Element Solutions Inc, a global specialty chemicals company, has made two significant moves to strengthen its position in the advanced electronics materials markets. These transactions are expected to generate approximately $15 million of annualized adjusted EBITDA and hold great growth potential as the electronics industry improves and new technologies gain customer approvals.
Firstly, Element Solutions has reached an agreement with Entegris, Inc. to terminate their longstanding distribution agreement for ViaForm electrochemical deposition products. These products, used in wafer-level plating for major semiconductor fabricators, are currently developed and manufactured by MacDermid Alpha Electronics Solutions, a business unit of Element Solutions. Under the existing evergreen distribution agreement, Entegris has been responsible for distributing these products. However, Element Solutions will now take over the management of the entire ViaForm product line in-house. This transition is expected to result in a more efficient supply chain and improved customer outcomes. Element Solutions will pay Entegris $185 million, net of estimated cash tax benefits, for the termination of the agreement. The payment will be financed through a combination of existing cash reserves and an additional $150 million borrowing under Element Solutions’ senior credit facility.
In a separate transaction, Element Solutions has acquired Kuprion, Inc., a company specializing in the development of next-generation nano-copper technology for the semiconductor, circuit board, and electronics assembly markets. Kuprion’s ActiveCopper technology addresses the challenges posed by thermal expansion and offers superior performance and reliability in various growth applications, including electric vehicles, high-frequency 5G networks, IC substrate manufacturing, advanced packaging, mission-critical aerospace and defense systems, and data centers. The acquisition has been structured with an upfront payment, and potential earn-out payments will be made based on milestones related to product qualification and revenue achieved over several years. This acquisition will further enhance Element Solutions’ capabilities and enable it to offer innovative solutions to its customers in the rapidly evolving electronics industry.
President and Chief Executive Officer Benjamin Gliklich said, “These transactions deepen our relationships and capabilities in compelling, long-term growth markets propelled by the proliferation of high-performance computing supporting artificial intelligence, industrial automation, and other emerging applications. The current weakness in the electronics sector represents an attractive opportunity to invest and position ourselves for the inevitable recovery. Entegris has been a solid long-term partner in distributing our ViaForm technology. Over time, however, we both agreed that unified responsibility for all aspects of the product cycle – from innovation and manufacturing through to sales and support – would be best for our customers and the growth of the product line. These products are integral to semiconductor production at the largest fabricators in the world and strengthen our relationships and value proposition to this important supply chain. The transaction is revenue growth, margin, and CRI (Cash Return on Investment) accretive and should increase the contribution of our Electronics segment to the Company’s annual adjusted EBITDA to over 70%. We thank Entegris and its legacy companies for their partnership over 20 years and for the strong commercial position they helped build. We look forward to providing an improved offering to our customers.”
Gliklich continued, “Our acquisition of Kuprion brings another highly-differentiated capability to our portfolio together with the world-class R&D and applications team who developed it. Their technology is designed to solve the increasingly difficult challenges associated with thermal management and adhesion in leading-edge electronics. We believe this represents industry-changing technology with broad applications across our portfolio, from semiconductor packaging to IC substrate metallization and electronics assembly. Combining Kuprion’s solutions and technical capability, already sought after by many of our largest customers, with our breadth of sales, service, and applications expertise will create tremendous growth opportunities.”
Gliklich concluded, “The transactions we are announcing today together are immediately accretive to adjusted earnings per share (EPS) and result in a sizeable cash tax benefit. We expect a net debt to adjusted EBITDA ratio of 3.6x at the end of the second quarter of 2023, which we expect to return below our 3.5x long-term target by the third quarter and decline even further in the fourth quarter of this year. We believe this is appropriate given these unique capital allocation opportunities, which enhance growth opportunities and business quality and which were available at reasonable valuations in this market window.”