ACCO Brands Corporation
Q3 2016 Earnings Call Transcript

Published: 24 Oct 2016

[Operator:]

Good day, ladies and gentlemen and welcome to the ACCO Brands Third Quarter 2016 Earnings Conference Call and Call to Discuss the Acquisition of Esselte. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference Jennifer Rice, Vice President, Investor Relations. Ma'am, please go ahead.

[Jennifer Rice:]

Good morning. Welcome to our third quarter 2016 earnings conference call and discussion of today's announcement that we reached an agreement to acquire Esselte. Joining us today are Boris Elisman, Chairman and Chief Executive Officer of ACCO Brands; and Neal Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. When speaking to quarterly results or the acquisition announcement, we refer to adjusted results. Adjusted results exclude transaction costs, restructuring and other one-time and non-recurring charges and apply a normalized effective tax rate of 35%. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in this morning's press release. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our adjusted earnings per share guidance. For more information, see this morning's please release. Forward-looking statements made during the call are based on certain risks and uncertainties and our actual plans, actions and results could differ materially. Please refer to our press release and SEC filings for an explanation of certain of these risk factors and assumptions. Our forward-looking statements are made as of today's date and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session. Now it is my pleasure to turn the call over to Boris Elisman.

[Boris Y. Elisman:]

Thank you, Jennifer, and good morning everyone. We have a lot of great news to talk about today. Earlier this morning we announced that we've signed a definitive agreement to acquire Esselte in a transaction valued at $333 million. This is an exciting event for ACCO Brands. With $458 million in incremental sales and $60 million in adjusted EBITDA, the acquisition will expand our presence in the pan-European marketplace with improved scale and geographic reach, and add well-recognized brands such as Leitz, Esselte and Rapid to our portfolio. Esselte has a rich heritage in the office products industry and their attractive positions in stapling, bindery, desktop organization products, and do-it-yourself tools complement our existing European business. The Esselte team has done a terrific job growing European sales and improving profitability in a difficult economic environment and we look forward to leveraging their commercial know-how and local manufacturing capabilities to benefit our combined business. This is a financially compelling transaction. Even before realizing estimated synergies of $23 million, we expect the acquisition to be immediately accretive. We expect EPS accretion of $0.12 in the first 12 months, including $0.03 from synergies. We expect an additional $0.10 of accretion in years two and three from synergies. Our synergy estimates are based on our own experience of integrating and restructuring in Europe and we will further refine our estimates post-completion. Strategically, the acquisition will greatly enhance our ability to compete more effectively in Europe, and especially in Continental Europe. We will nearly triple our European business to over $600 million in sales giving us greater scale and cost leverage to benefit customers, consumers and shareholders. The new ACCO Brands will be a European brand leader in a broad range of product categories, including binding, laminating, boards and easels, stapling and punch, and storage and organizations products. We'll have the scale, expertise and financial capacity to invest in innovation and category management. Finally, this acquisition will diversify our customer base to make us less dependent on any one customer. This transaction is very similar to the Mead acquisition we completed four-and-a-half years ago and the Pelikan acquisition completed earlier this year. It adds scale, attractive brands, channel expansion, cost synergies, management talent and financial accretion. We are very excited about coming together with Esselte. I'm also pleased to report that we had a great third quarter. Net sales increased 4%, largely driven by our acquisition of Pelikan Artline. Adjusted earnings per share were $0.29 compared to $0.28 in the prior year driven by improved gross margin. For the first nine months of the year, sales increased 2% including Pelikan. On a comparable basis, neutralizing for both the Pelikan acquisition and currency, sales for the nine months were flat. Reported earnings per share were down due to one-time items, but adjusted earnings per share were up $0.07 to $0.55 per share. We are pleased with our performance so far this year, which reflects the solid execution of our business strategy. A highlight of the quarter was our strong performance during back-to-school. Point of sales growth for school products in our U.S. business was 7%, reflecting the strong sell-through of notebooks, backpacks, portfolios and locker accessories. We're happy with our growth in this consumer segment and believe our strong performance should bode well for increased placements next season. We did see the expected channel destocking in North America this quarter by certain wholesalers as well as anticipated declines at traditional office superstores. Our International business had strong results driven by Pelikan Artline. After adjusting for the acquisition and currency, International's sales decreased 4% due to volume declines in certain markets. While the international macro environment remains challenging, we're pleased with our execution and excited about our prospects for the future as a result of the Pelikan and Esselte acquisitions. Our Computer Products business demonstrated continued progress. The top-line was even with the prior year driven by desktop accessories. Computer Products operating margins continued to show expansion as a result of our focus on the more differentiated categories within that business. Finally, turning to guidance. We are increasing our outlook for adjusted earnings per share and free cash flow. We now believe adjusted earnings per share will come in between $0.84 and $0.86 and we expect free cash flow of approximately $145 million. We continue to expect sales growth in the low-single-digits. Before turning it over to Neal to give you more details on the quarter and the Esselte transaction, I would like to wrap up by saying that for the last three years, I've been sharing with you our strategies to increase shareholder value. These strategies include organic growth through product innovation, brand leadership and channel expansion. We have been successful at doing this, evidenced by our strong performance for the past three years and especially during back-to-school. They also include margin expansion through systemic productivity improvements, greater sales from higher value products, and de-levering. Finally, they include smart use of capital. We have generated significant cash flow which we have used to reduce debt, repurchase shares and for value-creating acquisitions that enable growth, improve customer relevance, strengthen consumer demand or create scale and opportunity for synergies. Both Pelikan Artline and Esselte fit this profile. Now, I will turn it over to Neal

