EnerSys (ENS) CEO David Shaffer Announces Agreement to Acquire Alpha Technologies Group, Inc. Broker Conference Call (Transcript)

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About: EnerSys (ENS)
by: SA Transcripts

EnerSys (NYSE:ENS) Agreement to Acquire Alpha Technologies Group, Inc. Broker Conference Call October 30, 2018 8:30 AM ET

Executives

David Shaffer - CEO, President & Director

Michael Schmidtlein - CFO & EVP

Andrew Zogby - Former President & COO

Analysts

Michael Gallo - CL King & Associates

Brian Drab - William Blair & Company

John Franzreb - Sidoti & Company

Noah Kaye - Oppenheimer

Operator

Good day, ladies and gentlemen, and welcome to the EnerSys to Acquire Alpha Group Conference Call. [Operator Instructions]. As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. David Shaffer, President and CEO of EnerSys. You may begin, sir.

David Shaffer

Thank you, Dimitris. Good morning, everyone, and thank you for joining us. On the call with me this morning is Mike Schmidtlein, our Chief Financial Officer; Drew Zogby, President of Alpha. Last evening, we announced the acquisition for the Alpha Group, and we have posted slides regarding the transaction on our website. And while we don't plan to present these on this call, we will respond to questions regarding the presentation or transaction after our prepared remarks. If you didn't get a chance to see this information, you could go to the Webcasts tab in the Investors section of our website at www.enersys.com.

I'm going to ask Mike Schmidtlein to cover information regarding forward-looking statements.

Michael Schmidtlein

Thank you, Dave, and good morning to everyone. As a reminder, we'll be presenting certain forward-looking statements on this call that are based on management's current expectations and views regarding future events and operating performance and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons.

Our forward-looking statements are applicable only as of date - the date of this presentation. For a list of factors which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 2, management's discussion and analysis of financial condition and results of operations, set forth in our quarterly report on Form 10-Q for the fiscal quarter ended July 1, 2018, which was filed with the U.S. Securities and Exchange Commission.

In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's Form 8-K, which includes our press release, dated August 8, 2018, which is located on our website at www.enersys.com.

Now let me turn it back to you, Dave.

David Shaffer

Thanks, Mike. I'm excited to be here this morning to discuss our agreement to acquire the Alpha Group. For those of you unfamiliar with the company, Alpha is based in Bellingham, Washington, and has been an industry leader in powering technology for more than four decades. It has established itself as a preeminent total power solutions provider and a one-stop shop for power solutions for the telecom, broadband, renewable energy and industrial markets. Alpha has a global blue-chip customer base and its products are the trusted power behind large switching in data centers, mobile cell sites, broadband networks, traffic and security systems, private industrial networks and more.

From a financial perspective, Alpha has provided consistent growth, profitability and cash flow generation throughout its history. Adding Alpha to the EnerSys family creates the only fully-integrated DC power and energy storage solutions provider for broadband, telecom and energy storage systems offering a uniquely differentiated value proposition to customers. The acquisition is immediately accretive to earnings and establishes an additional long-term platform for growth.

Alpha supports a variety of industries, but principally includes data providers in both the telecom and broadband industries, which are investing heavily to accommodate the data and latency requirements of the future. Power and power solutions and services are essential for all future infrastructure investments, and as cable companies change their business models to accommodate changing user preferences, it requires capital expenditures to support the new infrastructure. As a result, capital expenditures for these companies have been rising in these areas. And because of these trends and stated initiatives by Alpha's key customers, we feel confident that EnerSys' combination with Alpha will create the best partner for telecom and broadband companies for years to come.

Alpha also provides EnerSys with exposure to a leadership position in a growing market and attractive secular trends, including 5G and DOCSIS3.1 investments in the short to medium term and meaningfully expands our total addressable market to approximately $13 billion. Additionally, because EnerSys will become the only fully-integrated DC power and energy storage solution provider, we will be well positioned to offer uniquely differentiated products to customers. This will allow EnerSys to further penetrate existing customers, expand into new markets and better retain business over time.

