ACQUISITIONS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITIONS |
General
The Company completed three acquisitions in the third quarter of 2021 and completed ten acquisitions in the nine months ended September 26, 2021 (the "2021 Acquisitions"). For the third quarter and nine months ended September 26, 2021, net sales included in the Company's condensed consolidated statements of income related to the 2021 Acquisitions were $84.0 million and $146.1 million, respectively, and operating income was $6.6 million and $12.6 million, respectively, for each of these periods. One of the 2021 Acquisitions accounted for $53.5 million in net sales and $2.6 million in operating income for the third quarter of 2021 and $85.6 million in net sales and $4.5 million in operating income for the nine months ended September 26, 2021. Acquisition-related costs associated with the businesses acquired in the third quarter of 2021 and first nine months of 2021 were immaterial. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s condensed 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. The Company completed six acquisitions in the third quarter of 2020 and nine acquisitions in the nine months ended September 27, 2020. Net sales included in the Company's condensed consolidated statements of income in the third quarter and nine months ended September 27, 2020 related to acquisitions completed in the first nine months of 2020 were $19.6 million and $23.3 million, respectively, and operating income was $2.1 million and $2.2 million, respectively, for the same periods.
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, market share growth and net income.
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 estimated 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. As of September 26, 2021, the aggregate fair value of the estimated contingent consideration payments was $9.8 million, $3.7 million of which is included in "Accrued liabilities" and $6.1 million is included in “Other long-term liabilities” on the condensed consolidated balance sheet. At December 31, 2020, the aggregate fair value of the estimated contingent consideration payments was $6.9 million, $1.6 million of which was included in the line item "Accrued liabilities" and $5.3 million was included in "Other long-term liabilities". The liabilities for contingent consideration expire at various dates through December 2023. The contingent consideration arrangements are subject to a maximum payment amount of up to $19.6 million in the aggregate. In the third quarter and nine months ended September 26, 2021, the Company made $1.5 million and $2.5 million in cash payments, respectively, related to contingent consideration liabilities. In connection with cash payments on contingent consideration, the Company recorded a $0.9 million charge in selling general and administrative expense in the condensed consolidated statement of income for the nine months ended September 26, 2021, representing changes from the amounts initially expected to be paid to what was ultimately paid.
2021 Acquisitions
The Company completed ten acquisitions in the nine months ended September 26, 2021, including the following five previously announced acquisitions:
Inclusive of five acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $298.4 million, plus contingent consideration over a to three-year period based on future results in connection with certain acquisitions. One of the 2021 Acquisitions accounted for $149.3 million in cash and $10.2 million in common stock as consideration, $25.8 million in inventory, $28.4 million in fixed assets, $85.0 million in intangible assets, $18.1 million in accounts payable and accrued liabilities, $11.5 million in operating lease right-of-use assets and liabilities, and $33.6 million in goodwill. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus all required 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 the third quarter and nine months ended September 26, 2021 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 (the "2020 Acquisitions"), including the following seven previously announced acquisitions:
Inclusive of four acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $306.3 million, plus contingent consideration over a to three-year period based on future results in connection with certain acquisitions. One of the 2020 Acquisitions accounted for $129.7 million in cash consideration, $2.9 million in inventory, $49.3 million in fixed assets, $49.1 million in intangible assets, $2.6 million in accounts payable and accrued liabilities, $4.9 million in operating lease right-of-use assets and liabilities, and $32.6 million in goodwill. Purchase accounting adjustments are complete on all 2020 Acquisitions. Changes to preliminary purchase accounting estimates recorded in the third quarter and nine months ended September 26, 2021 related to the 2020 Acquisitions were immaterial and relate primarily to the valuation of intangible and fixed assets.
The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2021 Acquisitions and the 2020 Acquisitions:
(1) Certain acquisitions contain working capital holdbacks which are typically settled after a 90-day period following the close of the acquisition. This value represents the remaining amounts due to (from) sellers as of September 26, 2021.
(2) In connection with one acquisition, the Company issued 113,961 shares of common stock at a closing price of $89.60 as of the acquisition date.
(3) These amounts reflect the acquisition date fair value of contingent consideration based on future results relating to certain acquisitions.
(4) Goodwill is tax-deductible for the 2021 Acquisitions, except Tumacs Covers (approximately $6.2 million), and 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 on 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 an 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 following table presents our estimates of identifiable intangible assets for the 2021 Acquisitions and the 2020 Acquisitions:
Pro Forma Information
The following pro forma information for the third quarter and nine months ended September 27, 2020 assumes the 2021 Acquisitions and the 2020 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2021 Acquisitions and 2020 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 incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $0.2 million and $4.0 million for the third quarter and nine months ended September 26, 2021, respectively and $5.2 million and $16.3 million for the third quarter and nine months ended September 27, 2020, respectively.
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