# Avon Rubber to acquire Team Wendy

- Link: https://www.directorstalkinterviews.com/avon-rubber-to-acquire-team-wendy/412856828
- Published: 2020-09-09T07:17:31+01:00
- Author: Amilia Stone

**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.

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