Innovation has always been the cornerstone of both companies with strongly recognized brands, and we plan to continue to invest in R&D both for EnerSys' initiatives and previously planned Alpha initiatives. We will review key product development areas and then to the extent we think there is a strategic logic, we will combine them. As there are some businesses of Alpha that currently do not overlap with us, the R&D of these segments will continue to be independent. The transaction is expected to close by the end of 2018 subject to customary regulatory and closing conditions being satisfied.

Before turning over to Mike, I also wanted to note that we are affirming our second quarter guidance for non-GAAP adjusted net earnings per diluted share, previously reported on August 8, 2018, of between $1.14 to $1.18, which excludes an expected charge of $0.06 for highlighted items. We will not be providing additional comments on the second quarter results or third quarter expectations during this call, but will discuss both in more detail on our second quarter 2019 earnings call scheduled for Thursday, November 8.

With that, Mike will walk you through the financial terms of the deal before we open it up for your questions.

Michael Schmidtlein

Thanks, Dave. As mentioned in the press release filed yesterday, the total acquisition consideration is $750 million, which consists of $650 million in cash to be funded using existing cash and credit facilities and $100 million of EnerSys' common stock. In addition to strategic and competitive advantages this transaction brings, the acquisition of Alpha adds $600 million in annualized revenue, will be immediately accretive to EnerSys' earnings excluding any onetime or acquisition-related costs and is expected to generate annual run rate synergies in excess of $25 million. Of these synergies, 75% are expected to come from cost and 25% from revenue.

Looking at the cost synergies, slightly more than half is expected to come from technologies and operations, while the remainder is expected to come from sales and marketing. In general, cost synergies will be achieved by eliminating redundancies and increasing manufacturing scale. Within revenue synergies, we have identified incremental sales opportunities from integrated DC solutions along with the improvement of sales force productivity. We're confident in our ability to achieve the $25 million in synergies within two years of close as the management teams have been cooperating and developing joint plans for smooth integration. The transaction enterprise value corresponds to 11.1x Alpha's last 12 months adjusted EBITDA without synergies and 8.1x adjusted EBITDA including run rate synergies. Inclusive of the run rate synergies, the transaction will be accretive to margins and non-GAAP earnings. We believe we are paying a fair price for Alpha as it is in line with prevailing industry multiples particularly given the significant revenue and cost synergies the acquisition is expected to generate.

While EnerSys has the capacity and means to fund this transaction entirely with cash, we believe the financing package makes sense economically and strategically as it allows - it retains our balance sheet's flexibility and provides a strong incentive to the Alpha selling shareholders. It also demonstrates the confidence that both sides have in the future success of the combined company. This transaction will not affect our capital allocation strategy as we will continue to have a solid balance sheet and generate strong cash flow. We will remain disciplined in our approach to capital allocation with organic investments, strategic M&A and returning cash to shareholders remaining as a prior - primary areas of focus.

As we sit here this morning in the New York Stock Exchange, I think back to our Investor Day, held here just a little over 1.5 years ago and the strategy we outlined for M&A, Alpha is the perfect fit for that strategy.

With that, I'll turn the call back over to Dave.

David Shaffer

Thanks, Mike. Dimitris, we will now open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question comes from Michael Gallo with CL King.

Michael Gallo

Dave, when I look at Alpha's revenue mix, it's very geographically based in North America versus your business. And I was wondering if - ultimately, it doesn't seem like you've factored much into expectations that there might be a significant opportunity to use your global footprint to really expand Alpha across Europe and the rest of the world.

Michael Schmidtlein

Michael, I think it's a very astute point. As is - we outlined the synergies, we were fairly conservative. But I fully agree with you that the systems that we intend will quite nicely go into existing frame agreements we have with customers around the world, and we can certainly, I think, do a more credible job than Alpha has done historically internationally, given those relationships, given those sales entities, given those existing frame agreements. So we didn't really model that into the revenue synergies per se, but I think it's a very solid point.

Michael Gallo

And then just a sort of second corollary that it seems their services mix is fairly high, I think, at 34% of sales. I was wondering if there might be some opportunities in using their existing service infrastructure perhaps to cover the service area better and better - serve the core better.

