Business Combination

9 Months Ended

Sep. 30, 2023

Business Combination

Business Combination

Note 3 — Business Combination

Epiluvac

On January 31, 2023, the Company acquired Epiluvac AB, a privately held manufacturer of chemical vapor deposition (CVD) epitaxy systems that enable silicon carbide (SiC) applications in the electric vehicle market. This acquisition is expected to accelerate penetration into the emerging, high-growth SiC equipment market. The results of Epiluvac’s operations have been included in the consolidated financial statements since the date of acquisition.

The acquisition date fair value of the consideration totaled $56.4 million, net of cash acquired, which consisted of the following:

	Acquisition Date
	(January 31, 2023)
	(in thousands)
Cash paid, net of cash acquired	$	30,373
Contingent consideration		26,055
Acquisition date fair value	$	56,428

The purchase agreement included performance milestones that, if achieved, could trigger additional payments to the original selling shareholders. The contingent arrangements include payments up to $15.0 million based on the timely completion of certain defined milestones tied to strategic targets, and up to $20.0 million based on the percentage of orders received during the defined Earn-out period. The Earn-out period is four years after the closing date of the acquisition, or earlier if certain conditions are met.

The Company estimated the fair value of the contingent consideration by assigning probabilities and discount factors to each of the various defined performance milestones, while using a Monte-Carlo simulation model to determine the most likely outcome for payments to be based on value of orders received. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined in ASC 820. The discount rate used was 5.54% for the strategic target and order value related contingent payments. The rate was determined based on the nature of the milestone, the risks and uncertainties involved and the time period until the milestone was measured. The determination of the various probabilities and discount factors is highly subjective, requires significant judgment and is influenced by a number of factors, including the adoption of SiC technology. The aggregate fair value of the contingent consideration arrangement at the acquisition date was $26.1 million. While the use of SiC is expected to grow in the near future, it is difficult to predict the rate at which SiC will be adopted by the market and thus would impact the sales of our equipment.

The Company updates its estimate of fair value of the contingent consideration each reporting period, utilizing the same methodologies described above. During the three and nine months ended September 30, 2023, the Company recognized approximately $0.8 million and $1.1 million of additional contingent consideration, respectively, included within “Other operating expense (income) net” in the Consolidated Statement of Operations. Additionally, during the three months ended September 30, 2023, the Company paid $2.5 million to the original selling shareholders in recognition of a performance milestone having been successfully completed. Total contingent consideration liability as of September 30, 2023 was $24.7 million, of which $7.3 million was included in “Accrued expenses and other current liabilities” and $17.4 million was included within “Other liabilities” on the Consolidated Balance Sheet.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

	Acquisition Date
	(January 31, 2023)
	(in thousands)
Accounts receivable	$	247
Inventories		391
Prepaid expense and other current assets		381
Property, plant, and equipment		736
Intangible assets		28,540
Total identifiable assets acquired		30,295
Accounts payable and accrued expenses		656
Customer deposits and deferred revenue		429
Deferred income taxes		5,723
Other liabilities		80
Total liabilities assumed		6,888
Net identifiable assets acquired		23,407
Goodwill		33,021
Net assets acquired	$	56,428

The gross contractual value of the acquired accounts receivable is the amount expected to be collected by the Company, and therefore is also considered its fair value. Goodwill generated from the acquisition is primarily attributed to expected synergies from future growth and strategic advantages provided through the expansion of product offerings as well as assembled workforce and is not expected to be deductible for income tax purposes.

The classes of intangible assets acquired, and the estimated useful life of each class is presented in the table below:

	Acquisition Date
	(January 31, 2023)
	Amount		Useful life
	(in thousands)
Technology	$	28,020	15	years
Customer relationships		460	5	years
Backlog		60	1.5	years
Intangible assets acquired	$	28,540

The Company determined the estimated fair value of the identifiable intangible assets based on various factors including cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in determining the purchase price allocation.

For the three and nine months ended September 30, 2023, the Company incurred approximately $0.1 million and $1.0 million, respectively, of acquisition related costs, included within “Selling, general, and administrative” in the Consolidated Statement of Operations. Epiluvac’s results of operations were immaterial to the Company’s Consolidated Statement of Operations for the three and nine months ended September 30, 2023. Additionally, the pro forma Consolidated Statement of Operations as if Epiluvac had been acquired as of January 1, 2022 would not be materially different from the Company’s actual Consolidated Statement of Operations for the three and nine months ended September 30, 2023 or 2022.