Acquisitions

THEMIS COMPUTER ACQUISITION

On December 21, 2017, the Company and Thunderbird Merger Sub, Inc., a newly formed, wholly-owned subsidiary of the Company (the “Merger Sub”), entered into a Merger Agreement (the “Merger Agreement”) with Ceres Systems (“Ceres”), the holding company that owned Themis Computer (“Themis”, and together with Ceres, collectively the “Acquired Company”). On February 1, 2018, the Company closed the transaction and the Merger Sub merged with and into Ceres with Ceres continuing as the surviving company and a wholly-owned subsidiary of Mercury (the “Merger”). By operation of the Merger, the Company acquired both Ceres and its wholly-owned subsidiary, Themis.

Based in Fremont, California, Themis is a leading designer, manufacturer and integrator of commercial, SWaP-optimized rugged servers, computers and storage systems for U.S. and international markets. Under the terms of the Merger Agreement, the merger consideration (including payments with respect to outstanding stock options) consisted of an all cash purchase price of approximately $180,000. The merger consideration is subject to post-closing adjustments based on a determination of closing net working capital, transaction expenses and net debt (all as defined in the Merger Agreement). The Company funded the acquisition with borrowings obtained under its existing revolving credit facility ("the Revolver").

On July 13, 2018, the Company and former owners of Ceres agreed to post-closing adjustments totaling $700, which will decrease the Company's net purchase price in the first quarter of fiscal 2019.

The following table presents the net purchase price and the preliminary fair values of the assets and liabilities of the Acquired Company on a preliminary basis:



	Amounts
Consideration transferred
Cash paid at closing	$	187,089
Working capital and net debt adjustment	(574		)
Less cash acquired	(6,810		)
Net purchase price	$	179,705

Estimated fair value of tangible assets acquired and liabilities assumed
Cash	$	6,810
Accounts receivable	7,713
Inventory	7,333
Fixed assets	479
Other current and non-current assets	2,896
Accounts payable	(3,287		)
Accrued expenses	(4,672		)
Other current and non-current liabilities	(1,210		)
Deferred tax liability	(14,115		)
Estimated fair value of net tangible assets acquired	1,947
Estimated fair value of identifiable intangible assets	71,720
Estimated goodwill	112,848
Estimated fair value of net assets acquired	186,515
Less cash acquired	(6,810		)
Net purchase price	$	179,705

The amounts above represent the preliminary fair value estimates as of June 30, 2018 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates. The preliminary identifiable intangible asset estimates include customer relationships of $52,600 with a useful life of 12.5 years, completed technology of $17,150 with a useful life of 9.5 years and backlog of $1,970 with a useful life of 1 year. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of $112,848 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The goodwill from this acquisition is reported under the Mercury Defense Systems ("MDS") reporting unit and is not tax deductible.

The revenues and income before income taxes from Themis included in the Company's consolidated results for the fiscal year ended June 30, 2018 were $27,190 and $1,325, respectively.

Pro Forma Financial Information

The following table summarizes the supplemental statements of operations information on an unaudited pro forma basis, excluding the pro forma impact of the RTL, Delta and CES acquisitions, as if the Merger had occurred on July 1, 2016. The Company has not furnished pro forma financial information relating to RTL, Delta and CES because such information is not material to the Company's financial results.



	Year Ended June 30,
	2018		2017
Pro forma net revenues	$	530,340	$	455,002
Pro forma net income	$	38,584	$	12,248
Basic pro forma net earnings per share	$	0.83	$	0.29
Diluted pro forma net earnings per share	$	0.81	$	0.28

RICHLAND TECHNOLOGIES ACQUISITION

On July 3, 2017, the Company entered into a membership interest purchase agreement with RTL, pursuant to which, the Company acquired RTL on a cash-free, debt-free basis for a total purchase price of $5,798. RTL specializes in safety-critical and high integrity systems, software and hardware development as well as safety-certification services for mission-critical applications. The Company recognized primarily intangible assets including customer relationships, completed technology and goodwill based on its purchase price allocation. The Company has not furnished pro forma financial information relating to RTL because such information is not material to the Company's financial results.