David Shaffer

Absolutely, of course, we do have some cost synergies model with the combination of the service teams. But I want to just, kind of, dig in on that point, because it's one of the things that's most attractive about this acquisition for me is we identified at our Investor Day, and I hope you're as excited as I am about our ability in the future to help our customers use energy more efficiently, and we want to get broadly into the energy storage system markets for - in combination with our traditional B2B customers. That we've outlined that, we've telegraphed that and behind the meter 500-kilowatt hour-ish kind of appliances and systems. We recognized early on, and we said this at our Investor Day, that we were making some vital pieces to be successful in that market. We think that we've filled in most of those, if not all of those gaps, with this transaction, and one of those clearly is the ability to engineer, furnish and install these systems. So it's really the key driver. This is very much a future-based type transaction, but there are some nice synergies and some great revenue opportunities near term that we think sustain and make this an attractive deal and accretive deal from the get-go, but really the long-term ability for us to get broadly into that energy storage market is what is of most interest to me and certainly, engineer, furnish and install capabilities is a big part of that.

Operator

And our next question comes from Brian Drab with William Blair.

Brian Drab

Congratulations on the acquisition.

David Shaffer

Thank you.

Brian Drab

I have a bunch of questions, I'll just maybe ask few of them. But first of all, on Slide 5, it seems that most of the exposures in Broadband and I'm looking at those devices at the bottom left corner, on Slide 5. Can you just talk a little bit more about what those devices are and what they're used for? And what - I understand they're for power, but I'm not that familiar with these specific device.

David Shaffer

I'll get the perfect guy in the room to answer this question. So Drew, why don't you - I know you've got a small copy of that but you should take a shot at that.

Andrew Zogby

Sure, sure. So thank you for the question. The Broadband product line up you see there reflects our core power supply product, our gateway product, some of our fiber transition nodes and some of our fiber management products. So these are pieces of equipment that will go either into the outside plant, which would be three of them other than the lower right-hand corner would be a head-end project for the inside plant. But the upper left picture is the Alpha XM3. That is the world-leading outside plant powering system. It really powers almost every cable network worldwide. Included in that product is the power conversion element and then also a DOCSIS transponder that is used for monitoring and can also be used for backhaul. And that also has the inverter system built into it, so in the event of a utility failure the systems go on to battery backup, which is a reflection of the complementary nature of this deal.

The next product on the upper road of the right is our gateway product. That's a new what we call a revenue enablement product that the MSOs will deploy in an area they want to drop in a wide range of business-type services, everything from a small cell to an IoT sensor location to surveillance and security equipment. The lower left-hand picture is an outside plant enclosure, but inside that, from an Alpha standpoint, would typically be a combination of power equipment, fiber management and varying types of transport gear that would tend to be sort of a remotely placed functionality of a head-end. As they start to remove congestion from a head-end, some of this functionalities move, the outside plant fits into our lineup quite well. And again, the lower right is just one subset of what we have in our inside plant offering, a high-density fiber management product.

David Shaffer

Right. So I think what we outlined at the Investor Day is that we wanted to position ourselves to do a better job in making sure that we were ready for 5G powering. And we think Alpha has a dominant position for small-cell powering options. And I think Drew, you've touched on these, I think the gateways and certainly the line powering solutions that your team have developed, I think, really will help network customers with small power - small-cell side powering options. So that's been one of the key attractiveness of this transaction. Brian, is that good enough? Is there any more details you want on that?

Brian Drab

No, I'd like to dig deep on the technology. I'll dig deeper later, but that's very helpful for sure. I have a lot to learn here on this specific space, but I'll save those for later. I'm wondering though, you've mentioned, Dave, dominant position and my next question was going to be who are the key competitors here?

David Shaffer

It's - and again, let's - we've got to take the different segments here. So Drew, on the Broadband sector, there's really the outside plant and the inside plant or the head-ends. I would say that on the outside plant, Alpha's got a fairly significant market share.

Andrew Zogby

Yes, I mean, we are the leading and dominant supplier there. We have a few small competitors, Myers, however, is one of the smaller competitors there. They are there into a traffic power and things of that sort. But in the head-end, we would face a little more competition from the ABBs and the Eatons and those type worded possibly there as well. But really, the core competitive position we've built up in the outside plant is something that we pivot off of and it's a substantial leadership position we've held for many years.

