The Company makes an initial allocation of the purchase price at the date of acquisition based upon its estimate of the fair value of the acquired assets and assumed liabilities. The Company obtains the information used for the purchase price allocation during due diligence and through other sources. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized. Final determination of the fair values may result in further adjustments.

The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. The Company from time-to-time engages third-party valuation specialists who review the Company’s critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with certain of its 2022 acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

On September 1, 2022, the Company completed the acquisition of Sullivan Environmental Technologies, Inc. ("Sullivan"). Sullivan is a leading distributor for the municipal and industrial water and wastewater treatment industries in the states of Ohio, Kentucky, and Indiana. Sullivan is included within our IPS business segment. Total consideration for the transaction was approximately $6.5 million, funded with a mixture of cash on hand of $4.6 million, the Company's stock valued at approximately $0.9 million and potential contingent consideration of $1.0 million. For the twelve months ended December 31, 2022, Sullivan contributed sales of $1.0 million and operating income of $275 thousand. Goodwill for the transaction totaled approximately $2.5 million.

On May 2, 2022, the Company completed the acquisition of Cisco Air Systems Inc. ("Cisco"). Cisco is a leading distributor of air compressors and related products and services focused on serving the food and beverage, transportation and general industrial markets in the Northern California and Nevada territories. Cisco is included within our SC business segment. The Company engaged third-party valuation specialists to review the Company's critical assumptions such as: anticipated revenues, anticipated cost, discount rates, probability of earn-out payments, and calculations of the fair value of acquired intangible assets and goodwill in connection with the Cisco acquisition. Total consideration for the transaction was approximately $52.3 million, funded with a mixture of cash on hand of $43.4 million, the Company's common stock valued at approximately $4.4 million, and potential contingent consideration of $4.5 million. For the twelve months ended December 31, 2022, Cisco contributed sales of $32.1 million and operating income of $6.5 million. Goodwill for the transaction totaled approximately $30.5 million.

On March 1, 2022, the Company completed the acquisition of Drydon Equipment Inc. ("Drydon"), a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest. The acquisition of Drydon was funded with cash on hand and an issuance of DXP's common stock. The Company paid approximately $7.9 million, funded with a mixture of cash on hand of $4.9 million, the Company's common stock valued at approximately $441 thousand and contingent consideration of $2.6 million. A majority of Drydon's sales are project-based work. As a result, Drydon has been included in the IPS business segment. For the twelve months ended December 31, 2022, Drydon contributed sales of $5.6 million and operating income of $1.1 million. Goodwill for the transaction totaled approximately $5.3 million.

On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers Inc. ("Burlingame"), a provider of water and wastewater equipment in the industrial and municipal sectors. Burlingame is included within our SC business segment. The Company paid approximately $1.1 million in cash, the Company's common stock and contingent consideration. For the twelve months ended December 31, 2022, Burlingame contributed sales of $2.9 million and operating income of $604 thousand. Goodwill for the transaction totaled approximately $0.5 million.

On April 30, 2021, the Company completed the acquisition of Carter & Verplanck, LLC ("CVI"), a distributor of products and services exclusively focused on serving the water and wastewater markets. The acquisition of CVI was funded with cash on hand and an issuance of the Company's common stock. The Company paid approximately $49.7 million in cash and stock. A majority of CVI's sales are project-based work. As a result, CVI has been included in the IPS segment. Goodwill for the transaction totaled approximately $38.3 million.

On July 1, 2021, the Company completed the acquisition of Process Machinery, Inc. ("PMI"), a leading distributor of pumps, mechanical seals, tank, filters and related process equipment that focuses on serving the chemical, power, pulp & paper, mining, metals and food processing industries. PMI is included within our SC business segment. The Company paid approximately $9.6 million in cash, stock and contingent consideration. Goodwill for the transaction totaled approximately $5.3 million.

On September 20, 2021, the Company completed the acquisition of Premier Water LLC ("Premier"). Premier is a leading distributor and provider of products and services exclusively focused on serving the water and wastewater treatment markets primarily in North and South Carolina. Premier is included within our IPS business segment. The Company paid approximately $5.8 million in cash and stock. Goodwill for the transaction totaled approximately $1.4 million.

