Savaria Corporation (SIS) Earnings Call Transcript & Summary

Greetings, and welcome to the Savaria become a global leader in accessibility call. [Operator Instructions] This conference is being recorded, Wednesday, January 27, 2021. And now I'd like to turn the conference over to Marcel Bourassa. Please go ahead.

[Foreign Language] and thank you very much, people, that -- who listen to our presentation tonight. I wish some people know me, okay. I buy Savaria in 1989 and -- with just 4 employee and sales of $200,000. And now with this acquisition, we will grow more sales around EUR 700 million. So -- but the same base, okay, was there, okay, in '89 when I buy Savaria from a guy named Pierre Savaria . It is I want to find a company, okay, that would be good for me and for my kids. So I was committed. So I look at the different companies, different industries. And I see the aging of the population. So I look at the stats and the aging population was there. And it's more adequately in 2020. And even during the pandemic , the people made okay -- and maybe even more than ever, okay, with this pandemic, made this equipment that's bringing liberty to them. That's bringing, okay, that they can travel from one floor to the other floor by stairlifts or residential elevators. So we work quite hard. I have a very good team right now. We believe there is slowing , but we make our own products with the code. That's important, okay. And that's a must for me to make the code, okay? We have code in Europe, but we have code North America. So we have to respect that, it's quite okay. We are -- and my vision in '89 was to become one day a leader, a global leader. And it takes years, okay? It takes years, okay? And I see Handicare over the years. I see Handicare is transforming them, okay, big time in 2020. We have a program. We achieved, okay, a good program, okay? And now they were ready for us. It's why I decided with my team, I was with the team, to make a proposition to them, okay, to buy them. And you see by the press release, okay, that they are in Sweden. They manufacture actually like 45,000 stairlifts compared to us, if you look, that we manufacture like 4,000 a year. So they are 10x. And I see there is -- during my visit to them, that they are very, very nice people. They are very knowledgeable. And they will learn something from us, but we'll learn something from them, too. So that will be a learning and a good experience for our 2 companies, and we will be better. We'll be more global. You know that I was always looking to buy a company that I can have some new products and I come some new network. So they bring us that. They bring us that, and that's very, very important. And it's why we make this, I think, great offer to them and great offer too that we can manage to us. So on the call today, I have Sébastien Bourassa, who's kept the -- who is responsible for integration and operation. I have Mr. Rimbert, who is responsible, okay, of development and responsible, okay, of the Span division, everything about handling a customer. So we will -- he is on the call. And I have our CFO, Steve. So we have a great team. And what is good, they can call you guys. So they speak English, okay. Me, it's tough, okay? But over the years, okay, you -- they don't blame me too much on that, okay. And I know it, we have a team that can speak English. So first of all, can I have Steve, okay, to speak?