David Shaffer

All right. And then on the Telecom and Wireless side, I think it's similar to the inside plant competition [indiscernible] competition, right?

Andrew Zogby

Right. We would have, in addition to the worded ABB, we might throw in the Delta [indiscernible] into the mix, maybe a Schneider here or there. But in general, the big players have tended to be traditional legacy telecom suppliers.

Brian Drab

Okay. And then, I don't know, this question might be for Mike. But looking at Slide 9 and just doing a lot of simple math here and trying to understand the revenue growth and margins at Alpha. And if I'm interpreting the slide correctly, I'm getting high single-digit revenue growth, 9% is what I'm calculating for Alpha over the last three years and then EBITDA margin around 15%. Is that...

Michael Schmidtlein

No. I think those are broadly in range. So they've had very strong growth. I think in the last 12 months, they had top line revenue growth of about 20%. Our model had future growth revenue at about 5% for that. So we - which was considerably less than the target's internal projection. And they were slightly higher on the EBITDA margins. So it is, as we said, broadly accretive in that category for instance.

Brian Drab

Mike, now that you've closed the deal. What's your expectation for revenue growth for this target?

Michael Schmidtlein

Well, we're telling you 5%. We're telling Drew, it's 14%.

Brian Drab

All right. And then I just - one last question, if I could, just - I think it's an important one. But you have on that same slide $5.11 in EPS for 2019 and then $5.88 with Alpha. And then the footnote says, I think, includes all of the synergies. But those synergies aren't expected to come completely to fruition until 2021. Is that right? So this is just an idea like they give us a pro forma look at what could be?

Michael Schmidtlein

Yes. It is a pro forma of where we expect that run rate would be with those synergies in place.

Brian Drab

Okay. But $5.88 is not, by any means, a new estimate for 2019?

Michael Schmidtlein

That's correct.

Brian Drab

Got it. Okay.

Michael Schmidtlein

And as you might expect, there are some GAAP purchase accounting rules that actually when you write up your inventory to its market value, it makes essentially the first quarter of sales be nearly void of any margins, because you've already written up that margin in your opening balance sheet. So - but if you exclude that, our, kind of, expectation would be that they would have about - EPS accretion of about $0.80. But when you take, let's call it, the 1.25 million to 1.3 million shares issued that reflect the $100 million of consideration issued to the sellers and take that additional dilution against our EnerSys earnings, that $0.80 moves down to $0.60. So back to the - your earlier point about moving up in that case about $0.70 - $0.60 to $0.80, I'm thinking probably within a year, we would be there. This is probably a two year look on the pro forma.

David Shaffer

I think one of the things that isn't reflected in these numbers per se that gets back to revenue synergies, where I think we've been very conservative in our internal modeling, I do want to make this point. As our engineers, as you know, we've started deeply down the path of developing new lithium modular systems. And we think our ability to package that with the electronics and energy conversion that Alpha has developed over many years and putting that together with the enclosure business we already have. But this is the most important point, not only can we drive traditional cost synergies, which we well defined in the model, by combining the electronics purchasing in the two groups. But way more importantly, once we have the engineers collaborating, where the traditional EnerSys engineers who know the chemistry down to the molecular level and understand the real electrochemistry, when you start to put these teams of engineers together using the software and firmware for the entire system, we think we can drive performance that's never been achieved before, because we will have the keys to the kingdom in terms of the ability to manage all of the firmware, software and design, mechanical, electrical, we really have control of full system. And we think that's where we can really differentiate ourselves. So this pro forma financials is really a traditional look at the existing markets. But what we're so excited about is combining this with our new lithium program and opening up the addressable markets and really doing it as cost effectively as any competitor has ever done before.

Brian Drab

Okay, and then just last quickly. If this closes by the end of the calendar year, which looks like that's what you're targeting, what accretion would you expect for fiscal '19? What could we see in the fourth quarter?

Michael Schmidtlein

On a as adjusted basis, it's - it would be probably, I'm going to say, just given the impact of just starting on the synergies, it's probably going to be about $0.10 to $0.15 on an as adjusted basis, the - on a GAAP basis because of the write-up and purchase accounting for the opening inventory on that balance sheet, it will be less than that and probably be breakeven at best, because you basically sucked 20 to 25 points of margin out of the business when you wrote up your inventory.

