Materion to Acquire H.C. Starck’s Electronic Materials Business

Materion to Acquire H.C. Starck’s Electronic Materials Business712370

Materion Corporation, a world leader in high-performing advanced materials, has announced that it has entered into an agreement to acquire H.C. Starck Solutions’ industry-leading, electronic materials business, located in Newton, Massachusetts (HCS-Electronic Materials). HCS-Electronic Materials utilizes proprietary technology and extensive material science know-how to deliver tantalum- and niobium-based premium products and services for the semiconductor, industrial, and aerospace & defense markets.

HCS-Electronic Materials is a leading provider of high-quality, high-purity tantalum sputtering targets, important in the manufacture of today’s leading-edge semiconductor chips. Building on Materion’s existing portfolio of electronic materials and premium thin-film target solutions, the acquisition will significantly enhance the company’s position as a leading supplier to the high-growth semiconductor industry. HCS-Electronic Materials adds advanced manufacturing processes and technical capabilities necessary to meet the rapidly evolving technology challenges involved in delivering today’s most advanced chip architectures and important applications for the industrial and aerospace & defense markets.

HCS-Electronic Materials is expected to generate revenue of approximately $145 million in 2021, adding over 19% in Value-Added Sales, and adjusted EBITDA of approximately $29 million, representing an adjusted EBITDA margin of approximately 20%. The addition is expected to be immediately accretive to Materion’s adjusted EBITDA margin by 100 basis points. The purchase price of $380 million reflects an approximate 13x estimated 2021 adjusted EBITDA multiple before synergies, and an approximate 10x estimated adjusted EBITDA multiple including projected run-rate synergies. Following the closing of the transaction, HCS-Electronic Materials will be part of Materion’s Advanced Materials segment.

“HCS-Electronic Materials is a highly strategic and transformative acquisition that builds on our strong position in the semiconductor industry and supports our goals of driving above-market growth, expanding margins, and delivering consistent double-digit EPS growth,” Materion President & CEO Jugal Vijayvargiya said. “HCS-Electronic Materials’ leading-edge technology extends our global reach and expands our product offering to leading semiconductor chip manufacturers, as well as important industrial and aerospace & defense customers. We are excited about the opportunities ahead and look forward to welcoming HCS-Electronic Materials’ 140 highly-skilled team members to Materion.”

The combination presents significant compelling strategic and financial benefits:

Increases Access to High-Growth Semiconductor Market and Alignment with Megatrends: Deepens alignment with leading global semiconductor manufacturers and further enhances their position to benefit from key megatrends, specifically proliferation of smart devices, high-speed connectivity (5G), autonomous driving, artificial intelligence, and cloud computing

Creates Significant End Market Scale and Increases Total Addressable Market: Expands Materion’s presence in the semiconductor industry, increasing sales contribution by more than 40%, provides access to new higher-value chip applications, and meaningfully increases the total addressable market opportunity in the space

Broadens Portfolio and Expands Reach: Adds new advanced materials to the portfolio, increases sales contribution outside the U.S., creates geographic advantage aligned with evolving semiconductor manufacturing trends, and strengthens established positions in industrial and aerospace & defense markets

Adds Proprietary Process Technology and Key Talent: Adds a center of excellence with proprietary process technologies that yield highly differentiated solutions and brings deep technical expertise and seasoned talent

Enhances Financial Profile: The transaction is expected to be immediately accretive to Materion’s adjusted EPS and adjusted EBITDA margins by 100 basis points, and is expected to increase annual value-added sales by over 19%; in addition, the company expects synergies to meaningfully contribute to EBITDA; targeting approximately $10M by 2026

“The addition of HCS-Electronic Materials significantly enhances Materion’s portfolio of advanced materials solutions and is a great example of how we are leveraging our strong financial position to acquire proven businesses that align with our growth strategy. We remain focused on deepening and broadening our technical capabilities, adding greater diversification, and increasing our access to attractive higher-growth and higher-margin business opportunities,” Vijayvargiya said.

The acquisition of HCS-Electronic Materials builds on Materion’s acquisition of Optics Balzers in 2020, which expanded the company’s global position in optical thin film coatings, furthering its transformation to a leading advanced materials supplier.

Transaction Terms and Financing

The acquisition of HCS-Electronic Materials is structured as an equity purchase.

Materion expects to finance the transaction utilizing a new term loan along with borrowings from its revolving credit agreement. Pro forma net debt to adjusted EBITDA is expected to be approximately 2.9x at the time of close, within the company’s stated target leverage range of 1.5x to 3.0x. Materion expects to generate strong cash flow and deploy it towards deleveraging to the middle of the range within 24 months post-close.

The transaction is expected to close in the fourth quarter of 2021, subject to customary closing conditions, including regulatory approval.

J.P. Morgan is serving as exclusive financial advisor and Jones Day as legal counsel to Materion.

Publisher: PCB Directory
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