Sure. Thank you, Marcel. As mentioned, we are very excited to announce that Savaria has made a cash offer of SEK 50 per share to acquire all outstanding shares in Handicare Group AB. Handicare is a publicly listed company in Sweden, which provides mobility solutions to increase the independence of physically challenged or elderly people. The company manufactures and sells curved and straight stairlifts; transfer, lifting and repositioning aids; and vehicle accessibility products and modifications. Handicare is a global company with sales in over 40 countries and has primary manufacturing locations in the U.K., the Netherlands, in the U.S. and China. Just to provide a snapshot of the transaction, we are offering Handicare's shareholders approximately CAD 452 million in cash for their shares, and our offer has an implied total enterprise value of approximately CAD 521 million, including $28 million in leases. This equates to a transaction multiple of 12.1x estimated 2020 EBITDA based on Handicare's preliminary year-end results also released today when including the estimated full normalized annual cost savings from Handicare's Lift Up program that are not yet reflected in these results. This multiple paid goes down to 9.6x when we factor in the additional expected transaction run rate synergies of CAD 12 million. Given that Handicare is publicly listed, the completion of the acquisition is conditional upon 90% or more of Handicare's shares being tendered by shareholders. That said, Handicare's Board has announced that it recommends its shareholders to accept the offer. And the largest shareholder, Nordic Capital, owning approximately 63% of the shares, has informed Savaria that it supports the offer and that it intends to accept the offer and enter into an undertaking to that effect once Handicare has announced its 2020 year-end on February 4, 2021, in light of the currently applicable restrictions under the European Union Market Abuse Regulation. Furthermore, Nordic Capital has undertaken towards Savaria not to sell its shares in Handicare without Savaria's prior approval. The undertaking to not sell its shares applies until May 31, 2021, and will terminate upon the entering into of an irrevocable undertaking to accept the offer. Assuming our offer is successful, our estimated pro forma combined revenues and EBITDA would be over CAD 670 million and CAD 96 million, respectively, before synergies for the year ended December 31, 2020. The acquisition is expected to generate attractive financial benefits and to be over 20% accretive to Savaria's pro forma combined 2020 free cash flow per share when including the full impact of Handicare's Lift Up program in 2021 and the expected transaction run rate synergies. Our all-cash offer will be financed through a combination of debt and equity. In the context of this announcement, we have secured $600 million in committed credit facilities, which will be used to finance a portion of the acquisition of Handicare and replace our existing credit facilities. This also includes a temporary equity bridge. In addition to this new debt, we have also announced the raise of new equity totaling CAD 160 million to replace the equity bridge on closing. The equity is coming from 2 concurrent private placement of subscription receipts, $100 million from a bought deal offering from a syndicate of underwriters and $60 million from CDPQ. These amounts may be further increased by an additional $24 million if the overallotment options are exercised in full, potentially resulting from new total equity gross proceeds of CAD 184 million. At closing of the acquisition, our leverage ratio will be approximately 3.6x. This is on the basis of including leases in net debt and adjusting the EBITDA to account for the expected full normalized annual impact of Handicare's Lift Up program and not the anticipated transaction synergies. This represents a level that we are comfortable with given the attractive profile of the combined cash flows that we expect to be in a position to generate and allow for timely deleveraging. I would now like to pass it over to Sébastien Bourassa, Savaria's VP of Operations and Integration, who will discuss the merits of combining the operations of the 2 businesses as well as the anticipated synergies and integration process.

Okay. Thank you, Steve. So basically, after the completion of the transaction, the acquisition will increase both our North American and European footprint for Accessibility and also enhance our manufacturing and distribution parameter for Patient Handling in North America. While we expect the pro forma revenue mix to remain very similar by business segment, the geographical location will enhance and speak and complementary of our current platform. In terms of revenue segmentation by business, 72% of our revenue will be Accessibility, 22% will be Patient Handling and the balance will be Adapted Vehicles . Furthermore, 56% of those revenue will be generated from North America and 40% from Europe and the rest from the rest of the world. Now turning to the anticipated financial benefit synergy. Let me briefly touch on Handicare's Lift Up program that has been mentioned a little bit earlier by our friend, Steve. Early in 2020, Handicare publicly announced -- they announced a cost reduction program aimed to deliver EUR 8 million of sustainable cost synergy. At the end of 2020, it's a important to note that while all the initiatives have been implemented and cost associated with the Lift Up program has been incurred, only 2 quarters have been benefit for the program in 2020. Of the program, EUR 4 million are reflected in 2020 financial results. The remaining EUR 4 million are going to be impacted and achieved in 2021 since we have a full year. We have the chance to review the various initiatives with Handicare with the leadership team and discuss their approach of implementing the program, and we were very pleased with the benefit that are going to last for a long time. In addition to the Lift Up program, the acquisition is expected to deliver approximately CAD 12 million run rate synergy that has been clearly identified at this point. We estimate that half of those synergies will occur in the first 12 months, and the balance will be in the first 24 months. The expected synergy that's been identified consist of a recognition of revenue synergy and cost optimization and savings. For the revenue synergy, we anticipate to benefit from our ability to cross Savaria and Handicare product across a global distribution network comprised of 1,000 dealers and over 45 direct sales location for both Accessibility and Patient Handling segment. As far as cost savings, we expect them to be achieved through optimization of our respective supply chain, manufacturing processes and elimination of redundant operational costs, greater overall fixed cost absorption and elimination of various expense [indiscernible] occur as a public company. Now let me provide some color about the interesting upside from cross-selling opportunity. On the Accessibility side, Handicare has a wide distribution network in Europe, through which we can sell Savaria's platform lift, home elevator and our famous wheelchair . The same will be applicable the other way around, where we can sell the Handicare product in the Savaria network in North America. On this, I would like to pass it to our friend, Nicolas, to talk a bit more about the Patient Handling. Nick?