Brian Drab

And then for fiscal '20, I guess, you'd expect $0.10 to $0.15 for the fourth quarter than we're looking at $0.50 or so accretive for the - on an NTM basis maybe after the close?

Michael Schmidtlein

I think that's in the range.

Operator

And our next question comes from John Franzreb with Sidoti.

John Franzreb

I got a bunch of questions also. I guess, firstly, was there a relationship between Alpha and EnerSys previously? So can you talk a little bit about it?

David Shaffer

Sure. First of all, Alpha is a very good customer of ours, and we're actually a customer of theirs as well. Some of the jobs we worked with - up in [indiscernible]. So we've known them as both - mostly as a customer, somewhat as a supplier. And then personally, I've known the team at Alpha, I think, going back almost 25 years. So we've had a long-standing relationship with the management team. We're familiar with the culture, and we've always been impressed with their technology and innovation. And when we've done our due diligence and gotten feedback from their customers, their customers are typically passionate about how great a partner Alpha has been. So we're very deeply familiar with this team and this company.

John Franzreb

Okay. And going to the Alpha revenue breakdown, you talked about the end markets and you, kind of, touched on the products. Can you, kind of, talk about, maybe, big buckets? How much of Alpha's products is power supply? How much is enclosures? How much is batteries? How much is software? Big buckets of the product sales in and of itself as opposed to the end markets.

David Shaffer

I don't have that in front of me, but Drew you could probably take a pretty rough cut at that.

Andrew Zogby

Yes. I mean, I think that across the four segments, I'll just put them in basically common buckets. Because in almost all cases, we provide our core products and then wrap it into an enclosure match batteries with and alike. So I would say the core power systems are probably a good 70% of the revenue stream, when we look at a product package, and then probably 20% give or take accessory items and then like the batteries and other elements of that sort handing on the application and maybe 10% for enclosures and other interconnection products and alike. That's very enough cut.

David Shaffer

That's a rough cut for the core product, but your overall revenues...

Michael Schmidtlein

1/3.

Andrew Zogby

Yes, we were 66-34 product to service as stated. And then within the products themselves. Again most of our systems have predominant Alpha electronic systems and enclosure systems and everything else to bring together a complete solution.

David Shaffer

John, is that enough detail or do want some more color?

John Franzreb

That's a good start for me. On the services side, is that all services related to new construction? Or is there a maintenance services also in there?

Andrew Zogby

It's a mix actually. So there's some pure new construction, I'd say, about probably 75%, 80% is true additional capacities or upgrades of an existing facility traditionally in the head-end, but we do have a maintenance - a true scheduled preventative maintenance business that is part of this. That's again probably close to maybe 15%, 20% of our services flow, and that includes everything from scheduled maintenance to demand and emergency maintenance services.

John Franzreb

Got it. And how much of your equipment do you manufacture and how much is outsourced from other regions?

Andrew Zogby

We have a pretty, kind of, extensive supply chain that reaches into all parts of the global access to products and service and labor and things of that sort, but we actually have our own facilities in Burnaby, BC; Bellingham, Washington; and Atlanta that we bring everything in into a lot of final assembly test configuration. So we actually have a pretty good balance of using outside support and supply chain along with our own capabilities, yes.

David Shaffer

John, it's very different and what you're accustomed to from EnerSys from a CapEx perspective, it's a very light CapEx-type business. They rely heavily on contract manufacturing and, as Drew said, the sites I visited, it's mostly been final assembly and test and configure. So - but yes, it's - we signaled $85 million a year for the next few years on CapEx. We don't think that this acquisition is going to move that more than just maybe $3 million or $4 million a year. It's just - so that's not going to be a big issue.

John Franzreb

Okay. So I guess, I'm curious then how much of this equipment might be subject to tariff changes?

David Shaffer

It's certainly an issue that has to be managed. It just depends on where the point of origin is. We have the same issue that we're dealing with every day on our chargers and equipment. And we're just moving things around right now and there's going to be some near-term noise and some price adjustments that have to be made and some changes. So certainly, anything with these extend into Asia that are China-based supply chains have to be managed.

