Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.20.2
Acquisitions
12 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Acquisitions

3. Acquisitions

SEI Acquisition

On September 12, 2018, the Company completed the acquisition (the “SEI Acquisition”) of Scott Equipment Inc. (“SEI”), a Texas-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. In the SEI Acquisition, the Company, indirectly through its newly-formed wholly-owned subsidiary, Scott Equipment Inc. (“Scott Equipment”), purchased substantially all of the assets of SEI for a purchase price consisting of approximately $6,500,000 in cash and 209,678 shares of the Company’s common stock. The Company funded the cash consideration with borrowings under its credit facility at the time. Fees and expenses related to the SEI Acquisition, consisting primarily of legal and other professional fees, totaled approximately $65,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended June 30, 2019. The Company, indirectly through Scott Equipment, also assumed certain of the liabilities of SEI. The total purchase price for accounting purposes was $15.9 million, which included cash acquired of $2.8 million.

The SEI Acquisition was treated for accounting purposes as a purchase of SEI using the acquisition method of accounting. Under the acquisition method of accounting, the aggregate consideration in the SEI 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 preliminary allocation of the consideration to the net assets acquired are presented in the following tables (in thousands):

 

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Purchase price consideration:

Cash consideration, net of cash acquired(a)

$

3,709

Stock consideration(b)

9,436

Total purchase price consideration, net of cash acquired

$

13,145

(a)Includes $6,500,000 paid net of $2.8 million of cash acquired.

(b)Calculated as 209,678 shares of the Company’s common stock, multiplied by $45.00, the closing price of the Company’s common stock on the closing date.

Allocation of purchase price consideration:

Accounts receivable

$

2,658

Inventory

1,595

Other assets

156

Equipment and improvements

424

Intangible assets

3,100

Accounts payable and accrued expenses

(740

)

Customer deposits

(398

)

Total identifiable net assets

6,795

Goodwill

6,350

Total

$

13,145

Intangible assets consist of $1.3 million allocated to the Scott Equipment trade name and $1.8 million allocated to customer-related intangible assets. The Scott Equipment trade name is indefinite-lived and therefore not subject to amortization. The Scott Equipment trade name is evaluated for impairment annually or more frequently if an event occurs or circumstances change that indicate it may be impaired, by comparing its fair value to its carrying amount to determine if a write-down to fair value is required. Customer-related intangible assets will be amortized over 10 years.

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 SEI Acquisition.

PAC Acquisition

On February 5, 2019, the Company completed the acquisition (the “PAC Acquisition”) of PAC Industries Inc. (“PAC”), a Pennsylvania-based distributor of commercial, industrial, and vended laundry products and provider of installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry, pursuant to a merger whereby PAC merged with and into PAC Industries Inc., a newly-formed wholly-owned subsidiary of the Company (“PAC Industries”). The purchase price in the PAC Acquisition consisted of approximately $6,400,000 in cash and 179,847 shares of the Company’s common stock. The Company funded the cash consideration with borrowings under its current credit facility. Fees and expenses related to the PAC Acquisition, consisting primarily of legal and other professional fees, totaled approximately $182,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended June 30, 2019. The total purchase price for accounting purposes was $13.1 million, which included cash acquired of $1.1 million.

The PAC Acquisition was treated for accounting purposes as a purchase of PAC using the acquisition method of accounting. Under the acquisition method of accounting, the aggregate consideration in the PAC Acquisition was allocated to the assets and  

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

liabilities of PAC, 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 preliminary allocation of the consideration to the net assets acquired are presented in the following tables (in thousands):

Purchase price consideration:

Cash consideration, net of cash acquired(a)

$

5,312

Stock consideration(b)

6,653

Total purchase price consideration, net of cash acquired

$

11,965

(a)Includes $6,400,000 paid net of $1.1 million of cash acquired.

(b)Calculated as 179,847 shares of the Company’s common stock, multiplied by $36.99, the closing price of the Company’s common stock on the closing date.

Allocation of purchase price consideration:

Accounts receivable

$

2,231

Inventory

2,136

Other assets

158

Equipment and improvements

357

Intangible assets

3,000

Accounts payable and accrued expenses

(1,912

)

Customer deposits

(465

)

Assumption of debt

(200

)

Total identifiable net assets

5,305

Goodwill

6,660

Total

$

11,965

Intangible assets consist of $1.1 million allocated to the PAC Industries trade name and $1.9 million allocated to customer-related intangible assets. The PAC Industries trade name is indefinite-lived and therefore not subject to amortization. The PAC Industries trade name is evaluated for impairment annually or more frequently if an event occurs or circumstances change that indicate it may be impaired, by comparing its fair value to its carrying amount to determine if a write-down to fair value is required. Customer-related intangible assets will be amortized over 10 years.