[Neal V. Fenwick:]

Thank you, Boris, and good morning. First, let me say that I share Boris's enthusiasm for the strength of this combination with Esselte, both from a strategic perspective and a shareholder value perspective. It is an immediately accretive acquisition that becomes even more accretive as we realize significant cost synergies. The purchase price of $333 million represents a 5.6 times EBITDA multiple pre-synergies and a 4 times multiple post-synergies. We expect to close the transaction in early 2017 with conditions to closing including approval by several European countries. The transaction will be financed through a new term loan facility borrowed in Euros and we also will refinance our existing credit facility, both contingent upon the deal closing. Our new proposed five-year facility will consist of; a new $400 million multi-currency revolving credit facility; a new €300 million denominated Term Loan A, and a new AUD 80 million Term Loan A. In preparation for the acquisition, we expect to use 2016 free cash flow to reduce debt. We began doing this in third quarter when we paid down our revolver and $78 million of our term loan. This, and the strong cash flow of the combined company, should allow us to keep our net leverage ratio at or below 3.0 throughout the purchase and integration periods. Esselte's business generated net sales of $458 million in 2015 and adjusted EBITDA of $60 million. We expect EPS accretion for ACCO Brands of $0.12 per share after the first 12 months, including $0.03 of synergies. This $0.12 of accretion also fully loads the business with higher interest expense associated with funding the purchase, as well as increased depreciation and amortization expense associated with purchase accounting. We expect an additional $0.10 of benefit from synergies, building over the second and third years. We expect to incur transaction-related cash costs of approximately $55 million, which include costs associated with refinancing, legal and advisory fees as well as costs associated with obtaining our synergies and integrating the two businesses. Approximately $11 million of these costs are expected to be incurred this year and have been accounted for in our free cash flow guidance. ACCO Brands' cash flow generation with the Esselte acquisition is expected to significantly improve and facilitate accelerated de-leveraging of our balance sheet. We anticipate our pro forma adjusted net leverage ratio to be approximately 3 times at closing and dropping well below 3 times by the end of fiscal 2017. We expect greatly enhanced cash flow from the transaction adding $20 million in the first 12 months growing to $55 million within three years after we realize synergy savings and reduce the cash costs associated with obtaining those synergies. Now turning to the third quarter results and beginning on page four of our slide deck. Third quarter sales increased 4% to $431.1 million from $413.6 million in the prior-year quarter. The Pelikan Artline acquisition added 7% to sales and foreign exchange had a slightly positive impact on sales. Underlying sales declined 3% as robust growth during back-to-school was offset by destocking at North American wholesalers and declines in the office superstore channel, as well as in certain international markets. Operating income increased despite one-time and restructuring charges of $5.2 million. Adjusted operating income increased to $60.9 million from $54.8 million in the prior year as a result of the Pelikan acquisition and productivity improvements. Net income decreased to $22.7 million, or $0.21 per share, compared to $32.6 million or $0.30 per share, in the prior-year quarter. The decrease was substantially because of a $6 million reduction to the previously recognized gain from the revaluation to fair value of the company's previously held 50% equity investment in the Pelikan Artline joint venture. Adjusted net income increased to $32 million, or $0.29 per share, from $31.1 million or $0.28 per share in the prior-year quarter. The improvement was primarily driven by improved gross margin. Turning to gross margin, reported gross margin increased 110 basis points and adjusted