MKS to use committed term loan debt, cash for $1 billion acquisition

By Devika Patel and Marisa Wong

Knoxville, Tenn., Oct. 30 – MKS Instruments Inc. will use available cash and $650 million of committed debt financing to fund its planned acquisition of Electro Scientific Industries, Inc., a Portland, Ore.-based supplier of photonic and laser systems to microelectronics customers, for approximately $1 billion.

MKS will acquire Electro Scientific Industries for $30.00 per share through this all-cash transaction.

“MKS will finance the transaction with available cash on hand and $650 million in committed term loan debt financing which will have no financial maintenance covenants,” senior vice president, treasurer and chief financial officer Seth H. Bagshaw said on the company’s conference call announcing the acquisition on Tuesday.

“In addition, we have obtained a commitment for a $100 million asset-based revolver to fund future working capital requirements as needed,” he said.

The combined company is expected to have a strong balance sheet with combined pro forma net cash and investments of approximately $400 million and total outstanding term loan debt of $1 billion.

“As we have demonstrated in the past, we have committed to maintaining a robust capital structure,” Bagshaw said.

“On a pro forma basis, we expect the combined company to have a strong balance sheet, with combined pro forma net cash in investments of approximately $400 million and total term loan debt outstanding of $1 billion.

“This will result in pro forma trailing 12-month gross leverage, defined as debt to adjusted EBITDA, of 1.3x and pro forma net leverage of 0.8x,” he said.

The company plans to cut debt once the acquisition is completed.

“Our goal is to manage the combined capital structure to reduce indebtedness,” Bagshaw said.

Debt financing

MKS entered into a debt commitment letter on Monday for a $650 million incremental term loan, according to an 8-K filing with the Securities and Exchange Commission.

Barclays and HSBC Securities (USA) Inc. are the joint lead arrangers and bookrunners on the seven-year covenant-light term loan.

Pricing is expected to be Libor plus 175 basis points, subject to a 0% Libor floor.

The term loan is expected to include 101 soft call protection for six months.

The commitment letter also includes a commitment for a $100 million asset-based revolving credit facility.

Barclays and HSBC Securities are also the joint lead arrangers and bookrunners for the five-year revolver.

The applicable margin for Libor loans under the ABL facility is expected to be 150 bps initially and generally range from 125 bps to 150 bps depending on excess availability. The commitment fee will be 25 bps.

The transaction is expected to close in the first quarter of calendar year 2019.

MKS is an Andover, Mass.-based provider of instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of advanced manufacturing processes.

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