Michael Schmidtlein

And I think to date, the tariffs that you have experienced, you've been able to pass through to your customers, in part because most of the components are probably coming from China from other suppliers as well. But over time, that drag will be larger and it has to be mitigated through pricing or change in sourcing, as Dave said.

John Franzreb

Okay. I guess, one last question. What's the tax rate implications of the acquisition, Mike?

Michael Schmidtlein

Well, our consolidated tax rate, as you know, John, is about 19% now. And since Alpha's operations are predominantly U.S.-based with a 21% tax rate, I would expect that it won't have a dramatic impact on our consolidated effective tax rate.

Operator

And our next question comes from Noah Kaye with Oppenheimer & Company.

Noah Kaye

To pull back, if I can look at this from a high-level, I think, we can characterize this as a transformative acquisition. You're more than doubling your TAM and you're certainly positioning around some of the growth of your verticals that we see, I guess, I'd like to pick up on some of the comments you made, Dave, around synergies of product development and go to market. Can we maybe get into that a little bit more? I think you were talking about applications and modular energy storage. But it seems like even in the case of a telco customer or a broadband customer, there may be some development synergies here. Can you talk a little bit about that?

David Shaffer

I can give you some specific examples, where I'm extremely excited about. If you look at our traditional footprint, let's pick on Telecom for a minute, let's say it's a wireless customer. Historically, the DC power system is an enclosure energy conversion electronics, which Alpha makes, and then energy storage devices, which is typically backup power. So usually in the U.S., the grid is fairly reliable and the battery is rarely cycled, rarely used and it's just there for emergency power. Whereas the energy conversion equipment is on 24/7, right? That's always converting AC to DC, because all of the radio equipment is DC. So - but like I said earlier, we want to get into a position where we're helping our traditional customers use electricity more efficiently. That's a big part of our vision and our future product road map. And let's use the example today. If we have an energy storage system on-site that, let's say, uses our new modular lithium products that cycle extremely well and couple that with the energy conversion electronics and the enclosure systems that we currently manufacture, we could put our wireless customers into a position where they could maybe turn off the grid connection for certain portions of the day when electricity is very expensive or maybe they have a cloud-based connection to the utility that says when the energy usage or the demand on the grid is very high in that region, that the system could turn itself down and go to battery.

And then at night, when the electricity demand is more calm, then these lithium batteries, they recharge very quickly and when you get a charge backup and still have that backup power in case of an emergency. So those are the sorts of forward-looking products that we have on the road map today. And as I mentioned earlier, it's very difficult to optimize the system if you don't have complete control of the firmware and the hardware. So today, there would be - maybe a small controller on the enclosure. Those engineers and personnel did their own firmware, their own software. Then there might be the Alpha rectifiers and controllers. That's going to have its own set of software, firmware. And then, let's say, we wanted to use someone else's lithium batteries. They would have their own software and firmware. And there would be no way to optimize the system because nobody wants to change their own. We're going to offer a one-throat-to-choke product strategy here, but it's really the ability to get down to the ones and zero levels and optimize the performance is where we think we can differentiate ourselves. So this is the forward-looking. But on top of that, we still have to support and sustain the traditional rules we've had and certainly, we think that we couldn't have found a better partner than Alpha. They've got well-established brands and products that serve all of these Broadband networks and Telecom environments networks.

Noah Kaye

Yes, and as you've talked about in past earnings calls, you did investing in some of the software around optimizing those batteries. Now as you look at optimizing a total system, how much of that software capability, everything from managing the power conversion to the battery to even, kind of, recognizing the right sort of signals from the grid, how much of that does Alpha bring in? And is that an area where you're going to need to continue to invest organically and potentially inorganically?

Andrew Zogby

Actually, at Alpha, we've been developing systems that have a large portion of that capability. We have, kind of, an inside plant-focused strategy that actually ties together the elements on the inside plant portion of either a head-end or central office. And then the outside plant, it's - it would be slightly different. It's so much more of a distributed architecture. But in both cases, we do have software tools already in place doing partial functionality and then the plane and the development already underway to do the more extensive comprehensive management that was just outlined as something that we're already working on and then we'll collaborate with what EnerSys is doing, I think we're going to have an outstanding offering.

