Avon Rubber to acquire Team Wendy

Avon Rubber plc (LON:AVON) has announced the signing of an agreement to acquire Team Wendy, LLC, a leading supplier of helmets and helmet liner and retention systems for military and first responder markets, for US$130 million (approximately £100 million^[1]) on a cash-free and debt-free basis, subject to a normalised level of working capital.

Strategic Highlights

·    The Board believes that the Acquisition will be an important step in the strategic development of Avon Rubber as a leading provider of life critical personal protection systems to military and first responder markets.

• Combining Team Wendy with Avon Protection’s existing Helmets & Armor business will create a global leader in Military and First Responder helmets with a broader product portfolio and stronger capabilities and routes to market.

• Team Wendy adds leading helmet liner and retention systems used by the U.S. Department of Defense (the “DoD“) and established positions in Rest of World Military and First Responder helmet markets to Helmets & Armor which is focussed on next generation ballistic helmets and body armor for the DoD.

• The enlarged helmet business will be better positioned for investment in next generation products.

• Establishes a broader platform into which other technologies can be incorporated.

• The Enlarged Group will have better scale and an enhanced route to market, with Team Wendy’s complementary customer base and well-established global footprint expected to provide significant business development opportunities over the medium-term.

·    The Directors believe that the Acquisition will enhance shareholder value, meeting all of the Group’s strategic and financial criteria, and represents an immediate and compelling use of proceeds from the sale of milkrite | InterPuls (the “Dairy Disposal“) through the redeployment of capital into a highly complementary business with higher growth and margins and at a lower EBITDA multiple than obtained for milkrite | InterPuls.

·    The acquisition price represents a multiple of 9.7x Team Wendy’s 2019 EBITDA. The Directors believe that the Acquisition is financially attractive and is in line with Avon Rubber’s stated financial performance criteria for value-enhancing acquisitions, as set out below.

• The Acquisition will be earnings accretive in the first full financial year after Completion, both on a standalone basis and after completion of the Dairy Disposal, before the delivery of revenue or cost synergies.

• Team Wendy has a track record of strong organic revenue and profit growth, high-recurring EBITDA margins and strong cash conversion.

• Avon Rubber will retain a strong balance sheet, with an anticipated net cash position following completion of the Acquisition and the Dairy Disposal.

·    Team Wendy’s key strengths are closely aligned to those of Avon Protection – the Directors believe that Team Wendy is well positioned in its core markets; it has a track record of profitable revenue growth and an attractive product portfolio supported by proprietary technology.

• Diversified customer base of Military and First Responder users, both in the U.S. and internationally, with customers in over 50 countries ensuring it is not reliant on any single customer or contract.

• Strong R&D capabilities with leading helmet liner and retention system technologies and a focus on impact protection capabilities. Team Wendy has developed advanced proprietary technology relating to helmet liner and retention systems.

• The Team Wendy brand name is well respected and widely recognised internationally for its high-quality products, commitment to safety and advanced technological capabilities.

• Revenue in the year ended 31 December 2019 of US$44.2 million and EBITDA of US$13.4 million resulting in an EBITDA margin of 30.3%.

• Strong and longstanding management team who will transfer with Team Wendy following completion.

• The Business currently operates from a single facility in Cleveland, Ohio, employing approximately 130 people. Team Wendy will continue to operate from its Cleveland base, benefiting from the wider Avon Rubber infrastructure and management support.

Transaction Overview

·    The cash consideration of US$130 million on a cash-free and debt-free basis, which is subject to closing and customary adjustments, is payable on Completion.

·    The Acquisition constitutes a Class 1 transaction under the FCA Listing Rules and accordingly is conditional upon, inter alia, the approval of Shareholders at a General Meeting.

·    The Acquisition is expected to close in the first quarter of the Group’s 2021 financial year, subject to U.S. regulatory approvals and customary closing conditions.

·    Financing and Structure

• The consideration will be fully satisfied in cash. In the event that Completion occurs prior to completion of the Dairy Disposal, the consideration will be financed by drawing on a new US$200 million RCF facility with an initial term of three years, with two options to extend by an additional 365 days, which will be repaid following completion of the Dairy Disposal. Following completion of the Acquisition and the Dairy Disposal it is intended that the New RCF will be used to support Avon Rubber’s medium-term growth objectives, including financing potential future acquisitions in line with Avon Rubber’s growth strategy.

• The facility made available under the New RCF is a US$200 million multicurrency revolving credit facility, subject to the satisfaction of certain conditions precedent. The New RCF is available for drawing in U.S. dollars, sterling, euro and other currencies (subject to certain conditions).

• The milkrite | InterPuls divestment, as announced on 2 July 2020, is subject to customary closing conditions and regulatory approvals, with completion expected to take place in the first quarter of the Group’s financial year. Avon Rubber expects to receive net proceeds before customary adjustments of circa £160 million post the completion of the Dairy Disposal. Avon Rubber has agreed with the trustees of its U.K. pension scheme to make a one-time contribution of £20 million to strengthen the scheme’s funding position following completion of the divestment. In the event that completion of the divestment occurs prior to the completion of the Acquisition, Avon Rubber will use the net remaining proceeds to finance the Acquisition.

Trading Update

The Board is pleased to report that Avon Protection and milkrite | InterPuls have both continued to operate and trade in line with our expectations, as outlined in the half year results announcement on 19 May 2020. The Board therefore remains confident of achieving its current year expectations.

