Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.21.2
Acquisitions
12 Months Ended
Jun. 30, 2021
Business Combinations [Abstract]  
Acquisitions

3. Acquisitions

YES Acquisition

On November 3, 2020, the Company acquired Yankee Equipment Systems, Inc. (“YES”), pursuant to a merger whereby YES merged with and into, and became, a wholly-owned subsidiary of the Company (the “YES Acquisition”). YES is a New Hampshire-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. This acquisition expanded the Company’s footprint in the Northeast region of the United States. The consideration paid by the Company in connection with the merger consisted of $5.3 million in cash and 278,385 shares of the Company’s common stock. The Company funded the cash consideration with borrowings under its credit facility. Fees and expenses related to the YES Acquisition, consisting primarily of legal and other professional fees, totaled approximately $144,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for the year ended June 30, 2021. The total purchase price for accounting purposes was $13.8 million, which included cash acquired of $792,000.

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

The YES Acquisition was treated for accounting purposes as a purchase of YES using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the aggregate consideration in the YES 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):

Purchase price consideration:

Cash consideration, net of cash acquired(a)

$

4,475

Stock consideration(b)

8,521

Total purchase price consideration, net of cash acquired

$

12,996

(a) Includes $5.3 million paid net of $792,000 of cash acquired.

(b) Calculated as 278,385 shares of the Company’s common stock, multiplied by $30.61, the closing price of the Company’s common stock on the closing date.

Allocation of purchase price consideration:

Accounts receivable

$

1,482

Inventory

1,591

Other assets

1,812

Equipment and improvements

1,844

Intangible assets

3,800

Accounts payable and accrued expenses

(1,901

)

Accrued employee expenses

(534

)

Customer deposits

(525

)

Deferred tax liabilities

(887

)

Assumption of debt

(916

)

Total identifiable net assets

5,766

Goodwill

7,230

Total

$

12,996

The Company’s purchase price allocation set forth above is preliminary, as the Company is still evaluating certain working capital items in accordance with the purchase agreement.

Intangible assets consist of $1.6 million allocated to the Yankee Equipment Systems trade name and $2.2 million allocated to customer-related intangible assets. The Yankee Equipment Systems trade name is indefinite-lived and therefore not subject to amortization. The Yankee Equipment Systems trade name will be 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 attributable primarily to the assembled workforce acquired, as well as benefits from the increased scale of the Company as a result of the YES Acquisition. The goodwill from the YES Acquisition is not deductible for income tax purposes.

ELS Acquisition

On January 15, 2021, the Company acquired Baystate Business Ventures d/b/a Eastern Laundry Systems (“ELS”), a Massachusetts-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. The acquisition was effected by the Company, indirectly through a wholly-owned subsidiary, which purchased substantially all of the assets and assumed certain of the liabilities of ELS. The total consideration for the transaction consisted of $400,000 in cash, net of $57,000 of cash acquired, and the issuance of 10,726 shares of the Company’s common stock. The Company funded the cash consideration for the acquisition with credit facility borrowings. The 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, based on their respective fair values as of the closing date. Under ASC 805, if the fair value of the acquired net assets exceeds the purchase price, then a bargain purchase gain in the amount of such excess is recognized in the applicable condensed consolidated statement of operations. Based on the Company’s preliminary analysis of working capital and valuation-related items, the Company recognized a bargain purchase gain of $314,000 in connection with the acquisition of ELS, which is included as interest and other (expense), net in the consolidated statement of operations for the year ended June 30, 2021. The purchase price allocations are considered preliminary, as the Company is still assessing certain working capital and valuation-related items. Any change to the preliminary estimate of working capital and valuation-related items and the related deferred tax liability, if any, will be recognized as an adjustment to the bargain purchase gain.

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

Acquisitions During Fiscal 2020

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 allocated a total of $2.1 million to goodwill, $680,000 to customer-related intangibles, and $410,000 to the respective trade names. 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.

PAC Acquisition

On February 5, 2019, the Company acquired PAC Industries Inc. (“PAC”) for approximately $6.4 million in cash and 179,847 shares of the Company’s common stock. As a portion of the stock consideration issued in connection with the 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 the acquisition date. There were no distribution events during the six-month restriction period, which expired in August 2019. As a result, such shares are classified as permanent equity in the consolidated balance sheets as of June 30, 2020 and 2021.

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 acquisitions of YES and ELS as described above, as if the Company had completed each such transaction on July 1, 2019, 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 transactions had occurred on the date assumed, nor are they indicative of future results of operations.

 

For the year ended June 30,

(in thousands)

 

2021

(Unaudited)

 

2020

(Unaudited)

Revenues

 

$

254,359

 

 

$

271,298

 

Net income

 

 

8,796

 

 

 

1,939

 

The Company’s consolidated results of operations for fiscal 2021 include total revenue of approximately $33.0 million and total net income of approximately $1.7 million attributable to businesses acquired during fiscal 2021 and 2020, based on the consolidated effective tax rate. The Company’s consolidated results of operations for fiscal 2020 include total revenue of approximately $8.1 million and total net income of approximately $94,000 attributable to businesses acquired during fiscal 2020, 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.