One might say that Trelleborg AB's pending $950 million acquisition of Minnesota Rubber and Plastics has been five years in the making, as the two sides first broached a possible deal in 2017.
Plymouth, Minn.-based MRP, a manufacturer of rubber, thermoplastic and polymer products, currently is owned by the world's third-largest private equity firm, KKR, which has offices in New York City.
"We were talking with KKR and looking at Minnesota Rubber and Plastics in the 2017 to 2018 time frame, but we never went all the way," Peter Nilsson, president and CEO of Trelleborg Group, based in Trelleborg, Sweden, said during an Aug. 2 online news conference outlining the deal.
Fast forward to 2022, add in the $2.3 billion that Trelleborg gleaned from the sale of its wheel systems segment to Yokohama Rubber Co. Ltd. in March, and Trelleborg's newest acquisition gains some context against the backdrop of its new, leaner structure.
"We looked again, carefully, over the last year and found [MRP] to be an excellent fit for Trelleborg," Nilsson said.
KKR acquired MRP in 2018 from Minneapolis-based Norwest Equity Partners. An unnamed affiliate of KKR is the official seller in the agreement.
Due to tax structure reconciliation between the U.S. and Sweden, a tax asset of approximately $90 million will make the ultimate purchase price closer to $860 million, according to Trelleborg.
Nilsson said Trelleborg has secured financing for the cash and debt-free transaction, expected to be finalized by the end of the year.
"Joining Trelleborg is an exciting opportunity to expand our global reach while we continue to fulfill our commitments to delivering excellence and innovation for our customers," MRP CEO Jay Ward said in an Aug. 2 statement from KKR.
The Aug. 2 news conference added "some flavor" to the pending transaction, as Nilsson referred to details of the deal, which will place MRP under the auspices of Trelleborg Group segment Trelleborg Sealing Solutions.
Most importantly, Nilsson said the acquisition will allow Trelleborg to expand its North American footprint in several business areas, including specialty industrial, medical, food and beverage, and water-related infrastructure components — MRP's areas of expertise.
"This is a step change for Trelleborg Sealing Solutions," Nilsson said. "The business area will be as strong in North America as its already-established position in Europe."
He noted that MRP "complements and strengthens" Trelleborg, which has 21,800 employees globally and had sales of $3.3 billion in 2021.
MRP had sales of about $262.2 million in 2021, according to Trelleborg.
MRP, which has historically grown organically (with some acquisitions) at between 8 and 10 percent per year, sees its largest sales in North America, followed by Asia and Europe.
By market segment, MRP gains its highest revenues in specialty industrial products, followed by medical, food and beverage (the segment with the highest growth) and finally automotive, according to Trelleborg.
"The company is a very good fit with our own business within precision seals, and the transaction is expected to generate significant synergies in terms of lower costs and higher production efficiency," Nilsson said. "We are sailing in known waters with this acquisition."
Conversely, MRP will be able to leverage Trelleborg's global sales channels and "offer a wider range of seals to its existing customer base."
"All in all, this is expected to lead to extensive cross-selling opportunities," Nilsson said.
While thermoplastics remain a part of MRP production lines, the company has gravitated toward elastomeric components in recent years, Nilsson said.
"Customers are looking for complete solutions and appreciate wide offerings," Nilsson said. "MRP is focused more on rubbers and on rubber components rather than plastics."
The Trelleborg CEO added that synergies also will be realized in production and subsequent cost efficiencies.
"It will take a few years, but we expect this to improve," he said. "If we succeed in these synergies, then the margins will be substantially higher for us in the coming years.
"Initially, the EBITA margin of Trelleborg Sealing Solutions will be slightly diluted. However, as we extract synergies, the business area's EBITA margin is estimated to be back at its current level within a couple of years."
Nilsson expects that the acquisition multiple gradually will drop to approximately 10-times EBITDA, including synergies.
"We have a very good history when it comes to value-creating acquisitions within Trelleborg Sealing Solutions," he said.
The MRP acquisition is evidence that Trelleborg keeps its eyes open for "the blue chip North American engineering firms," said Fredrik Nilsson, Trelleborg's chief financial officer.
