversified AMS segment, we see potential to leverage our combined sales and distribution reach. Finally, I would like to note that for both segments, we are particularly excited to add Scapa's experienced operators and commercial leaders. At SWM, we believe it is the people who truly make the difference. I'd like to now step back a bit and talk more about the high-level strategic rationale of the combination. While we believe Scapa has an attractive stand-alone business, we are particularly excited about the potential to combine and integrate our significant capabilities and scale to better serve our customers' evolving needs. In many ways, SWM and Scapa have a very similar focus and culture. Both companies are innovative, have outstanding supply chains and manufacturing capabilities, a broad range of products and technologies, and strategic customer relationships. What makes the combination work strategically, though, is the complementary nature of each company's technologies and end markets, and the broader range of capabilities we can offer together. We see ample opportunities to access new customers and cross-sell products and offer additional services to our customers. We also believe the combination will give rise to operational and commercial synergy opportunities, including supply chain efficiencies, the potential removal of overlapping support functions and unnecessary expenses such as redundant company costs. Due to regulatory restrictions referenced early, we are limited to these comments as they relate to forward estimates and synergy potential, but we'll look to provide more color after we close the transaction. I want to further emphasize that this acquisition is a natural and consistent expansion of our growth strategy. We have emphasized that we will continue to push organic growth, while accelerating that growth with strategic acquisitions as appropriate. Many of you have seen this slide as we have discussed our M&A possibilities and how we believe acquisitions can strengthen our portfolio. We have selectively targeted acquisition candidates that serve diversified and growing end markets whose customers value premium differentiated products and that benefit from leading and defensible competitive positions in their core product categories. SWM's management team has a proven track record of successful business integration, having completed 6 such acquisitions since 2013 as part of the company's strategy to position SWM as a diversified and growth-oriented enterprise. Simply put, Scapa is an ideal fit within our strategic sandbox. From a technology standpoint, it adds significant coding and converting technologies, adding to our existing capabilities. From an end market perspective, it triples our growing medical business while also bolstering our presence in several other markets, including transportation and construction and industrial. I'll now turn it over to Andy.

Thank you, Jeff. The acquisition has an overall transaction value of approximately GBP 403 million or $552 million which is based on 210 pence per share of Scapa's stock and represents an 18.6% premium. We expect to finance the transaction through an upsizing of our credit facility as well as a new term loan B. We expect to close the transaction during the second quarter of 2021. On the slide and in our press release, we've included some high-level financial data for Scapa. As Mark referenced at the outset, due to strict regulatory requirements regarding takeovers of public companies in the U.K., we cannot elaborate further on the financial results or outlook or the expected future financial impacts of the transaction. We highlight that in Scapa's fiscal 2020, which ended on March 31, 2020, the company reported statutory revenue of GBP 320.6 million and EBITDA of GBP 39.7 million. Converted to dollars, this equates to $407.1 million in sales and $50.4 million of EBITDA. On that basis, the transaction implies a multiple of approximately 11x Scapa's reported fiscal 2020 EBITDA. At completion of the offer, net debt-to-EBITDA, for the purposes of the company's credit facility, is estimated to be between 4.0x and 4.5x, and is expected to steadily decline thereafter. The company expects that its credit facility covenants will be amended in conjunction with the transaction with net debt-to-EBITDA covenants of 5.5x as of the end of 2021 and 4.75x as of the end of 2022. Additionally, we expect to provide accretion and other acquisition-related financial guidance for 2021 and 2022 following the close of the transaction. While we will not take your questions today, as our responses would be limited to the comments already made here, the content of the published investor slides and in the press release, we ask that you follow-up with us to schedule investor meetings to clarify any of the content that we shared. Thank you, and now back to Jeff.

So in closing, we are excited about the potential to enhance our growth profile by driving more of our sales from expanding end markets. With this transaction, we expect our AMS segment will approach $1 billion of annualized sales with strong positions in medical, industrial, filtration, transportation and the construction markets. These higher growth operations within our diversified portfolio pair well with our specialty paper business. In short, upon close, growth markets will represent nearly 65% of overall combined company sales. We also think highly of the Scapa organization and believe we are well aligned for success together. We eagerly await welcoming the Scapa people into SWM, and we are excited to add their industry, material and manufacturing experience to our organization. We will learn from each other and work together to support our expanded customer base through a deep commitment to our shared values of innovation, customer focus and operational excellence. We look forward to closing the transaction, capitalizing on the growth opportunities ahead and creating value for our customers, our employees and our shareholders. We appreciate your continued interest and support, and looking forward to sharing more about this acquisition upon its close. Operator, you may now close the line.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day. You may all disconnect your lines.