Demand for the products of both businesses has remained robust. In particular, we have continued to see strong demand from First Responders across the entire respiratory protection product range and global dairy market conditions have remained positive, driving strong order intake.

The COVID-19 pandemic has resulted in only minor disruption across our businesses, with demand remaining strong and operational efficiency enhanced by short term cost savings as a result of our response to lockdown conditions.

Full year cash conversion is expected to return to normalised levels, following receipt of the delayed payment relating to the Rest of World mask contract highlighted in our half year results announcement.

Change of Reporting Currency

Once the acquisition of Team Wendy and divestment of milkrite | InterPuls has been completed the Group’s activities will be predominantly conducted in U.S. dollars, with approximately 90% of revenues and 100% of borrowings in U.S. dollars. As such, Avon Rubber intends to change its reporting currency to U.S. dollars for its 2021 financial year.

Following the change in reporting currency, dividends for the 2021 financial year and beyond will be set in U.S. dollars and converted into pounds sterling for payment at the prevailing exchange rate immediately prior to payment.

Paul McDonald, Avon Rubber, Chief Executive Officer, commented:

“The acquisition of Team Wendy is another important strategic step in the transformation of Avon Rubber into a leading provider of life critical personal protection systems.

We are delighted to have identified an opportunity that fits our clear commercial and financial criteria and enables us to immediately reinvest the milkrite | InterPuls proceeds to drive additional shareholder value.

Team Wendy is a high-quality business with complementary liner and retention system technologies and established positions in Rest of World Military and First Responder helmet markets. Bringing Team Wendy into the same family with our existing Helmets & Armor business establishes Avon Protection as a global leader in Military and First Responder helmets, with an enhanced and broader product portfolio with stronger capabilities and routes to market.

We look forward to welcoming Team Wendy into the Avon Rubber family and working together to further develop head protection systems that prevent traumatic brain injury and to improve the performance and capability of our customers.”

Dan T. Moore, Team Wendy, LLC, Chairman, Founder and Principal Owner, added:

“Team Wendy was founded to honour the legacy of my late daughter and improve head protection systems to prevent other families from experiencing a similar loss.

My family has always agreed that we would only ever sell Team Wendy if it was to the right partner.

In meeting with the Avon Rubber leadership team and understanding their vision, it was clear to me that they would honour her legacy and help to drive continued and sustainable growth and innovation.”

Jose Rizo-Patron, Team Wendy, LLC, Chief Executive Officer, added:

“Today’s announcement marks an exciting new chapter for Team Wendy that will usher in new opportunities for our employees, our customers and our business partners.

It was important for us to find the right owner for Team Wendy with a shared vision to save lives by providing the best for anyone wearing a helmet and who would continue to build on Team Wendy’s legacy.

Avon Rubber shares our vision for the growth and expansion of Team Wendy and, as such, we believe they are the right long-term partner for our customers, employees and other stakeholders.”

Overview of Team Wendy

Team Wendy is a leading supplier of helmets and helmet liner and retention systems for military and first responder markets. Team Wendy was founded in 1997 and is a family-owned company based in Cleveland, Ohio. Team Wendy places a strong focus on the prevention of traumatic brain injury in honour of the company’s namesake and daughter of its founder, Wendy Moore.

Team Wendy initially focused on manufacturing and distributing ski helmets before transitioning to designing and developing ballistic and non-ballistic helmets, as well as helmet liner and retention systems for military and first responder markets. In 2019, approximately 61% of Team Wendy’s revenue was derived from U.S. customers, including the U.S. Military, U.S. Department of Homeland Security, U.S. Department of Justice and National Industries for the Blind (NIB)/AbilityOne Program. 

Team Wendy has customers in over 50 countries across military, law enforcement, and search and rescue segments. In Australia, Team Wendy ballistic helmets are the current program of record helmets for the Australia Defence Force (ADF). Team Wendy has sold over 40,000 ballistic helmets to ADF to date. Team Wendy also supplies products to elite military, law enforcement, and search and rescue agencies in Europe, Asia, Latin America and the Middle East.

Team Wendy products are manufactured in an approximately 137,000 square foot facility in Cleveland, Ohio. Team Wendy had approximately 130 employees as of 31 March 2020.

Team Wendy is dedicated to the pursuit of improving head protection research, design and development of advanced head-borne systems, bringing more choice, better technology and reliable customer service to the industry.

Timetable to Completion

The size of the Acquisition means that it constitutes a Class 1 transaction for the purposes of the Listing Rules and accordingly is conditional on the approval of Shareholders at a General Meeting.

A circular containing further details of the Acquisition, the Directors’ recommendation, the notice of the General Meeting and the Resolutions, is expected to be published by 11 September 2020.

The completion of the Acquisition is subject to a number of customary conditions, including the expiry or termination of the applicable waiting period (and any extension thereof) under the HSR Act and receipt of written notice from CFIUS stating that it has determined there are no unresolved national security concerns with the Acquisition, no review of the Acquisition is applicable under the DPA, or no further review of the Acquisition is requested, or that following a referral to the President of the United States no action will be taken by the President of the United States to suspend or prohibit the Acquisition. The Acquisition is expected to complete in the first quarter of the Group’s 2021 financial year. The preceding summary should be read in conjunction with the full text of the following announcement and its appendices. The defined terms set out in Appendix II apply to this Announcement.

Evercore Partners International LLP are acting as lead financial adviser and sponsor to Avon Rubber in connection with the Acquisition. William Blair International, Limited are acting as financial adviser to Avon Rubber in connection with the Acquisition.