"This acquisition is moving us in exactly the right direction, accelerating our journey," Peter Nilsson said. "We are very happy. In Europe, we are well-established ... with rubber compounds and plastics materials.
"But in the U.S. we are missing some of the rubber side. We are strengthening areas where we want to be stronger."
Peter Nilsson said he does not expect any major challenges or problems to affect the closing of the transaction.
MRP has approximately 1,450 employees across four states and six countries, including France, Mexico, the United Kingdom (Primasil Silicones Ltd.), China and the Czech Republic.
The company's U.S. operations are located in Plymouth and Litchfield, Minn.; Mason City, Iowa; River Falls, Wis.; and Pawling, N.Y.
All MRP employees are expected to be retained, Trelleborg said, and KKR said MRP's management team will remain in place.
KKR offers an employee ownership program at MRP, whereby employees are given ownership interests in the company.
When the transaction with Trelleborg closes, employees will receive cash payouts worth between three and 24 months of their annual salary.
Amounts will vary based on tenure and employment status. All of MRP's 1,450 employees—from the manufacturing floors to corporate offices — will get the bonus, according to KKR.
"Today's announcement is the culmination of a lot of hard work by our dedicated employees, ... and KKR's shared ownership model has allowed all MRP colleagues to share in this success," MRP's Ward said.
According to a report in the Minneapolis Star Tribune, employees "hooted, hollered and clapped loudly as the bonuses were announced" at an all-employee meeting Aug. 2.
As part of the transaction, employees also will receive pre-paid personal financial coaching and tax preparation services, according to a KKR spokesperson.
"I am proud to have worked alongside MRP colleagues who have contributed in so many ways to the company's performance," said Josh Weisenbeck, a partner at KKR. "Together we have been able to deliver the fantastic results that made this sale possible. This is a great outcome for all employee owners and our limited partners in KKR's Americas XII Fund."
KKR introduced the employee ownership program for MRP employees as a free, incremental benefit and not in exchange for benefits, wages or wage increases.
Other tenets of the program, which is different from an Employee Stock Ownership Program (essentially a corporate tax-deferred retirement program), include "sharing business targets and regular progress updates with all employees, and giving employees a voice in capital expenditures and operational improvements."
Known as Ownership Works, the non-profit program was founded by Peter Stavros, KKR's co-head of Americas Private Equity.
Among other benefits, the program allocates about $300,000 per year for employees to decide their own capital fixes, which have included the addition of air conditioning in production facilities, improved break rooms and bathrooms, and the purchase of equipment to improve ergonomics for production employees.
"MRP shows the power of building an ownership culture, something we believe many more companies can replicate, and the potential of the shared ownership movement," Stavros said. "Trelleborg is a great cultural fit for MRP and the ideal strategic partner.
"As part of Trelleborg, MRP will continue to be an employee-centric organization with exciting opportunities for continued innovation and global growth."
Outside of the Ownership Works, KKR's investments in MRP have helped drive acquisitions and funded a new innovation center.
Founded in 1945, MRP has kept its ear to the merger and acquisition rail in recent years, analyzing opportunities as they present themselves.
The company acquired Weobly, U.K.-based Primasil Silicones Ltd. in March (its first and only avenue for silicone compounding) and Pawling Engineered Products Inc. of New York in June 2021.
Pawling gave MRP a greater presence in the inflatable seal and extruded solutions space.
In early May, MRP, which prides itself on material science and engineering to design rubber and plastic products, opened the doors to a $6 million innovation center near its headquarters just outside of Minneapolis.
The 8,500-square-foot space is dedicated to designing, prototyping, testing and building tight threshold and complex geometry components specifically for the medical industry, mainly using custom black rubber and silicone.
The unique center — "more than an official square footage or a facility for tours," according to Ward — is intended to foster design collaboration between customers and MRP's material scientists and engineers, accelerate innovation and bring products to market more quickly.
"Minnesota Rubber and Plastics is well-known to us for being an innovative and customer-oriented company," Peter Hahn, president of Trelleborg Sealing Solutions, said Aug. 2. "The company's new state-of-the-art innovation center enables accelerated product development and strengthens us in research and development and areas such as health care and medical."
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