Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.19.2
Acquisitions
12 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
Acquisitions
3. Acquisitions

TRS Acquisition

 

On October 31, 2017, the Company, indirectly through Tri-State, the Company’s wholly-owned subsidiary, completed the TRS Acquisition pursuant to which it purchased substantially all of the assets of TRS for a purchase price consisting of approximately $7,952,000 in cash and 338,115 shares of the Company’s common stock. The Company used borrowings under its credit facility at the time to fund the cash consideration. Fees and expenses related to the TRS Acquisition, consisting primarily of legal and other professional fees, totaled approximately $137,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended June 30, 2018. The Company, indirectly through Tri-State, also assumed certain of the liabilities of TRS. The total purchase price was $17.3 million, which included cash acquired of $1.8 million.

 

The TRS Acquisition was treated for accounting purposes as a purchase of TRS using the acquisition method of accounting. Under the acquisition method of accounting, the aggregate consideration in the TRS 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 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)   $ 6,474  
Stock consideration(b)     9,027  
Total purchase price consideration, net of cash acquired   $ 15,501  
         

(a)Includes $8,250,000 paid net of $1.8 million of cash acquired.

 

(b)Calculated as 338,115 shares of the Company’s common stock, multiplied by $26.70, the closing price of the Company’s common stock on the closing date.

 

Allocation of purchase price consideration:    
Accounts receivable   $ 3,416  
Inventory     3,050  
Other assets     1,565  
Equipment and improvements     805  
Intangible assets     5,200  
Accounts payable and accrued expenses     (2,220 )
Customer deposits     (1,289 )
Total identifiable net assets     10,527  
Goodwill     4,974  
Total   $ 15,501  

Intangible assets consist of $1.5 million allocated to the Tri-State trade name and $3.7 million allocated to customer-related intangible assets. The Tri-State trade name is indefinite-lived and therefore not subject to amortization. The Tri-State 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 TRS Acquisition.

AA Acquisition

On February 9, 2018, the Company, indirectly through AAdvantage, the Company’s wholly-owned subsidiary, completed the AA Acquisition pursuant to which it purchased substantially all of the assets of AA for a total purchase price consisting of approximately $8.1 million in cash and 348,360 shares of the Company’s common stock. and the Company used borrowings under its credit facility at the time to fund the cash consideration. Fees and expenses related to the AA Acquisition, consisting primarily of legal and other professional fees, totaled approximately $160,000 and are classified as selling, general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended June 30, 2018. The Company, indirectly through AAdvantage, also assumed certain of the liabilities of AA. The total purchase price was $20.4 million, which included cash acquired of $0.9 million.

The AA Acquisition was treated for accounting purposes as a purchase of AA using the acquisition method of accounting. Under the acquisition method of accounting, the aggregate consideration in the AA 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 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)   $ 7,175  
Stock consideration(b)     12,349  
Total purchase price consideration, net of cash acquired   $ 19,524  
         

(a)Includes $8,119,000 paid at closing (inclusive of a preliminary working capital adjustment) net of $0.9 million of cash acquired.

 

(b)Calculated as 348,360 shares of the Company’s common stock, multiplied by $35.45, the closing price of the Company’s common stock on the closing date.

 

Allocation of purchase price consideration:    
Accounts receivable   $ 2,850  
Inventory     2,816  
Other assets     2,966  
Equipment and improvements     771  
Intangible assets     4,300  
Accounts payable and accrued expenses     (1,228 )
Customer deposits     (285 )
Total identifiable net assets     12,190  
Goodwill     7,334  
Total   $ 19,524  

Intangible assets consist of $1.8 million allocated to the AA trade name and $2.5 million allocated to customer-related intangible assets. The AA trade name is indefinite-lived and therefore not subject to amortization. The AA 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 AA Acquisition.

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):

 

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  

The Company is continuing its valuation of the net assets acquired, which is subject to adjustment in accordance with the asset purchase agreement. Accordingly, the purchase price allocation set forth above 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 post-closing measurement period of up to one year. The Company is also still assessing certain working capital items.

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 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  
         

The Company is continuing its valuation of the net assets acquired, which is subject to adjustment in accordance with the merger agreement. Accordingly, the purchase price allocation set forth above 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 post-closing measurement period of up to one year. The Company is also still assessing certain working capital items.

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 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, which was in effect at June 30, 2019 but has subsequently expired, the distributed shares subject to the put option and the shares held by the ESOP are 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.

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 preliminarily allocated a total of $4.5 million to goodwill, $1.3 million to customer-related intangibles, and $690,000 to the respective trade names. The purchase price allocations are considered preliminary, as the Company is still assessing certain working capital and valuation-related items.

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 TRS Acquisition, AA Acquisition, SEI Acquisition, PAC Acquisition and the four other acquisitions completed during fiscal 2019 as described above, as if the Company had completed each such transaction and all related financing transactions on July 1, 2017, 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 acquisitions and related financing transactions had occurred on the date assumed, nor are they indicative of future results of operations.

    For the year ended
June 30,
(in thousands)   2019
(Unaudited)
  2018
(Unaudited)
Revenues   $ 252,182     $ 240,711  
Net income     4,472       7,046  

 

The Company’s consolidated results of operations for fiscal 2019 include total revenue of approximately $98.8 million and total net income of approximately $2.9 million attributable to businesses acquired during fiscal 2019 or 2018, 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.