ACCO Brands Corp (ACCO) 2016 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the ACCO Brand third-quarter 2016 earnings conference and call to discuss the acquisition of Esselte. At this time all participants are in a listen-only mode. (Operator Instructions). 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 would now like to introduce your host for today's conference, Jennifer Rice, Vice President Investor Relations. Ma'am, please go ahead.

Good morning. Welcome to our third-quarter 2016 earnings conference call and discussion of today's announcement that we have reached an agreement to acquire Esselte.

Joining us today are Boris Elisman, Chairman and Chief Executive Officer of ACCO Brands, and Neil 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 nonrecurring 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 miserably 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 press 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.

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 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 position 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 knowhow 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 will 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 4.5 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 am 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.

The highlight of the quarter was our strong performance during back to school. Point of sales growth for school products in our US business was 7% reflecting the strong sellthrough of notebooks, backpacks, portfolios and locker accessories. We are 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 sales decreased 4% due to volume declines in certain markets. While the international macro environment remains challenging, we are pleased with our execution and excited about our prospects for the future as a result of 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 have been sharing with you our strategies to increase shareholder value. These strategies include organic growth or 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 delevering.

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, improved customer relevance, strength in 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.

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 multicurrency revolving credit facility, a new EUR300 million denominated Term Loan A, and a new AUD80 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 the third quarter when we paid down our revolver and $78 million of 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 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 synergy. 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 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 deleveraging 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 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 synergies savings and reduce the cash costs associated with obtaining those synergies.

Now turning to the third-quarter results and beginning on page 4 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 in 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 is 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 for 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%. The 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 improvements.

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 comparables 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, we had strong cash generation $106 million in the quarter and $100 million for the nine months. Cash generation was quite favorable compared to this point in our cycle last year largely as a result of an improvement in working capital. Some of the improvement was timing driven such as the buildup of cash at Pelikan Artline which we didn't own last year ahead of its working capital intensive fourth-quarter back to school season. Because of slightly stronger year-to-date cash generation, we now expect free cash flow for the year could be in the range of approximately $145 million. This is inclusive of approximately $11 million of cash costs we expect to incur this year related to the Esselte acquisition.

As Boris noted, we are also increasing our outlook for adjusted earnings per share now expecting $0.84 to $0.86. While our expectation for the fourth quarter has not changed since our last guidance, the increase for the year is primarily the result of two factors. One, our year-to-date earnings per share number is now $0.01 higher as Q2 adjusted EPS becomes $0.26 instead of $0.25 now that we are able to adjust for the $2 million of transaction costs that were previously reported in Q2.

The second reason is because of the strong bottom-line performance in Q3.

That concludes our prepared remarks. Now Boris and I will be happy to take your questions. Operator?

(Operator Instructions). Brad Thomas, KeyBanc.

This is [Sumit 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?

Thank you. As we have 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 have 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 a culmination of a diligence and negotiation process that we have been involved with for the last probably five 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 -- 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 are relatively minimal. Esselte is very, very strong in Continental Europe. They have 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 complementary acquisition, their brands and their strength complement our weaknesses and then the other way around, where they are relatively weak, we are relatively strong.

That's great. Thank you. Secondly on back-to-school performance, it 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 focused 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 and the opportunity to improve in terms of sale in and sellthrough, could you give us a little bit of your thoughts around that as well? Thank you.

Yes, just to remind everybody on the call, back-to-school selling happens in both Q2 and Q3. So we have 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 peak back-to-school and that is where the sellthrough was up 7%.

In Q3 specifically, I would say half of the quarter that was still affected by the back-to-school in was offset by continued and expected weakness in the office products channel and more specifically as we have talked on our last call, some of our wholesalers are taking out a significant amount of inventory so basically their POS is fine, their sellthrough is fine, they are 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 is 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. The important thing is to drive POS and we are very, very pleased where we came out in Q3. Did I miss anything else? Did I answer all of your questions?

Maybe just if you are willing to comment on the outlook for next year and where there might be opportunity for improvement?

I think that is premature. Just to reemphasize, we are in a good position for next back-to-school given that we have had now three consecutive years of improving sales for back-to-school, that we are happy where we are but it is way too early to say how it is going to affect next year.

Okay, great. Thank you.

Bill Chappell, SunTrust.

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

They have 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 is roughly GDP minus 1, GDP minus 2 in that range. But the overall market even though there is 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 costs 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.

And if I look at the profitability now, is it already pretty similar to the core ACCO business 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?

