Benzinga | Nov 5, 2021 09:36AM EDT

EnPro Industries To Buy NxEdge For $850M In Cash

NxEdge to Become Part of Enpro's Advanced Surface Technologies (AST) Segment, Significantly Enhancing the Scale and Breadth of Offerings Across the Semiconductor Value Chain

Highly Complementary to Enpro's Existing Semiconductor Businesses, Providing Meaningful Customer and Geographic Expansion and High-Growth, High-Margin Revenue Streams

Marks a Transformative Next Step in Enpro's Strategy to Drive Value Through Addition of Unique, High-Margin, High Cash Flow Industrial Technology Businesses in Secular Growth Markets

Significantly Accretive to Adjusted Diluted Earnings Per Share

Company to Host Conference Call and Webcast to Provide Transaction Details and Discuss its Third Quarter 2021 Financial Results at 8:30 a.m. ET Today

CHARLOTTE, N.C.--(BUSINESS WIRE)-- EnPro Industries, Inc. (NYSE:NPO), an industrial technology company, today announced that it has entered into a definitive agreement to acquire NxEdge, Inc. ("NxEdge"), an advanced manufacturing, cleaning, coating, and refurbishment business focused on the semiconductor value chain, from Trive Capital. The transaction marks a significant next step in Enpro's multi-faceted strategy to position itself in secularly growing, high-margin industrial technology-related businesses with aftermarket exposure and recurring revenue streams.

Under the terms of the agreement, Enpro will acquire NxEdge for $850 million in cash. Upon closing, NxEdge will become part of Enpro's Advanced Surface Technologies (AST) segment. Together, the combined business will offer differentiated, integrated solutions with expanded customer relationships and a diversified geographic reach.

Based in Boise, Idaho, NxEdge serves customers across the semiconductor supply chain, including top tier global integrated device manufacturers (IDM) and original equipment manufacturers (OEM) from six main facilities located in Idaho and California. With vertically integrated capabilities across the semiconductor value chain, including a robust aftermarket business, NxEdge is a leading supplier offering a set of integrated capabilities with unique processes resulting in a broad range of qualifications at top customers.

NxEdge is expected to generate approximately $190 million in revenue and adjusted EBITDA of $70 million for 2021. Enpro expects the acquisition to be immediately accretive to total sales growth, adjusted EBITDA margin and adjusted diluted earnings per share ("adjusted EPS"). In 2022, Enpro expects NxEdge to contribute approximately $1.70 in adjusted EPS based on current interest rates, 30% above the mid-point of the company's 2021 adjusted EPS guidance range of $5.35-$5.55.

"This combination with NxEdge is an important step forward in our portfolio reshaping strategy as we continue our transformation toward unique industrial technology products and services in high-margin, high-growth markets," said Eric Vaillancourt, Interim President and Chief Executive Officer. "We have followed the significant progress achieved at NxEdge in recent years while evaluating acquisition opportunities against a rigorous set of criteria, looking for businesses with high cash flow and low capital intensity, as well as high aftermarket exposure, that operate in growing markets driven by secular tailwinds. In NxEdge, we have found a business that checks all of these boxes."

Mr. Vaillancourt continued, "Once NxEdge's highly complementary business is a part of our AST segment, the combined business will have enhanced capabilities across the semiconductor value chain, including added process chamber applications and leading coating capabilities, with significantly expanded customer relationships and new, higher-margin revenue streams. In addition, given NxEdge's domestic presence, we believe the acquisition positions Enpro to benefit from the movement of the semiconductor supply chain back to the United States and the massive investments being made by the world's leading IDMs and foundries. We look forward to welcoming the NxEdge team to Enpro and realizing the benefits of this highly strategic and accretive transaction."

"We are thrilled with the opportunity to join Enpro and bring together our highly complementary assets to unlock significant value," said Jackson Chao, Founder and Chief Executive Officer of NxEdge. "Over the past few years, we have focused on delivering technically differentiated, vertically integrated solutions to our semiconductor IDM and OEM customers. As well, NxEdge has made meaningful investments in our facilities' infrastructure and capacity to support future growth. With Enpro, we will be able to fully capitalize on these investments and accelerate our momentum, and on a combined basis, deliver more comprehensive, differentiated solutions to meet our customers' needs globally and offer expanded career opportunities for our colleagues."

"Over the past five years, NxEdge has solved supply chain complexities by transforming into a vertically integrated surface technology company focused on delivering full lifecycle support," commented David Stinnett, Partner at Trive. "Trive has greatly appreciated the partnership with management, and we are excited to see the business continue to deliver next-generation semiconductor technology under Enpro's stewardship."

Compelling Strategic and Financial Benefits

The transaction is expected to:

* Significantly enhance the scale and breadth of offerings across the semiconductor value chain: Consumer trends and increased computing power are creating powerful secular tailwinds, including growth in data management, 5G networks, IoT, and machine learning, as well as the expansion of the use of semiconductors from consumer and auto electronics into numerous business sectors. As one of the leading providers of vertically integrated, end-to-end capabilities, NxEdge is expected to help Enpro capitalize on these market trends by providing the AST segment with differentiated capabilities all along the value chain from advanced manufacturing through cleaning, coating, refurbishments, replacements and new components.

* Add complementary critical coating capabilities: Coating and the associated material science are lynchpins of Enpro's overall semiconductor strategy, and high-performance proprietary coatings and materials are the key differentiators for a supplier in the semiconductor industry. NxEdge is highly complementary with Enpro's existing semiconductor businesses and will add differentiated coatings capabilities with proprietary recipes and processes. NxEdge will bring to Enpro a strong competitive position with a leading range of coating materials and technically advanced coating capabilities in the semiconductor market.

* Provide customer and geographic expansion: NxEdge has long-term and strong relationships with top tier global IDMs and OEMs and will meaningfully expand Enpro's sales by geography, channel, and end customer. Additionally, NxEdge's U.S. facilities will position the combined company to capitalize on ongoing IDM expansion and semiconductor supply chain development domestically. Globally, NxEdge's vertical integration strategy creates increasing efficiency of supply chains and drives improved returns for customers.

* Drive higher margin and long-term growth: Enpro expects this combination will deliver long-term revenue and profit growth, expand capabilities within its AST segment and strengthen customer relationships. NxEdge's focus on full lifecycle management and its vertically integrated model and superior surface coating technology provide revenue visibility over a long-term time horizon.

Financing, Approvals and Timing to Close

Enpro expects to finance the all-cash acquisition with a combination of cash, borrowings under its revolving credit facility and additional term loan debt. The company anticipates that its net leverage ratio will be approximately 3.7x following the completion of this transaction. Proceeds from the recently announced agreement to sell the Compressor Products International (CPI) business, which is expected to close by the end of the first quarter of 2022, will assist in reducing the leverage ratio to 3.3x in the near-term. Enpro remains committed to achieving a target leverage ratio in the 2.0x range and will use future excess cash flow to reduce leverage. Enpro will file a Current Report on Form 8-K with the Securities and Exchange Commission, which will have further details concerning the transaction.

The transaction is expected to close by the end of 2021, subject to limited closing conditions, including regulatory approvals.

Third Quarter 2021 Financial Results

In a separate press release being issued today, Enpro is announcing its financial results for the third quarter of 2021, which when issued will be available on the company's website, https://www.enproindustries.com.