Interface, Inc. (Nasdaq: TILE), a leading global commercial flooring company and worldwide leader in sustainability, today announced it has signed a definitive agreement to acquire nora systems in a stock purchase transaction valued at approximately $420 million. Nora, a global leader in performance flooring and worldwide share leader in the rubber flooring category, is a privately held company that is majority owned by investment firm Intermediate Capital Group (ICG). Nora’s annual revenues are approximately $280 million. Interface expects to close the transaction during the third quarter of 2018, subject to regulatory approvals and other customary closing conditions.
This acquisition will expand Interface’s rapidly growing resilient flooring portfolio and increase its penetration into high growth segments including healthcare, life sciences, education and transportation. Nora is the leader in the nearly $1 billion rubber flooring category of the $34 billionglobal commercial flooring industry. Rubber flooring is ideal for applications that require hygienic, safe flooring with strong chemical resistance, and it is extremely durable compared to other flooring alternatives. Nora is considered the leading premium brand and has built a specified selling organization that provides reach into approximately 80 countries around the world.
“We believe our value creation strategy is working in the marketplace as we better serve our customers with an expanded product portfolio and an enhanced selling system. Customers want a single flooring solution provider that can deliver a range of options that meet their requirements in different commercial applications. The nora acquisition is expected to accelerate our growth strategy by expanding our product portfolio and extending our reach in the performance flooring category of resilient flooring,” said Jay Gould, CEO of Interface. “More importantly, we believe the nora team has put the right focus on design, sustainability, and performance of their products, which aligns with Interface’s brand, purpose, and values. We are excited to combine the nora team with the Interface family so that together we can continue to create value for our key stakeholders including our customers, employees, investors, and the environment.”
The nora acquisition, when completed, is expected to be accretive to Interface’s margins and adjusted earnings per share. Nora is anticipated to increase the company’s adjusted EPS, a non-GAAP measure, $0.03 to $0.06 in 2018, and $0.15 to $0.20 in 2019.
Bank of America has committed to finance the transaction through a term loan facility. “We will expand our net debt leverage ratio to approximately 3x EBITDA at closing, and our goal is to decrease that ratio to 2x EBITDA by mid-2020,” said Bruce Hausmann, CFO of Interface.
Fiscal Year 2018 Outlook
Looking at the full year of 2018, Interface’s existing carpet tile and LVT business is targeting to achieve 3 – 5% organic sales growth, gross profit margin of 39 – 39.5%, and SG&A expenses that are relatively flat to 2017 as a percentage of net sales.
Depending on the date the transaction formally closes, which will determine when nora’s business results start being included into Interface’s business results, the nora acquisition is anticipated to have the following impacts on Interface’s targeted 2018 results:
• Increasing gross profit margin by 30 – 50 basis points;
• Increasing SG&A expenses, as a percentage of net sales, by 70 – 100 basis points;
• Increasing the Company’s effective tax rate to 27 – 28%; and
• Improving adjusted EPS by $0.03 to $0.06 in 2018.
Full year post-closing company interest and other expenses are projected to be $17 million to $19 million which includes interest expense related to funding the nora acquisition through a term loan facility. Capital expenditures for the full year post-closing are forecasted to be $55 million to $65 million. Based on historic seasonality, current forecasts, and prior year comparables, the Company continues to expect its strongest operating income growth in the second and third quarters of 2018, with softer growth in the first and fourth quarters.
Non-GAAP Financial Measures
Interface provides adjusted earnings per share and organic sales growth as additional information regarding its projected operating results in this press release. These measures are not in accordance with – or alternatives to – GAAP, and may be different from non-GAAP EPS and other non-GAAP measures used by other companies. Adjusted EPS excludes the effects of the 2017 U.S. Tax Cuts and Jobs Act and restructuring and asset impairment charges. In addition, the effects on adjusted EPS of completing the nora acquisition exclude the impact of transaction costs and purchase accounting related amortization. Organic sales growth excludes the impact of foreign currency fluctuations and Interface’s exit from its FLOR specialty retail stores. This news release should be read in conjunction with the Company’s Current Report on Form 8-K furnished today to the U.S. Securities & Exchange Commission, which explains why Interface believes presentation of these non-GAAP measures provides useful information to investors, as well as any additional material purposes for which Interface uses these non-GAAP measures.
Interface at this time cannot reasonably quantify the GAAP basis impact of the nora transaction to earnings per share without unreasonable efforts, as such calculations are highly dependent upon the timing of the closing of the transaction and the nature of the purchase price accounting adjustments and their impacts going forward. While the ultimate effect of the transaction on Interface’s future GAAP EPS cannot be predicted at this time for the reasons just stated, we expect that for 2018 and 2019 the effect of the transaction will be negative to our GAAP EPS. Given the uncertainty of foreign exchange rates in the future, Interface also cannot reasonably reconcile forecasted organic sales growth to GAAP net sales growth.
About Interface?Interface Inc. is a world-leading modular flooring company with a fully integrated collection of carpet tiles and resilient flooring. Our modular system helps customers create interior spaces while positively impacting the people who use them and our planet.
Our mission, Climate Take Back™, invites the industry to join us as we commit to running our business in a way that is restorative to the planet and creates a climate fit for life. For additional information: interface.com and blog.interface.com. Follow Interface on Twitter, YouTube, Facebook, Pinterest, LinkedIn, Instagram, and Vimeo.
About nora systems ?Nora systems is a leading global manufacturer of commercial rubber floor covering systems. The company has been designing and manufacturing high-performance rubber flooring for more than 80 years for a number of different markets. Nora’s team of skilled professionals collaborates with architects and designers to develop performance-driven flooring solutions that help bring their projects to life.