gross margin improved 120 basis points to 33.5%. The improvement was primarily driven by productivity initiatives and a 40 basis point from Pelikan Artline. SG&A expenses increased 11% in the quarter and as a percent of sales increased 120 basis points to 19.1%. Excluding $4.6 million of one-time items, adjusted SG&A increased 5% mainly due to the addition of Pelikan Artline. As a percentage of sales, SG&A was 18% compared to 17.9% last year. Turning to an overview of our segments for the quarter. North America sales decreased 2%. Strong growth during back-to-school was offset by destocking at wholesalers and declines in the office superstore channel. North America operating income was roughly even with the prior year but margin improved 50 basis points to 17.8% as a result of cost savings and productivity improvement. In our International segment, net sales increased 23%. The Pelikan Artline acquisition added 26% or $28 million. Foreign exchange was positive adding 1%. On a comparable basis, sales were down 4%. The underlying sales decrease was due to lower volume as a result of the ongoing recession in Brazil, channel destocking, most notably in Europe and lost share with some customers. International operating income increased due to the Pelikan Artline acquisition. Adjusted operating income increased 56% or $6.3 million and adjusted margin increased 290 basis points primarily due to Pelikan Artline which added $4.5 million to adjusted operating income. As was the case last quarter, this $4.5 million of adjusted operating income resulted in only modest net income in the quarter. This is because the removal of the below-the-line JV income which was previously accounted for using equity method and increased interest expense as a result of the transaction, mostly offset the operating income from Pelikan Artline. Computer Products net sales were even with the prior year and Computer Products operating income increased $400,000 to $3.1 million. On an adjusted basis, operating income increased $300,000 and margin increased 100 basis points to 10.5% due to higher gross margin. Turning now to our cash flow and balance sheet

[Operator:]

Our first question comes from the line of Brad Thomas with KeyBanc. Your line is now open.

[Sameet Desai:]

Hi. This is Sameet Desai on the line for Brad Thomas. Thanks for taking our questions. The announced transaction this morning looks very promising, both in terms of the accretion and free cash flow properties you mentioned. Can you talk a little bit about why now? And then, also, as you look at the layout between your existing business and Esselte? Can you talk about which products and geographies you might have the most overlap with?

[Boris Y. Elisman:]

Thank you, Sameet. As we've discussed on previous calls, we have been looking at acquisitions for the last couple of years, since acquisitions are a key part of our strategy on a go forward basis. Why now is because we were able to reach an agreement with Esselte that benefits both parties. We've had ongoing conversations with Esselte for many years at the very, very high level. We got more seriously engaged with them earlier this year and this announcement is just the culmination of a diligence and negotiation process that we've involved in for the last probably five months to six months. The Esselte business is a very good business. For the last four years, they were able to grow the business and expand their margins in a very, very difficult environment. As everybody knows, Europe is not a – or European business nowadays is not an easy business to run. We are very excited by their capabilities and by the talented team that they will bring over. As far as the overlaps are concerned, they're relatively minimal. Esselte is very, very strong in Continental Europe. They have a good business in most of the Northern European and Western European countries. ACCO Brands is relatively strong in the UK and not so strong in Continental Europe. So we look at this as really a complementary acquisition. Their brands and their strengths complement our weaknesses and then the other way around. Where they are relatively weak, we are relatively strong.

