AMS is putting a lot of faith in autonomous cars arriving on time. The Austrian sensor maker, which supplies Apple, on Sunday made a 4.3 billion euro offer for German lighting group Osram Licht including debt.
Its plan is to create a company that's ideally placed to exploit the growth of driverless cars. But the way AMS Chief Executive Alexander Everke has to finance the deal leaves little room for manoeuvre.
There's decent logic in combining AMS's expertise in sensors with Osram's in high-tech lights and LEDs. The former's products detect what the latter's emit. A deal would also help AMS emerge from the shadow of Apple, whose demand for facial recognition and other technology accounted for 40% of its revenue last year.
One big fly in the ointment is how AMS plans to finance its 38.50 euro a share bid, which is a 10% premium to the offer made last month by Bain Capital and Carlyle Group.
AMS first ran the slide rule over Osram in June but walked away because it didn't have financing in place. Net debt of nearly 1.2 billion euros - equivalent to around 3.7 times EBITDA - didn't help.
The company has now resolved this, largely thanks to a 4.2 billion euro bridging loan from HSBC and UBS . But when the deal closes, AMS will refinance this by issuing 1.5 billion euros in equity and 2.7 billion euros of debt. That would mean the enlarged group's net debt would be worth 4.3 times its expected EBITDA for 2019, AMS said.
True that multiple will be lower once cost savings are factored in. But only by throwing revenue synergies into the mix will AMS bring net debt down to 3.2 times this year's forecast EBITDA, according to its calculations. The company's heroic assumption is that all these synergies can be delivered in double quick time.
AMS reckons the combined group will enjoy double-digit revenue growth that will filter through to the bottom line and help cut debt to just 2 times forecast EBITDA for 2021. That again may be a big ask. Munich-based Osram, which is highly dependent on the struggling automotive sector, in July reported a 9.2% drop in third-quarter revenue from a year earlier and a decline of two-thirds in EBITDA.
AMS wants the combined group to make 45% of its revenue from cars in the "near term". For the deal to work, "near" has to mean just that.