Quaker Houghton · NYSE:KWR
Quaker Houghton — Quaker Chemical — Merger or Acquisition (August 2019)
35 slides from Quaker Houghton's merger presentation, Aug 1, 2019
Slide 1: Forward Together: Combination of Quaker Chemical and Houghton International
Forward Together ™ Combination of Quaker Chemical and Houghton International
Slide 2: Risks and Uncertainties Statement
Risks and Uncertainties Statement Regulation G The attached charts include Company information that does not conform to generally accepted accounting principles (“GAAP”). Man agement believes that an analysis of this data is meaningful to investors because it provides insight with respect to ongoing
Slide 3: Agenda
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
Slide 4: Purchase Price and Structure
4 ©2019 Quaker Houghton. All Rights Reserved Purchase Price and Structure • Houghton shareholders to receive ~$170.8 million in cash and 24.5% (~4.3 million shares) of Quaker Houghton; Quaker Houghton has refinanced Houghton’s net debt of ~$660 million (versus $690 million at announcement) • Represe
Slide 5: Attractive Financing and Ample Liquidity
• $1.15 billion syndicated bank facility • $400 million revolver (~$180 million funded at close) • $600 million Term Loan A • $150 million (euro - equivalent) Term Loan A • $930 million in new debt to finance transaction • ~$170.8 million for cash portion of purchase price, ~$700 million for refinan
Slide 6: Strong Talent and Cultural Fit; Size and Scale; Growth
6 ©2019 Quaker Houghton. All Rights Reserved x Strong Talent and Cultural Fit x Increases Size and Scale x Accelerates Growth Opportunities x Achieves Significant Cost Synergies x Balanced Capital Structure Approach • Adds talent to our most precious asset - people • New Executive Leadership Team in
Slide 7: Key Priorities to Unlocking Value Creation
©2019 Quaker Houghton. All Rights Reserved 7 • Retain current customers • No supply chain disruption • Deliver excellence in products and services Customer Focused Execute Integration and Deliver Synergies Growth Initiatives Capital Allocation 1 2 3 4 • Begin cross selling expanded portfolio • Devel
Slide 8: Agenda
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
Slide 9: Creates Leading Global Supplier of Industrial Process Fluids
©2019 Quaker Houghton. All Rights Reserved 9 $1.6 billion in sales 115 countries served around the world 15k customers 4k colleagues 35 manufacturing locations Creates Leading Global Supplier of Industrial Process Fluids
Slide 10: Proven Executive Leadership Team
©2019 Quaker Houghton. All Rights Reserved 10 Global Functional Leaders Business Leaders Jeewat Bijlani – SVP, Managing Director – Americas Dieter Laininger – SVP, Managing Director – APAC Adrian Steeples – SVP, Managing Director – EMEA Joseph Berquist – SVP, Global Specialty Businesses & Chief Stra
Slide 11: Expands Commercial Footprint Across Multiple Fronts
©2019 Quaker Houghton. All Rights Reserved 11 Expands Commercial Footprint Across Multiple Fronts Increased Scale and Diversity = More Opportunities, Less Risk Increases global customer base from 3,500 to 15,000. Highly complementary with only 1,000 overlapping customers. Strengthens presence with O
Slide 12: Diversifies and Expands Customer Base
©2019 Quaker Houghton. All Rights Reserved 12 Quaker • 3,500 customers • Largest customer ~8% of sales • Top 10 customers ~25% of sales • Steel and Automotive major end markets Quaker Houghton • 15,000 customers • Complementary - only 1,000 overlap • Largest customer ~4% of sales • Top 10 customers
Slide 13: Nearly Doubles Our Size and Scale
©2019 Quaker Houghton. All Rights Reserved 13 BEFORE: Focused on a limited set of markets with primarily large customers NOW: At nearly 2x our previous size, we have a leadership position in a more diverse set of markets Steel Steel Auto Components/OEM Bearings Tube & Pipe Auto Components/OEM Bearin
Slide 14: Increases Addressable Markets
©2019 Quaker Houghton. All Rights Reserved 14 Increases Addressable Markets Company with Stronger Market Presence Quaker Houghton Both Strong The Combination Makes Us Stronger. Together.