[Sameet Desai:]

That's great. Thank you. And then, secondly, on back-to-school performance, sounds like you had a very strong back-to-school with point of sale up 7%. Could you provide a little bit more color on the gap between the back-to-school point of sale metrics you mentioned versus overall North American sales performance and then focus specifically on back-to-school. Could you talk about the performance by channel in terms of mass versus OSS? And as you look forward to next year, any opportunity to improve in terms of sell-in and sell-through. Could you give us a little bit of your thoughts around that as well? Thank you.

[Boris Y. Elisman:]

Yeah. Just to remind everybody on the call, back-to-school sell-in happens in both Q2 and Q3. So we've benefited significantly in Q2. We had very, very strong sell-in and then a little bit in July as well. All of that stuff that we sold-in – sold-through during the probably eight weeks of peaks back-to-school and that's where the sell-through was up 7%. In Q3 specifically I would say half of the quarter that was still effective by the back-to-school sell-in was offset by continued and expected weakness in the office products channel. And more specifically, as we've talked on our last call, some of our wholesalers are taking out a significant amount of inventory so that basically their POS is fine, their sell-through is fine, they're just not reordering because they want to get their inventory into a better place. So obviously as they reduce inventory that affects our revenues, and overall, that's what made up a minus 2% growth for North America in Q3. We are not concerned about that at all. As long as POS is healthy, inventory and sales will get to the right level. And the important thing is to drive POS and we're very, very pleased where we came out in Q3. Did I miss anything else?

[Sameet Desai:]

Okay.

[Boris Y. Elisman:]

(23

[Sameet Desai:]

If you're able – maybe just if you're willing to comment on the outlook for next year and where there might be opportunity for improvement?

[Boris Y. Elisman:]

No. I think that's premature just to reemphasize that. We're in a good position for next back-to-school given that we've had now three consecutive years of improving sales for back-to-school. We're happy where we are but it's way too early to say how it's going to affect next year.

[Sameet Desai:]

Okay. Great. Thank you.

[Boris Y. Elisman:]

Thank you.

[Operator:]

Our next question comes from the line of Bill Chappell with SunTrust. Your line is now open.

[William B. Chappell:]

Thanks. Good morning.

[Boris Y. Elisman:]

Good morning, Bill.

[William B. Chappell:]

Hey Boris, a little bit more on the deal. Just trying to understand what – and maybe you can give us the sales trend of Esselte over the past two, three years. And is there a concern that yes you're getting it at a very attractive price, but the EBITDA could go lower as the market continues to kind of struggle over there?

[Boris Y. Elisman:]

They've executed really well. Especially over the last couple of years Bill, they were able to grow sales in a difficult environment. We don't think the European office products market is growing. We think it's roughly GDP minus 1%, GDP minus 2% in that range so that overall market, even though there's no good third-party measures for it, we believe that the market is flat to slightly down, but Esselte themselves were able to grow in a difficult market. This is on the revenue side. And as far as their profitability is concerned, their profitability grew faster than revenue because they did several restructuring programs to reduce cost and improve their margins. So we believe that the top-line is stable and we believe that with synergies we can definitely expand the profitability of the business.

[William B. Chappell:]

And if I look at the profitability now, is it already pretty similar to the core ACCO business, maybe excluding Mead, in terms or is there something in the European market, maybe a high private label penetration or price points that keep it kind of long-term lower than company average?

[Boris Y. Elisman:]

The gross margins are at a similar level that ACCO Brands business has. The SG&A is a little bit higher because of the cost of doing business in a fragmented Europe is a little bit higher, but that's where the synergy opportunities come into play.