Yes. Thanks, Sébastien. Well, I understand a lot of attention has been placed on the accessibility side and rightfully so. However, I do believe there are exciting opportunities for us with respect to patient handling. First and foremost, our businesses are highly complementary, where Savaria's patient handling operations, namely Span-America, are focused on pressure care, Handicare is a leader in North America when it comes to patient lifts and slings. Together, we'll be able to offer our customers a complete portfolio of safe patient handling solutions. Second, the transaction will enable us to benefit from Handicare's extensive sales and installation network, especially in the acute care setting, which complements well Span-America's more long-term care focus. And finally, it's important to note that on a pro forma basis, our Patient Handling segment would now have a revenue base of over $140 million, which should enable us to benefit from certain important economies of scale from this much larger combined platform. To wrap up, our preliminary assessment of the benefits is based on our due diligence, and we believe they are derived from reasonable assumptions. We are confident we have the proven experience to execute the integration process according to plan and within the expected time line. We know what we have to do and trust we can count on teams with great people and leverage our respective market insights and lessons learned to execute the plan and obtain tangible benefits. With that, I would like to pass it back over to Marcel for his closing remarks.

Thank you, Nicolas. You see that we have a great team, okay? We have a great team at Savaria. I am so, so happy to make this offer, okay, and after that to make the closing a little bit later because we have the same vision across, okay, that with the aging population, we have to manufacture products that help the people, okay, the elderly people who have some problem with mobility. So we have the same vision, okay. So I am so happy, okay, and I am thrilled that I take the time to speak with some key people down there, key manager, and for sure [indiscernible]. And I'm the guy that had the [indiscernible] okay and the man that I speak, okay, they are just great, okay? And maybe, okay, they are -- can be sometimes better than us, okay? Good for them, okay? But it's unfortune when you make an acquisition that you see, hey, we have a program that we will create more EBITDA and they have key people that we can trust. So we put together some acquisition, okay, and you see that, okay, in the press release. And that was a pleasure to present you this very conservative acquisition. So thanks to my employee, okay, my employee, okay, that is not easy during this COVID period. You see our results, okay? We were able, okay, to deliver Savaria $59 million and a good, okay, $36 million, $37 million, okay, from Handicare for 2020, a year that is not easy. It's not easy to go and sell products, okay, at home, okay, for the people and not able to install. And we succeed. We succeed to have our best year of EBITDA. And then, okay, they are very successful on that. Thanks to my boys, okay? My boys had through the year confidence in me. And when I see this acquisition potential, okay, they go with me and they say, "Marcel, okay, that's a great acquisition." Thanks, okay, for a new shareholder, [indiscernible]. Like [indiscernible], okay, I think t 300 shareholder for Savaria, that will be there, okay, if we have to make -- and we will make new acquisitions. But first of all, we'll have to digest this big one. It was [indiscernible] and sometimes, okay, we will need, okay, this partner that is always there to push some company, okay, to go do further. And I would like -- very happy, okay, before the end of April to say a warm welcome to the people, okay, the employee of Handicare. Because we believe that people, people and people are so important in a success of company. And I can tell you, okay, we have a good person, okay, and we stick with Savaria. Maybe I greet them too much, but they stick with us, and they seem to be very happy. That's important for me, okay? And I say that to my -- new people that I wish one day, okay, of Handicare, what is important at Savaria, we have to like what we are doing. So again, for the people who listen to this tonight, okay, thank you for -- very much to listen, and I wish to be safe for everyone. So thank you very much.

That concludes the call for today. We thank you for your participation and ask that you please disconnect your lines.