MTS To Acquire PCB Group For $580 Mln

(RTTNews) - MTS Systems Corp. (MTSC) Wednesday announced a definitive purchase agreement to acquire 100 percent of PCB Group Inc. for $580 million. After the closing of the deal, PCB will survive as a wholly-owned subsidiary of MTS. Board of Directors of MTS as well as PCB shareholders approved the transaction.

Excluding non-recurring charges, the transaction is expected to be accretive to earnings by fiscal 2018 and, on a cash basis, it is expected to be accretive in fiscal 2017.

PCB is engaged in design, manufacture and distribution of sensor technologies. MTS said the mission and focus of PCB is virtually identical to it and uniquely spanning both of MTS's Sensor and Test business units.

The combination of MTS and PCB will create a Test and Measurement company, with more than 3,400 global employees.

On closing of the transaction, MTS Sensors business unit will be combined with the PCB business, and will retain well-established brand names for their historical product lines. The combined Sensors business unit will be headquartered in Depew, New York, and will be led by David Hore, current President of PCB. Hore will report directly to Jeffrey Graves, president and chief executive officer of MTS.

MTS said it expects to realize approximately $20 to $30 million of annualized revenue synergies and expects to generate $5 to $7 million of annualized cost synergies over the next three to four years. The revenue synergies are expected to be generated from additional sales of MTS products to the PCB customer base, as well as additional sales of PCB products to the MTS customer base across both the Sensor and Test markets. The cost synergies are expected to primarily result from supply chain and operational efficiencies derived from the integration.

MTS expects to incur approximately $31 to $36 million of non-recurring transaction-related expenses over the next 24 months, with an estimated $27 to $29 million occurring in fiscal 2016, and the remainder to be incurred over the following 18 to 24 months.

The acquisition is expected to close in MTS's fiscal fourth quarter that ends October 1, 2016. MTS intends to finance the transaction with a combination of equity and new debt financing.

J.P. Morgan Securities LLC acted as the exclusive financial advisor to MTS and Simpson Thacher & Bartlett LLP acted as legal advisor to MTS. BlackArch Partners acted as financial advisor for PCB.

Graves added, "The acquisition supports our strategic priorities of enhancing our high-margin product and service offerings, strengthening our global footprint, investing in areas with opportunity to achieve sustainable double digit top and bottom line growth, and focusing on areas that generate strong free cash performance. We believe our MTS/PCB combined operational and financial platform, synergy opportunities, and geographic reach will allow us to drive meaningful EPS accretion and generate substantial incremental free cash flow over the long term, all of which would lead to accelerated value creation for our shareholders."

Lookinga ahead, MTS estimates fiscal 2016 revenue to increase by approximately $30 million to $50 million, with a current revenue estimate between $600 million and $650 million. Earlier projection was in a range of $570 million to $600 million. In the short-term, the transaction will have a negative impact on GAAP EPS, primarily resulting from non-recurring transaction-related expenses, interest costs, transaction related amortization, and a higher share count resulting from the potential equity financing, partially offset by the additional revenue and earnings gained from PCB.

The company further projected its earnings to be approximately $1.35 to $1.65 per share for fiscal 2016, down from the previous guided range of $3.03 to $3.28 per share.