[William B. Chappell:]

Okay. And then, Neal, a couple of things as I'm trying to do the math on the accretion. Can you give us an idea – I'm coming up with maybe $10 million of D&A and financing cost around 5%, does that sound right because (26

[Neal V. Fenwick:]

So I am assuming D&A will come in the low-$30s million, in terms of $30 million. So yes it's a significant D&A cost that we're expecting for this business.

[William B. Chappell:]

So if you're talking about $60 million of EBITDA, $30 million of that goes away both from regular depreciation and then accelerated depreciation?

[Neal V. Fenwick:]

The amortization in particular will be very heavy given the way gas is priced today.

[William B. Chappell:]

Can you remind me how long that lasts?

[Neal V. Fenwick:]

It tends to be a function of there are composite of things. It's a reducing balanced method that means that the amount low as each year going forward. So the amortization for different parts of the identified intangibles is different. And so until we actually go through the exercise evaluating all the composite parts, it's very hard to give you exact numbers. I mean, this is a guess on my part, based on previous experience of doing acquisitions.

[William B. Chappell:]

Got it. And then last one for me. Is there any concern of any trust in particular countries or regions?

[Boris Y. Elisman:]

We have to go through the process. We have to apply for approval in five or six countries in Europe. We're not concerned. We think we're in a good position but obviously we'll have to go through the process and there're no guarantees.

[William B. Chappell:]

Okay. Great. Thanks so much.

[Operator:]

Our next question comes from the line of Chris McGinnis with Sidoti & Company. Your line is now open.

[Christopher McGinnis:]

Good morning. Thanks for taking my question and congratulations...

[Boris Y. Elisman:]

Good morning, Chris.

[Christopher McGinnis:]

... on the quarter and the acquisition.

[Boris Y. Elisman:]

Thank you.

[Christopher McGinnis:]

Just quickly maybe just talking about the inventory destock. Can you maybe just give a little bit of confidence at least maybe on the commercial side, why you feel confident. I know you talked about POS remaining strong. So, you have some confidence there, but maybe that trends aren't deteriorating on the commercial side maybe?

[Boris Y. Elisman:]

Yeah we monitor both sellout and obviously sales on a ongoing basis. So what we're seeing is a disproportionate amount of inventory being taken out and that's been signaled for at least three months. So this is nothing new. At some point in time and it's going to be fairly soon, both the inventory and sell-through will get into a balance and then the replenishment will track the sell-through. So that's why I'm not concerned. And I'm very pleased with how our team managed the overall portfolio. Office is about half of our North American business in Q2 and Q3 and we were able to offset the declines in replenishment on the office side with very, very strong school season. So overall, I think we've managed it really, really well. And the specific anomaly, I would call it, on the reducing inventory by such large amount is transitory in nature and we'll get into a better balance in fairly near-term.

[Christopher McGinnis:]

Great. And then secondly just on, you mentioned e-tail being pretty strong in the quarter. Can you just give maybe a little bit of numbers around that, maybe percentage of sales now and then also maybe the growth rate you're seeing from e-commerce?

[Boris Y. Elisman:]

Yeah. So just to remind everyone on the call, we have some of our e-commerce partners that buy directly from us, so we can track our sales very well. And then some of our commerce partners buy through distributors and wholesalers and that's where the tracking is not so good. So if you look at the direct purchases from us, it's roughly 5% of our business. Now that is direct e-tail. And then we would surmise, just as much would be through wholesalers and distributors. So it's growing faster than the average. They're doing well. It's still mostly targeted at consumers and home businesses. We're not seeing increase in e-tail on midsize or large businesses yet, but they're definitely making good progress with consumers.

[Christopher McGinnis:]

Great. Thanks very much for the time today.

[Boris Y. Elisman:]

Thank you.

[Operator:]

Our next question comes from the line of Kevin Steinke with Barrington Research. Your line is now open.

[Kevin Mark Steinke:]

Good morning, everyone. So just wanted to talk more about Esselte and you talked about their ability to grow in somewhat challenging environment in Europe. Can you just talk more about their growth strategy and what is enabling them to achieve that growth in that type of market environment?