DELTA ACQUISITION

On April 3, 2017, the Company entered into a membership interest purchase agreement with Delta, pursuant to which, the Company acquired Delta on a cash-free, debt-free basis for a total purchase price of $40,500, subject to net working capital and net debt adjustments. Delta is a designer and manufacturer of high-value RF, microwave and millimeter wave sub-assemblies and components for the military, aerospace and space markets. The acquisition and transaction related expenses were funded with cash on hand.

The following table presents the net purchase price and the fair values of the assets and liabilities of Delta:



	Amounts
Consideration transferred
Cash paid at closing	$	40,500
Net purchase price	$	40,500

Fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	957
Inventory	4,452
Fixed assets	1,918
Other current and non-current assets	77
Current liabilities	(2,055		)
Fair value of net tangible assets acquired	5,349
Fair value of identifiable intangible assets	17,000
Goodwill	18,151
Fair value of net assets acquired	40,500
Net purchase price	$	40,500

On April 2, 2018, the measurement period for Delta expired. The identifiable intangible assets include customer relationships of $8,000 with a useful life of 9 years, completed technology of $5,900 with a useful life of 7 years and backlog of $3,100 with a useful life of 2 years.

The goodwill of $18,151 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The Delta acquisition expands the scale and breadth of the Company’s RF, microwave and millimeter wave capabilities, provides highly complementary program portfolio in missiles and munitions, deepens market penetration in core radar, electronic warfare ("EW"), and precision-guided munitions markets, and opens new growth opportunities in space launch, GPS, satellite communications and datalinks. The goodwill from this acquisition is reported under the Advanced Microelectronic Solutions (“AMS”) reporting unit.

The Company and the shareholders of Delta agreed to treat the acquisition of Delta as an asset purchase for tax purposes by filing the required election forms under IRC Section 338(h)(10). The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes. As of June 30, 2018, the Company had $16,991 of goodwill deductible for tax purposes. The Company has not furnished pro forma financial information relating to Delta because such information is not material to the Company's financial results.

CES ACQUISITION

On November 4, 2016, the Company and the shareholders of CES entered into a Stock Purchase Agreement, pursuant to which, Mercury acquired CES for a total purchase price of $39,123, subject to net working capital and net debt adjustments. The acquisition and associated transaction expenses were funded with cash on hand. Based in Geneva, Switzerland, CES is a leading provider of embedded solutions for military and aerospace mission-critical computing applications. CES specializes in the design, development and manufacture of safety-certifiable product and subsystems solutions including: primary flight control units, flight test computers, mission computers, command and control processors, graphics and video processing and avionics-certified Ethernet and IO. CES products and solutions are used on platforms such as aerial refueling tankers and multi-mission aircraft, as well as the several types of unmanned platforms.

The following table presents the net purchase price and the fair values of the assets and liabilities of CES:



	Amounts
Consideration transferred
Cash paid at closing	$	39,123
Working capital adjustment	(330		)
Net purchase price	$	38,793

Fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	2,698
Inventory	8,950
Fixed assets	1,480
Other current and non-current assets	748
Current liabilities	(3,154		)
Non-current liabilities	(6,140		)
Deferred tax liabilities	(1,148		)
Fair value of net tangible assets acquired	3,434
Fair value of identifiable intangible assets	14,722
Goodwill	20,637
Fair value of net assets acquired	38,793
Net purchase price	$	38,793

On November 4, 2017, the measurement period for CES expired. The identifiable intangible assets include customer relationships of $9,060 with a useful life of 9 years and completed technology of $5,662 with a useful life of 7 years.

The goodwill of $20,637 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. CES provides the Company with capabilities in mission computing, safety-critical avionics and platform management that are in demand from its customers. These new capabilities will also substantially expand Mercury’s addressable market into commercial aerospace, defense platform management, C4I and mission computing markets that are aligned to Mercury’s existing market focus. The acquisition is directly aligned with the Company's strategy of expanding its capabilities, services and offerings along the sensor processing chain. The goodwill from this acquisition is reported under the Sensor and Mission Processing (“SMP”) reporting unit. The Company has not furnished pro forma financial information relating to CES because such information is not material to the Company's financial results.