ACQUISITIONS |
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Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITIONS | ACQUISITIONS
The Company completed the acquisitions discussed below during the years ended December 31, 2022, 2021 and 2020. The acquisitions were funded through cash on hand, issuance of shares, or borrowings under the Company’s credit facility in existence at the time of acquisition. For each of the acquisitions discussed, we either acquired the assets and assumed the liabilities of the business, or acquired 100% of the equity interests. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s consolidated balance sheet at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one-year measurement period. For those acquisitions where the purchase price allocation is provisional, which includes certain acquisitions completed in 2022, the Company is still in the process of finalizing the fair values of acquired intangible assets and fixed assets. In general, the acquisitions described below provided the opportunity for the Company to either establish a new presence in a particular market and/or expand its product offerings in an existing market and increase its market share and per unit content.
For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, revenue impact, market share growth and net income.
For the years ended December 31, 2022, 2021 and 2020, revenue of approximately $121.8 million, $259.9 million and $81.9 million, respectively, was included in the Company’s consolidated statements of income pertaining to the businesses acquired in each such respective year.
For the years ended December 31, 2022, 2021 and 2020, operating income of approximately $19.4 million, $25.0 million and $10.7 million, respectively, was included in the Company’s consolidated statements of income pertaining to the businesses acquired in each such respective year. Acquisition-related costs associated with the businesses acquired in 2022, 2021 and 2020 were immaterial in each respective year.
Contingent Consideration
In connection with certain acquisitions, if certain financial results for the acquired businesses are achieved, the Company is required to pay additional cash consideration. The Company records a liability for the fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.
The following table provides a reconciliation of the beginning and ending aggregate fair values of the contingent consideration as of December 31, 2022 and 2021:
The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to at December 31, 2022 and 2021:
2022 Acquisitions
The Company completed five acquisitions in the year ended December 31, 2022, including the following three previously announced acquisitions (collectively, the "2022 Acquisitions"):
Inclusive of two acquisitions not discussed above, total cash consideration for the 2022 Acquisitions was approximately $248.5 million, plus contingent consideration over a to two-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in 2022 related to the 2022 Acquisitions were immaterial.
2021 Acquisitions
The Company completed thirteen acquisitions in the year ended December 31, 2021, including the following seven previously announced acquisitions (collectively, the "2021 Acquisitions"):
Inclusive of six acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $509.1 million, plus contingent consideration over a to three-year period based on future performance in connection with certain acquisitions. Purchase price allocations and all valuation activities in connection with the 2021 Acquisitions have been finalized, and adjustments made during the year related to changes in the preliminary purchase price allocation recorded in 2022 related to the 2021 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.
2020 Acquisitions
The Company completed eleven acquisitions in the year ended December 31, 2020, including the following seven previously announced acquisitions (collectively, the "2020 Acquisitions"):
Inclusive of four acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $306.5 million, plus contingent consideration over a to three-year period based on future performance in connection with certain acquisitions. One acquisition in 2020 accounted for $129.7 million in cash consideration, contingent consideration with an initial fair value of $3.4 million (subject to a $10.0 million maximum), $1.6 million in accounts receivable, $2.9 million in inventory, $49.0 million in fixed assets, $49.1 million in intangible assets (composed of $42.6 million in customer relationships, $0.6 million in non-competition agreements, and $5.9 million in trademarks), $2.6 million in accounts payable and accrued liabilities, $4.9 million in operating lease right-of-use assets and liabilities, and $32.9 million in goodwill. Purchase price allocations and all valuation activities in connection with the 2020 Acquisitions have been finalized.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the acquisition for 2022 Acquisitions:
(1) Certain acquisitions contain working capital holdbacks which are typically settled in a 90-day period following the close of the acquisition. This value represents the remaining amounts due to (from) sellers as of December 31, 2022.
(2) These amounts reflect the acquisition date fair value of contingent consideration based on future results relating to certain acquisitions.
(3) Goodwill is tax-deductible for the 2022 Acquisitions, except Acquisition A and Acquisition B (totaling approximately $72.9 million).
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the acquisition for 2021 and 2020 Acquisitions:
(1) In connection with Company A, the Company issued 113,961 shares of common stock at a closing price of $89.60 as of the acquisition date.
(2) These amounts reflect the acquisition date fair value of contingent consideration based on future results relating to certain acquisitions. Contingent consideration associated with Company A is valued at $3.5 million, but subject to a $6.0 million maximum.
(3) Goodwill is tax-deductible for the 2021 Acquisitions, except Tumacs Covers (approximately $6.2 million), and for the 2020 Acquisitions, except Front Range Stone (approximately $11.0 million).
We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.
The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years. Trademarks have an indefinite useful life.
Pro Forma Information (Unaudited)
The following pro forma information assumes the 2022 Acquisitions and 2021 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of each of the 2022 Acquisitions and 2021 Acquisitions, combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.
The pro forma information includes financing and interest expense charges based on the actual incremental borrowings incurred in connection with each transaction as if it occurred as of the beginning of the year immediately preceding each such acquisition.
In addition, the pro forma information includes incremental amortization expense related to intangible assets acquired of $4.6 million and $21.8 million for the years ended December 31, 2022 and 2021, respectively, in connection with the acquisitions as if they occurred as of the beginning of the year immediately preceding each such acquisition.
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