[Boris Y. Elisman:]

They've been able to innovate in there Leitz and Rapid and Esselte Brands, and Leitz probably more specifically. They have a very, very seasoned team, a very talented team and they were able to bring to market products that resonated with consumers and with the channel. And as a result, they're able to grow in a very, very difficult environment. So most of that is tied to their innovation in the strong brands that they have with Leitz, Esselte and Rapid.

[Kevin Mark Steinke:]

Okay. Good. And then you also talked about the acquisition helping you with channel expansion. So could you talk about which channels Esselte is strong in and how that helps you improve your penetration of certain channels?

[Boris Y. Elisman:]

Sure. If you look at ACCO Brands, we are much stronger in the pan-European channels than we are with local resellers at the country level. And if you look at Esselte, they're very, very strong with local resellers. And right now that's always winning in the marketplace. The local resellers are winning in the marketplace and taking business away from some of the pan-European and global players. So Esselte will definitely enhance our presence in that space and add to our growth profile.

[Kevin Mark Steinke:]

Okay. Great. And so you talked about last quarter that you might have a little more visibility into international market trends on this call, particularly Brazil, just wondering if you have some better insight into how things are progressing in Brazil and elsewhere internationally and back-to-school in Brazil. Any comment on that front?

[Neal V. Fenwick:]

Sure, Kevin. So we are only a month or two into back-to-school in Brazil. Obviously we had a relatively tough quarter in Q3 with Brazil being down. Year-to-date Brazil is still flat. So, for the year they're still in okay place. The early signals from back-to-school are fairly optimistic. The market is still tough, but we think that we are in a good position to grow our business during this back-to-school season. So we're optimistic, but it's still a very, very difficult environment and we have to execute well over the next really three months through January before we can celebrate.

[Kevin Mark Steinke:]

Okay. Perfect. Thanks for taking my questions.

[Neal V. Fenwick:]

Thanks, Kevin.

[Operator:]

Our next question comes from the line of William Reuter with Bank of America/Merrill Lynch. Your line is now open.

[William Michael Reuter:]

Hi. So if you could talk a little bit about the major buckets of synergies that you guys expect to achieve through your work, you guys have been able to do so far?

[Boris Y. Elisman:]

Yes, Bill. The synergy estimates are preliminary at the very high level. Obviously for us to get to a executable level, we'll have to work with the Esselte team and we'll have to work with the local works council so that we determine what makes sense. Our synergies are based on lots of experience we have with integrating businesses as well as restructuring businesses. In Europe, we believe we should be able to achieve roughly 5% of sales from synergies, and by the way that number includes some negative synergies as well that we build through the model, they have to do with bringing Esselte to a public company operating standard in Europe. Most of the synergies we believe will come from overlapping areas on the SG&A and then some synergies will come through better, better purchasing but it's still at the very, very high level. And as I mentioned, over the next few months, we would get into a lot more detail with the Esselte team to hone those so that they're executable post-completion.

[William Michael Reuter:]

Okay. And given that this business – I guess I'm curious whether you guys are still going to be in the market for additional acquisitions at this point or whether you guys will focus on integration of this one for some period of time before looking at additional targets?

[Boris Y. Elisman:]

We'll definitely be focused on integrating our two businesses together and delivering to our targets, so that's going to be a priority. However, we will continue to evaluate deals and that there's a smaller deal in a different geography that is attractive and makes sense, we'll definitely consider them, but the priority is on integrating Esselte and ACCO Brands.

[William Michael Reuter:]

Okay. And then just lastly from me. Your 6.75% senior notes become callable in next year. I'm curious if you guys have some initial thoughts on when you guys might look to address those?

[Boris Y. Elisman:]

You know, Bill, we constantly evaluate our capital structure and seeing what makes sense for our shareholders and this transaction certainly doesn't preclude us from doing anything with our bonds?

[William Michael Reuter:]

Okay. I'll turn it to others. Thank you.