The following represents the pro forma unaudited revenue and net income as if each of the 2022 acquisitions had been included in the consolidated results of the Company for the full year periods ending December 31, 2022 and 2021, respectively. In addition, the pro forma results also assume that all of the 2021 acquisitions had been consummated as of January 1, 2020. The pro forma information is not necessarily indicative of future results:


Acquisitions
	Cisco Recognized as of Acquisition Date		Measurement Period Adjustments (1)		Cisco Recognized as of Acquisition Date (As Adjusted)		All Other		Total

Cash	$	4,352	$	—	$	4,352	$	743	$	5,095
Accounts receivable	5,173		—		5,173		5,952		11,125
Other receivables	—		—		—		52		52
Inventory	3,032		—		3,032		37		3,069
Other current assets	472		(339)		133		4		137
Non-compete agreements	878		(1)		877		504		1,381
Customer relationships	10,730		6,070		16,800		1,249		18,049
Property and equipment	1,187		—		1,187		127		1,314
Operating lease ROU asset	2,168		—		2,168		—		2,168
Other assets	—		—		—		2		2
Assets acquired	$	27,992	$	5,730	$	33,722	$	8,670	$	42,392
Short-term operating lease liability	(463)		—		(463)		—		(463)
Current liabilities assumed	(5,208)		—		(5,208)		(1,069)		(6,277)
Long-term operating lease liability	(1,705)		—		(1,705)		—		(1,705)
Deferred tax liability	(2,897)		(1,612)		(4,509)		(389)		(4,898)
Net assets acquired	$	17,719	$	4,118	$	21,837	$	7,212	$	29,049
Total Consideration	52,184		147		52,331		15,556		67,887
Goodwill	$	34,465	$	(3,971)	$	30,494	$	8,344	$	38,838

Of the $19.4 million of acquired intangible assets, $1.4 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, consistent with the terms of the agreements. In addition, $18.0 million was assigned to customer relationships and will be amortized over a period of 8 years. The goodwill total of $38.8 million is attributable primarily to expected synergies and the assembled workforce of each entity.

The Company recognized $0.6 million of acquisition related costs that were expensed in the current period. These costs are included in the consolidated income statement in Selling, General and Administrative costs. The Company also recognized an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination. Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity.

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed and working capital reviews are concluded. Adjustments may be made to the fair value of assets acquired and in some cases, total purchase price through the end of each measurement period; generally one year following the applicable acquisition date. Various adjustments to the fair value of assets acquired and in some cases total purchase price, have been made to certain business combinations since the respective dates of acquisition. During the twelve months ended December 31, 2022, we recorded measurement-period adjustments that decreased goodwill by approximately $4.0 million, primarily for changes in intangible assets acquired and deferred tax liability. The impact of these adjustments to the consolidated statement of operations were immaterial.

Goodwill recognized in connection with these acquisitions was attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions. Goodwill related to asset acquisitions is currently deductible for income tax purposes. Goodwill related to stock acquisitions is capitalized to the stock basis of the acquisition for income tax purposes and is deductible upon disposition of the stock.

The acquisitions of Burlingame, Drydon, Cisco and Sullivan included a contingent consideration arrangement that requires additional consideration to be paid based on the achievement of annual EBITDA targets over a one to three year period. The range of undiscounted amounts the Company may be required to pay under the contingent consideration agreement is between zero and $10.3 million. The combined fair value of the contingent consideration recognized on each acquisition date of $8.2 million was estimated by using a weighted probability of possible payments. That measure is based on significant Level 3 inputs not observable in the market. The significant assumption includes a discount rate of 7.8%. Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets. The fair value measurement includes earnings forecasts which are a Level 3 measurement as discussed in Note 5 - Fair Value of Financial Assets and Liabilities. The fair value of the contingent consideration is reviewed quarterly over the earn-out period to compare actual earnings before interest, taxes, depreciation and amortization ("EBITDA") achieved to the estimated EBITDA used in our forecasts.