ACQUISITIONS

9 Months Ended

Sep. 25, 2022

Business Combination and Asset Acquisition [Abstract]


6.			ACQUISITIONS

General

The Company completed no acquisitions in the third quarter of 2022 and completed three acquisitions in the nine months ended September 25, 2022 (the "2022 Acquisitions"). For the third quarter and nine months ended September 25, 2022, net sales included in the Company's condensed consolidated statements of income related to the 2022 Acquisitions were $38.0 million and $87.3 million, respectively, and operating income was $6.9 million and $15.9 million, respectively. Acquisition-related costs associated with the 2022 Acquisitions were immaterial. Assets acquired and liabilities assumed in the 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 three acquisitions in the third quarter of 2021 and completed ten acquisitions in the nine months ended September 26, 2021. 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 acquisitions completed in the first nine months of 2021 were $84.0 million and $146.1 million, respectively, and operating income was $6.6 million and $12.6 million, respectively.

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 25, 2022, the aggregate fair value of the estimated contingent consideration payments was $10.7 million, of which $7.2 million is included in "Accrued liabilities" and $3.5 million is included in “Other long-term liabilities” on the condensed consolidated balance sheet. At December 31, 2021, the fair value of the estimated contingent consideration payments was $12.3 million, of which $7.0 million 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 $15.0 million in the aggregate as of September 25, 2022. In the nine months ended September 25, 2022, the Company recorded $3.0 million in non-cash increases to contingent consideration liabilities, which are reflected as charges within selling, general and administrative expense in the condensed consolidated statement of income, representing changes in the amount of consideration expected to be paid. These charges relate to changes in projected performance of certain acquisitions compared to the projected performance originally used in calculating the projected fair values of the contingent consideration of such acquisitions. There were no non-cash increases to contingent consideration during the third quarter ended September 25, 2022. In the nine months ended September 25, 2022, the Company made cash payments of approximately $6.4 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities. The Company made no cash payments related to contingent consideration liabilities in the third quarter ended September 25, 2022.

2022 Acquisitions

The Company completed three acquisitions in the nine months ended September 25, 2022, including the following two previously announced acquisitions:

Company

Segment

Description

Rockford Corporation

Manufacturing

Designer and manufacturer of audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022

Diamondback Towers, LLC

Manufacturing

Manufacturer of wakeboard/ski towers and accessories for marine original equipment manufacturers ("OEMs"), based in Cocoa, Florida, acquired in May 2022

Inclusive of one acquisition not discussed above, total cash consideration for the 2022 Acquisitions was approximately $152.2 million. One of the 2022 Acquisitions, Rockford Corporation, accounted for $132.6 million in total consideration, $20.6 million in trade receivables, $32.7 million in inventory, $1.4 million in prepaid expenses, $5.3 million in fixed assets, $2.9 million in operating right-of-use assets, $79.9 million in intangible assets, $24.3 million in accounts payable and accrued liabilities, $2.9 million in operating right-of-use obligations, $19.5 million in deferred tax liabilities, and $36.4 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 ended September 25, 2022 related to the 2022 Acquisitions, individually and in the aggregate, were immaterial and relate primarily to the valuation of intangible assets.

2021 Acquisitions

The Company completed 13 acquisitions in the year ended December 31, 2021, including the following seven previously announced acquisitions (together, the "2021 Acquisitions"):

Company

Segment

Description

Sea-Dog Corporation & Sea-Lect Plastics (collectively, "Sea-Dog")

Distribution & Manufacturing

Distributor of a variety of marine and powersports hardware and accessories to distributors, wholesalers, retailers, and manufacturers and provider of plastic injection molding, design, product development and tooling to companies and government entities, based in Everett, Washington, acquired in March 2021.

Hyperform, Inc.

Manufacturing

Manufacturer of high-quality, non-slip foam flooring, operating under the SeaDek brand name, for the marine OEM market and aftermarket as well as serving the pool and spa, powersports and utility markets under the SwimDek and EndeavorDek brand names, with manufacturing facilities in Rockledge, Florida and Cocoa, Florida, acquired in April 2021.

Alpha Systems, LLC

Manufacturing & Distribution

Manufacturer and distributor of component products and accessories for the RV, marine, manufactured housing and industrial end markets including adhesives, sealants, rubber roofing, roto/blow molding and injection molding products, flooring, insulation, shutters, skylights, and various other products and accessories, operating out of nine facilities in Elkhart, Indiana, acquired in May 2021.

Coyote Manufacturing Company

Manufacturing

Designer, fabricator, and manufacturer of a variety of steel and aluminum products, including boat trailers, towers, T-tops, leaning posts, and other custom components primarily for the marine OEM market, based in Nashville, Georgia, acquired in August 2021.