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

And then just Neal, a couple of things. This I am 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 costs around 5%. Does that sound right because I'm ending up coming up with a higher EPS accretion number so I am also then trying to figure out the third piece. How much are you assuming an accelerated amortization? It works out to at least my back of the envelope like $0.20 accretive but then maybe $0.08 diluted from $0.08 off of that for the accelerated depreciation. Am I looking at that the right way?

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

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

The amortization in particular will be very, very heavy given the GAAP rates are today.

And remind me how long that lasts?

It tends to be a function of a (inaudible) things, a reducing balance method that means that the amount lowers each year going forward. So the amortization for different parts of the identified intangibles is different and so until we actually to go through the exercise of valuing all the composite parts, it is very hard to give you exact numbers. This is a guess on my part based on previous experience of doing acquisitions.

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

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

Okay, great. Thanks so much.

Chris McGinnis, Sidoti & Company.

Good morning. Thanks for taking my question and congratulations on the quarter and the acquisition. Just quickly maybe 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 remains strong so you have some confident there. But maybe that trends aren't deteriorating on the commercial side maybe?

Yes, we monitor both sellout and obviously sales on a going basis so what we are seeing is a disproportionate amount of inventory being taken out and that has been signaled for at least for at least three months. So this is nothing new. At some point in time, and it is going to be fairly soon, both the inventory and sellthrough will get into a balance and then the replenish will crack the sellthroughs. That is why I am not concerned and very pleased with how our team managed their 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 in the office side with very, very strong school season. So overall, I think we have managed it really, really well and the specific anomaly I would call it on reducing inventory by such large amounts is transitory in nature and we will get into a better balance in the fairly near term.

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

Yes. 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 is where the tracking is not so good.

So if you look at the direct purchases from us, it is 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 is growing faster than the average. They are doing well. It is still mostly targeted at consumers and home businesses. We are not seeing increase in e-tail on midsize or large businesses yet. But they are definitely making good progress with consumers.

Thanks very much for the time today.

Kevin Steinke, Barrington Research.

Good morning, everyone. So just wanted to talk more about Esselte and you talked about their ability to grow in a 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?

They have been able to innovate in their 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, able to grow in a very, very difficult environment. So most of that is tied to their innovation and the strong brands that they have with Leitz, Esselte and Rapid.

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?

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 are very, very strong with local resellers and right now that who is 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.

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

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 are still an 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 are optimistic but it is still a very, very difficult environment and we have to execute well over the next really three months through January before we can celebrate.

Okay, perfect. Thanks for taking my questions.

William Reuter, Bank of America Merrill Lynch.

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

Yes, Bill. The synergy estimates are preliminary at the very high level. Obviously for us to get to an executable level we will have to work with the Esselte team and we will have to work with the local works councils to really 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 built 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 purchasing. But it is 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 are executable post completion.

Okay. And given that this business -- I guess I am 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.

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

Okay. And then just lastly for me, your 6.75% senior notes become callable next year. I am curious if you guys have some initial thoughts on when you guys might look to address those.

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.

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

Kevin Ziets, Citigroup.

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

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 those come about in the different geographies and they are small and they are digestible quickly we will consider them but for now at least the priority is to integrate ACCO and Esselte.

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

Yes, absolutely. I think that is a good observation on your part. We have absolutely considered that and that is why the level of synergies is roughly at 5% and not more aggressive than it could have been if those were more homogeneous markets so that absolutely was part of our valuation.

Okay, so I guess you are saying you've gotten more than 5% in other deals in those markets?

Yes.

Okay, great. Thanks very much.

Arnie Ursaner, Private Investor.

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

Good morning, Arnie. Esselte has less customer concentration than we do. We actually like that a lot about them. The European market is in general more fragmented which is a good thing but specific to them, they have a very nicely balanced customer portfolio. The ratio of big Pan-European resellers that they have is roughly at a half of what we typically see in our business. And then they have a lot of smaller local resellers that are very, very strong in their particular region or particular country which is very, very attractive to us.

Okay, two more follow-ups on that. In its product areas, is Esselte a category leader in the markets it is 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?

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 customers. It is a good business but it remains very, very competitive.

As far as revenue synergies are concerned, we are hopeful there will be opportunities for revenue synergies and we are excited about bringing some of their brands and products into our other regions. But that was not part of the financial model that we evaluated when we agreed on the purchase price. So does a potential upside but it is not core to our investment thesis.

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?

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

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

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

Okay, thank you very much.

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

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 Pelikan Artline, ACCO Brands is not 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.

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.