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

In connection with the PAC Acquisition, the Company transferred 114,634 shares to PAC’s ESOP. These shares were not permitted to be traded during the six-month period commencing on the closing date. Further, if a distribution event had occurred during such six-month period, then each participant would have had the option to require the Company to purchase such participant’s shares at fair market value. Due to the Company’s obligation under this put option, the distributed shares subject to the put option and the shares held by the ESOP were classified as temporary equity in the mezzanine section of the consolidated balance sheet as of June 30, 2019. There were no distribution events during the six-month restriction period, and the restriction period expired in August 2019. As a result, such shares are classified as permanent equity in the consolidated balance sheet as of June 30, 2020.

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Other Acquisitions

As previously described, in addition to the SEI Acquisition and the PAC Acquisition, during the fiscal ended June 30, 2019, the Company completed the acquisition of four other companies (Industrial Laundry Services, Inc. on September 4, 2018, Washington Automated, Inc. on November 6, 2018, Skyline Equipment, Inc. on November 14, 2018 and Worldwide Laundry, Inc. on November 16, 2018). The total consideration for these four transactions consisted of $3.5 million in cash, net of $738,000 of cash acquired, and 141,000 shares of the Company’s common stock. The Company funded the cash consideration for each acquisition with credit facility borrowings. Each acquisition was treated for accounting purposes as a purchase of the acquired business 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 Company allocated a total of $4.5 million to goodwill, $1.3 million to customer-related intangibles, and $690,000 to the respective trade names. Goodwill totaling $2.5 million from certain of these acquisitions is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforces, as well as benefits from the increased scale of the Company as a result of these acquisitions.

During the fiscal year ended June 30, 2020, the Company completed the acquisitions of Professional Laundry Systems, LLC, which was acquired on August 1, 2019; Large Equipment, Inc. (d/b/a Laundry Systems of Tennessee) and TN Ozone, Inc. (d/b/a Premier Laundry Solutions and Premier Equipment Rental), which were acquired on January 31, 2020; and Commercial Laundry Equipment Company, Inc., which was acquired on February 28, 2020. The total consideration for these four transactions consisted of $1.6 million in cash, net of $192,000 of cash acquired, the assumption of $129,000 of long-term debt and the issuance of 132,726 shares of the Company’s common stock, with an aggregate grant date fair value of $3.8 million. The Company funded the cash consideration for each acquisition with credit facility borrowings. Each acquisition was treated for accounting purposes as a purchase of the acquired business 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 Company has preliminarily allocated a total of $2.1 million to goodwill, $680,000 to customer-related intangibles, and $410,000 to the respective trade names. The purchase price allocations are considered preliminary as the Company is still assessing certain working capital items. Goodwill totaling $988,000 from certain of these acquisitions is expected to be amortized and deductible for tax purposes over 15 years. Goodwill is attributable primarily to the assembled workforces, as well as benefits from the increased scale of the Company as a result of these acquisitions.

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 SEI Acquisition, the PAC Acquisition and the other acquisitions completed during fiscal 2019 or fiscal 2020 as described above, as if the Company had completed each such transaction on July 1, 2018, using the estimated fair values of the assets acquired and liabilities assumed. These unaudited pro forma results are presented for informational purposes only  

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

and are not necessarily indicative of what the actual results of operations of the Company would have been if the transactions had occurred on the date assumed, nor are they indicative of future results of operations.

 

For the year ended June 30,

(in thousands)

 

2020

(Unaudited)

 

2019

(Unaudited)

Revenues

 

$

242,537

 

 

$

270,278

 

Net income

 

 

959

 

 

 

4,736

 

The Company’s consolidated results of operations for fiscal 2020 include total revenue of approximately $57.3 million and total net loss of approximately $519,000 attributable to businesses acquired during fiscal 2020 and 2019, based on the consolidated effective tax rate. The Company’s consolidated results of operations for fiscal 2019 include total revenue of approximately $39.4 million and total net income of approximately $73,000 attributable to businesses acquired during fiscal 2019, based on the consolidated effective tax rate. These results of acquired businesses do not include the effects of acquisition costs or interest expense associated with consideration paid for the related acquisitions.