Slide 15: Improves Leadership Position Across End Markets
©2019 Quaker Houghton. All Rights Reserved End Markets Primary Metals Aluminum Primary Metals Steel Transportation Engine & Transmission Transportation Components General Industrial Aerospace and Defense Tube & Pipe Metal Containers Mining Offshore Hydraulics & Sub - sea Control Specialty Grease Arc
Slide 16: Strengthens Product Portfolio: Broader and Deeper
Industrial Synthetic Fire - Resistant Hydraulic Fluids Water Glycol Fire - Resistant Hydraulic Fluids Specialty Grease Offshore Sub - Sea Control Fluids ©2019 Quaker Houghton. All Rights Reserved 16 Metalworking Metal Removal Fluids - Synthetic Metal Removal Fluids - Soluble Metal Removal - Neat Oil
Slide 17: Enhances Global Footprint
©2019 Quaker Houghton. All Rights Reserved 17 Mexico Quaker had local manufacturing while Houghton did not; opportunity to better serve the customer and reduce cost South America Broadens footprint in Brazil and Argentina, as well as expands presence in other South American countries Germany Houghto
Slide 18: Growth Strategy Continues
©2019 Quaker Houghton. All Rights Reserved 18 Base markets expected to grow 1 - 3% Continued share gain in existing product portfolio through differentiated customer service Leverage acquired technologies to increase share of wallet Quaker Houghton will continue to consider strategic acquisition can
Slide 19: Significant Cost Synergies
Significant Cost Synergies ©2019 Quaker Houghton. All Rights Reserved 19 Estimated Synergy Realization Timing Sources of Synergy ~$60 0 10 20 30 40 50 60 70 2019 2020 2021 2022 Asset Optimization Logistics Procurement Operational Efficiencies ~$50 ~$35 ~$5 19 Asset Optimization (17%) • Manufacturing
Slide 20: Divestiture Update
• The U.S. Federal Trade Commission and European Commission required divestiture of certain steel and aluminum product lines in North America and Europe concurrent with close • Revenue of ~$50 million represents ~3% of combined Quaker Houghton revenue as expected; EBITDA of ~$11 million excludes cer
Slide 21: Agenda
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
Slide 22: Net Sales and Adjusted EBITDA
©2019 Quaker Houghton. All Rights Reserved 22 Net Sales ($ in millions) $747 $820 $868 $851 $738 $785 $825 $786 2016 2017 2018 TTM Q2 '19 $1,485 $1,605 $1,693 $1,637 $107 $115 $126 $124 $119 $116 $122 $118 2016 2017 2018 TTM Q2 '19 119 115 117 119 July 2017 Proxy 14.3% 14.0% 16.1% 14.8% 14.5% 15.0%
Slide 23: Quaker Houghton's Pro-Forma Adjusted EBITDA
Quaker Houghton’s Pro - Forma Adjusted EBITDA ©2019 Quaker Houghton. All Rights Reserved 23 $215 $221 $236 $230 200 210 220 230 240 2016 2017 2018 TTM Q2'19 23 • Estimated pro - forma 2018 adjusted EBITDA of ~$236 million decreased to ~$230 million for TTM Q2’19 • $6 million decline largely due to f
Slide 24: Enhanced Financial Profile, Better Together
($ in millions ) Quaker Houghton Quaker Houghton (a) ∆ vs. Quaker standalone Net Sales $851 $786 $1,584 ~2x Gross Profit $307 $267 $589 ~2x Gross Margin 36.1% 34.0% 37.2% ~1% pts Adjusted EBITDA $124 $118 $290 ~2.5x Adjusted EBITDA Margin 14.5% 15.0% 18.3% ~4% pts ©2019 Quaker Houghton. All Rights R
Slide 25: Accounting and Other Adjustments to Financials
• Net sales decrease of ~$30 - $40 million due to conforming of accounting policies including revenue recognition; minimal impact to consolidated EBITDA • Total depreciation and amortization expense estimate at close of ~$85 million per year, including ~$10 million due to estimated purchase accounti
Slide 26: Strong Free Cash Flow Supports Capital Allocation Priorities
26 ©2019 Quaker Houghton. All Rights Reserved Strong Free Cash Flow Supports Key Capital Allocation Priorities • De - lever to 2x - 2.5x net debt to adjusted EBITDA within two years • Combined company has asset - lite profile with expected capex of ~1.5% of sales after two years; expect ~2.5% in fir
Slide 27: Agenda
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
Slide 28: Quaker Houghton Combination Summary
• Combination nearly doubles the size of either company • Cost synergies increased to $60 million from $45 million • Continued above market growth of 2 - 4% expected beginning year 2 • Differentiated customer intimate business model • Cross - selling synergies become visible after year 1 • Debt stru
Slide 29: Quaker Houghton: A Market Leader Positioned for Growth
By August 2021, we expect: • To have achieved our cost synergies and be a $300+ million EBITDA company on a going forward basis • Be positioned for organic growth 2 to 4% above the market • Be at our target leverage range and positioned for greater acquisition opportunities 29 ©2019 Quaker Houghton.
Slide 30: Save the Date: December 12, 2019
Save the Date: December 12, 2019 New York Stock Exchange CONFIDENTIAL, DO NOT DISTRIBUTE
Slide 31: Appendix
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
Slide 32: Adjusted EBITDA Reconciliation – 2016
32 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – 2016 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (c) NewCo Net Income Attributable to Quaker Houghton 61 (37) (8) 3 19 Depreciation and Amortization 20 55 - 10 85 Interest Expense, Net 1 51
Slide 33: Adjusted EBITDA Reconciliation – 2017
33 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – 2017 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (b) NewCo Net Income Attributable to Quaker Houghton 20 (47) (9) 5 (30) Depreciation and Amortization 20 55 - 10 85 Interest Expense, Net 1 5
Slide 34: Adjusted EBITDA Reconciliation – 2018
34 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – 2018 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (b) NewCo Net Income Attributable to Quaker Houghton 59 0 (9) 11 62 Depreciation and Amortization 20 54 - 10 85 Interest Expense, Net 4 56 -
Slide 35: Adjusted EBITDA Reconciliation – TTM Q2 '19
35 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – TTM Q2 ‘19 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (b) NewCo Net Income Attributable to Quaker Houghton 57 1 (9) 12 61 Depreciation and Amortization 19 53 - 10 83 Interest Expense, Net 3
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