David Shaffer

And Noah, this is all - as we said at our Investor Day, this is all on the road map for us. And if we try to do this organically ourselves, it's just going to take a heck of a lot of longer. The Alpha team is well ahead of us. They started on this years ago, and they've been dealing on the software side and the network communication side, their DOCSIS3.1 compliant tools, my gosh, their teams are working at for many, many years. So they're well ahead of EnerSys and this is going to greatly help us close the gap.

Noah Kaye

Great. This is really helpful. A couple of quick follow-ups. One is just a housekeeping question, Mike. I'm sorry, I know you said at the beginning of the call. But I just want to make sure I've got my numbers right. Can you repeat the breakdown of the synergies that you're expecting in terms of revenue and then, kind of, within the cost side? And when you expect to achieve those?

David Shaffer

Sure, I'll just start while Mike is digging out his paperwork, but - do you have it, Mike?

Michael Schmidtlein

Well. There's a series of revenues, some positives, some negatives. So on the positives side, Alpha is a very large purchaser of batteries and so we do have an opportunity to displace existing suppliers with EnerSys product. That would be probably up to $40 million, although that would not be immediate, but that is the synergy. In addition, with our own global sales team, we would expect to generate another $5 million to $15 million of sales by selling their product in parts of the world that they currently do not have a presence. But on the negatives side, we would expect potentially up to some of sales and I don't think I'll throw a number out here, because I don't want anyone to take that too seriously. But there could be instances where we see a loss of sales from some companies that might consider where we are currently a supplier that we become a competitor.

So we did have some negatives there. The other synergies include some of the savings we would anticipate enjoying by combining that buying power of the two groups. Our Motive Power electronics is not so indifferent from what Alpha does. And by combining those, we would - they're at least 2x the amount of buy that we do annually. So we think there's probably up to, I think, $3 million a year in savings from there. There would be the normal redundancies and some overlap and personnel and various groups and service pieces, although this business is not - this combination is not predicated upon a cost cutting. It is truly more of a complementary and synergistic in that form. And then there are some other admin costs that we would expect to be able to save on from corporate structures. Alpha has really been run as a group of independent companies with their own accounting, auditors, all of those type of things.

We would be able to enjoy some consolidation there as well. So overall, the $26 million that we would expect is, we think, fairly conservative. It does expect some revenue upside along with potential downside. And just for the accretion, because it was - I think Brian asked it earlier, just to, kind of, give you a range. For this fiscal year, if you assume this transaction closed at the 1st of January, our fiscal '19, which would be just the last quarter of fiscal '19, January through March 31, that's essentially going to be breakeven for us. But after that, we would expect accretion in the following year to be $0.50 to $0.60 per share. The year after that, it would jump to $0.80 and $0.90 and then the year after that probably a $0.90 to $1. So those are the broad ranges that are - we anticipate accretion to be.

David Shaffer

Two years on the synergy lever. So it's going to take two years to get there.

Operator

And we have a follow-up question from John Franzreb with Sidoti.

John Franzreb

I guess, a couple of quick things. On the Alpha side, the 20% revenue growth rate, was that all organic or was there any kind of acquisitions in there last year?

Andrew Zogby

That was all organic.

John Franzreb

Okay. And the business, is there any seasonality to the business that we should be cognizant of?

Andrew Zogby

I mean, it's the seasonality only from the standpoint of how the MSOs tend to deploy their capital. Sometimes they have a slow start or fast start and sometimes they either want to burn a lot of money at the end of the year or will kind of start to slow down in anticipation of the new year. But for the most part, the only seasonality would be related to outdoor, outside plant where we might have weather-related things, but not a pure seasonality.

David Shaffer

Yes, it should match fairly well with our reserve power seasonality, I would think.

Operator

Ladies and gentlemen, this concludes our Q&A. I would now turn the call back over to your host, Mr. David Shaffer.

David Shaffer

Thank you. And thank you all for taking your time today to attend our call. And I hope you are as excited as we are about this acquisition of the Alpha Group. We look forward to discussing our fiscal second quarter results on November 8. Have a great day, everyone. Take care.

Operator

This concludes our conference for today. Thank you for your participation. And you may all disconnect. Everyone, have a great day.