Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.7.0.1
Acquisitions
12 Months Ended
Jun. 30, 2017
Business Combinations [Abstract]  
Acquisitions

3. Acquisitions

As previously described, on October 10, 2016, the Company completed the Western State Design Acquisition pursuant to which the Company, through its wholly-owned subsidiary, Western State Design, purchased substantially all the assets of WSD, a California-based distributor of commercial and industrial laundry equipment and related parts for new laundry facilities and to the replacement laundry market, for a purchase price consisting of $18.5 million in cash and 2,044,990 shares of the Company’s common stock. The cash consideration, which included $2.8 million which was placed in escrow for no less than 18 months after the closing date (subject to extension in certain circumstances), was financed through $12.5 million of borrowings under the credit facility entered into at the time and $6.0 million of proceeds from the sale of 1,290,323 shares of the Company’s common stock to Symmetric Capital II LLC (“Symmetric Capital II”) in a private placement transaction. Henry M. Nahmad, the Company’s Chairman, Chief Executive Officer, President and controlling stockholder, is the Manager of, and may be deemed to control, Symmetric Capital II. Pursuant to the Asset Purchase Agreement, the Company, indirectly through Western State Design, also assumed certain of the liabilities of WSD.

 

Fees and expenses related to the Western State Design Acquisition, consisting primarily of legal and other professional fees, totaled approximately $478,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended June 30, 2017. The total purchase price for accounting purposes was $34.6 million, which included cash acquired of $5.1 million.

 

The Western State Design Acquisition was treated for accounting purposes as a purchase of WSD using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, the aggregate consideration, or “purchase price consideration,” in the Western State Design Acquisition was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to intangible assets and goodwill. The computation of the purchase price consideration and the allocation thereof to the net assets acquired are presented in the following tables (in thousands):

 

Purchase price consideration:      
Cash consideration, net of cash acquired(a)   $ 13,394  
         
Stock consideration(b)     16,053  
Total purchase price consideration, net of cash acquired   $ 29,447  
 

(a)Includes $18.5 million, net of $5.1 million of cash acquired.

(b)Calculated as 2,044,990 shares of common stock, multiplied by $7.85, the closing price of the Company’s common stock on the closing date.

         

 

Allocation of purchase price consideration (in thousands):      
Accounts receivable   $ 8,597  
Inventory     3,429  
Other assets     2,623  
Property, plant and equipment     879  
Intangible assets     6,464  
Accounts payable and accrued expenses     (6,549 )
Customer deposits     (4,247 )
Billings in excess of costs on uncompleted contracts     (3,888 )
Total identifiable net assets     7,308  
Goodwill     22,139  
Total   $ 29,447  

 

 

The purchase price allocation reflects preliminary fair value estimates based on preliminary work and analyses performed by management and is subject to change as additional information to assist in determining the fair value of the net assets acquired at the closing date is obtained during the one year post-closing measurement period.

Intangible assets consist of $2.4 million allocated to the Western State Design trade name, $3.6 million allocated to customer-related intangible assets and $0.4 million allocated to covenants not to compete. The Western State Design trade name is indefinite-lived and therefore not subject to amortization. Customer-related intangible assets and covenants not to compete will be amortized over 10 years and 5 years, respectively.

Goodwill is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforce acquired, as well as benefits from the increased scale of the Company as a result of the Western State Design Acquisition.

On June 19, 2017, the Company completed the Martin-Ray Acquisition pursuant to which the Company, through its wholly owned subsidiary, Martin-Ray, purchased substantially all of the assets and assumed certain of the liabilities of MRLS, a Colorado distributor of commercial laundry equipment. The consideration for the transaction consisted of $2.0 million in cash, $400,000 of which was placed in escrow for no less than 18 months after the closing date (subject to extension in certain circumstances), and 98,668 shares of the Company’s common stock. The Company funded the cash consideration with cash on hand. The Martin-Ray Acquisition was treated for accounting purposes as a purchase of MRLS using the acquisition method of accounting in accordance with ASC 805, Business Combinations, pursuant to which the consideration paid by the Company was allocated to the acquired assets and assumed liabilities, in each case, based on their respective fair values as of the closing date, with the excess of the consideration transferred over the fair value of the net assets acquired being allocated to intangible assets and goodwill. The cash portion of the consideration was funded from the Company’s operating cash. The Company allocated $2.6 million to goodwill, $0.6 million to customer-related intangibles, $0.3 million to the Martin-Ray trade name and $0.1 million to a covenant not to compete. The purchase price allocation reflects preliminary fair value estimates based on preliminary work and analyses performed by management and is subject to change as additional information to assist in determining the fair value of the net assets acquired at the closing date is obtained during the one year post-closing measurement period.

 

The results of operations of Martin-Ray have been included in the Company’s Consolidated Financial Statements subsequent to the June 19, 2017 closing date. The goodwill is deductible for tax purposes.

Supplemental Pro Forma Results of Operations

The following unaudited supplemental pro forma information presents the results of operations of the Company, after giving effect to the Western State Design Acquisition and Martin-Ray Acquisition, as if the Company had completed the Western State Design Acquisition and related financing transactions and Martin-Ray Acquisition on July 1, 2015, using the estimated fair values of the assets acquired and liabilities assumed. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the Company would have been if the Western State Design Acquisition and Martin-Ray Acquisition had occurred on the date assumed, nor are they indicative of future results of operations.

 

      For the year ended
June 30,
 
(in thousands)     2017
(Unaudited)
      2016
(Unaudited)
 
Revenues   $ 120,012     $ 113,012  
Net income     4,139       3,879  

 

 

The unaudited supplemental proforma net income for the year ended June 30, 2016 was adjusted to include a total of $868,000 of transaction costs incurred by the Company and WSD.