[Boris Y. Elisman:]

Thanks, Bill.

[Operator:]

Our next question comes from the line of Kevin Ziets with Citigroup. Your line is now open.

[Kevin L. Ziets:]

Hi. Thanks. Most of my questions were asked. I guess, I'm just curious about on following up on Bill's question about acquisitions in the past. You've talked about maybe looking at outside of the office product space, I'm curious if that's still a priority for you from a longer-term perspective understanding that you're going to be focused on digesting this one for the near-term?

[Boris Y. Elisman:]

Yes. As far as acquisitions are concerned, adjacencies – near adjacencies outside of office products and more focused on school and consumer spaces are a priority for us, but again we will be really focused on the integration right now. And if those come about into different geographies and they're small and they are digestible quickly, we will consider them but for now at least the priority is to integrate ACCO and Esselte.

[Kevin L. Ziets:]

Okay. Great. And then, on the synergies I guess given how fragmented the market is particularly for Esselte given their local focus. So I guess – do you think it's – have you factored in that, that it might be more challenging to go after the same level of synergies that you've gotten out of other deals and then – I guess, maybe just answer that one first.

[Boris Y. Elisman:]

Yes, absolutely. I think that's a good observation on your part and we've actually considered that and that's why the level of synergies is roughly at 5% and not more aggressive but it could've been if that was a more homogeneous market. So that actually was part of our valuation.

[Kevin L. Ziets:]

Okay. So I guess you're saying you've gotten more than 5% in other deals in those markets?

[Boris Y. Elisman:]

Yes.

[Kevin L. Ziets:]

Okay. Great. All right. Thanks very much.

[Boris Y. Elisman:]

Thanks, Kevin.

[Operator:]

Our next question comes from the line of (39

[Unknown Speaker:]

Hi. Good morning. Could you speak a little bit about customer concentration or contract issues that Esselte may have as well, please?

[Boris Y. Elisman:]

Good morning, Arnie (39

[Unknown Speaker:]

Okay. Two more follow-ups on that. In its product areas, is Esselte a category leader in the markets it's in? And as a follow-up to that, you highlighted synergies when you had done MeadWestvaco, you had also talked about quite a bit of revenue synergies bringing their products across into your other markets. Do you see those opportunities here as well?

[Boris Y. Elisman:]

Esselte has a good business. Just like in every other country, in Europe these businesses are very, very competitive and they are competing both with branded players as well as with private label and their customers. It's a good business but it remains very, very competitive. As far as revenue synergies are concerned, we are hopeful there'll be opportunities for revenue synergies and we're excited about bringing some of their brands and products into all other regions, but that was not part of the financial model that we evaluated when we agreed on a purchase price. Though it's a potential upside, but it's not core to our investment thesis.

[Unknown Speaker:]

Okay. And you highlight accretion in the 12 months after you have it. What would that imply, if you will, for EBITDA growth expected in the business because you gave us trailing numbers? Are you assuming there will be some growth in the core Esselte business in 2017?

[Boris Y. Elisman:]

That is not assuming any growth in EBITDA. It's assuming 2015 EBITDA and $0.03 of synergy accretion.

[Unknown Speaker:]

Okay. And performance in 2016 year-to-date, has that been positive, flat or negative?

[Boris Y. Elisman:]

They were able to grow EBITDA so far in 2016 and the revenues have been flat.

[Unknown Speaker:]

Okay. Thank you very much.

[Boris Y. Elisman:]

Thanks, Arnie (42

[Operator:]

That concludes today's question-and-answer session. I'd like to turn the call back to Boris Elisman, Chairman and CEO for closing remarks.

[Boris Y. Elisman:]

Thank you, Liz. Thanks for everyone's participation today. This is an exciting time for our company. With the pending acquisition of Esselte and the completed acquisition of the Pelikan Artline, ACCO Brands is now very well-positioned to be a global leader in business, academic and consumer products. We thank you for your support and look forward to talking with you again when we report our fourth quarter results early next year.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.