Tumacs Covers

Manufacturing

Manufacturer of custom designed boat covers, canvas frames, and bimini tops, primarily serving large marine OEMs and dealers, headquartered in Pittsburgh, Pennsylvania, with manufacturing facilities in Indiana and Pennsylvania, and a distribution/service center in Michigan, acquired in August 2021.

Wet Sounds, Inc. & Katalyst Industries LLC (collectively "Wet Sounds")

Manufacturing

Designer, engineer, and fabricator of innovative audio systems and accessories, including amplifiers, tower speakers, soundbars, and subwoofers sold directly to OEMs and consumers, and to dealers and retailers, primarily within the marine market as well as to the home audio and powersports markets and aftermarkets, based in Rosenburg, Texas, acquired in November 2021.

Williamsburg Marine LLC & Williamsburg Furniture, Inc. (collectively "Williamsburg")

Manufacturing

Manufacturer of seating for the RV and marine end markets sold primarily to OEMs, based in Milford and Nappanee, Indiana, acquired in November 2021.

Inclusive of six acquisitions not discussed above, total cash consideration for the 2021 Acquisitions was approximately $509.3 million, plus contingent consideration over a one to three-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, primarily related to the valuation of property, plant, and equipment and intangible assets, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Purchase accounting adjustments are complete for all 2021 Acquisitions completed through September 26, 2021. Changes to preliminary purchase accounting estimates recorded in the third quarter ended September 25, 2022 related to the 2021 Acquisitions, individually and in the aggregate, 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 2022 Acquisitions and the 2021 Acquisitions:


(thousands)			2022 Acquisitions		2021 Acquisitions
Consideration
	Cash, net of cash acquired(1)		$	152,235	$	509,263
	Working capital holdback and other, net(2)		219		(190)
	Common stock issuance(3)		—		10,211
	Contingent consideration(4)		1,600		4,730
		Total consideration	$	154,054	$	524,014

Assets Acquired
	Trade receivables		$	21,454	$	26,118
	Inventories		34,680		69,343
	Prepaid expenses & other		1,391		13,747
	Property, plant & equipment		6,731		55,101
	Operating lease right-of-use assets		3,516		25,530
	Identifiable intangible assets		88,240		245,794

Liabilities Assumed
	Current portion of operating lease obligations		(785)		(5,518)
	Accounts payable & accrued liabilities		(25,383)		(32,326)
	Operating lease obligations		(2,731)		(20,012)
	Deferred tax liabilities and other long-term liabilities		(19,476)		(1,486)
		Total fair value of net assets acquired	107,637		376,291
		Goodwill(5)	46,417		147,723
			$	154,054	$	524,014

(1) Amounts include cash used to pay off outstanding debt obligations at the time of acquisition.

(2) 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 sellers as of September 25, 2022.

(3) In connection with one of the 2021 Acquisitions, the Company issued 113,961 shares of common stock at a closing price of $89.60 as of the acquisition date.

(4) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions.

(5) Goodwill is tax-deductible for the 2022 Acquisitions, except Rockford Corporation (approximately $36.4 million), and for the 2021 Acquisitions, except Tumacs Covers (approximately $6.2 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 2022 Acquisitions and the 2021 Acquisitions:


(thousands, except year data)	Estimated Useful Life (in years)	2022 Acquisitions		2021 Acquisitions
Customer relationships	10	$	62,880	$	160,412
Non-compete agreements	5	640		3,843
Patents	10 - 18	7,500		28,850
Trademarks	Indefinite	17,220		52,689
		$	88,240	$	245,794

For the acquisition of Rockford Corporation previously mentioned, the $79.9 million of identifiable intangible assets consists of $56.0 million for customer relationships, $0.4 million for non-compete agreements, $7.5 million for patents (estimated useful life of 15 years), and $16.0 million for trademarks. These amounts were provisionally estimated at $70.0 million, consisting of $42.0 million for customer relationships, $2.1 million for non-compete agreements, $10.5 million for patents (estimated useful life of 15 years), and $15.4 million for trademarks in the prior two quarters but have been updated to the aforementioned values based on valuation procedures being performed.

Pro Forma Information

The following pro forma information for the third quarter and nine months ended September 25, 2022 and September 26, 2021 assumes the 2022 Acquisitions and the 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 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 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 $0.0 million and $1.1 million for the third quarter and nine months ended September 25, 2022, respectively, and $3.9 million and $14.6 million for the third quarter and nine months ended September 26, 2021, respectively.


	Third Quarter Ended				Nine Months Ended
(thousands, except per share data)	September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021
Revenue	$	1,112,089	$	1,145,730	$	3,964,453	$	3,253,080
Net income	58,819		67,288		290,262		193,258
Basic net income per common share	2.66		2.95		13.03		8.47
Diluted net income per common share	2.43		2.88		11.87		8.27

The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.