Acquisitions

12 Months Ended

Dec. 31, 2021

Acquisitions

Acquisitions

3. Acquisitions

Applied Cryo Technologies Acquisition

On November 22, 2021, the Company acquired 100% of the outstanding shares of Applied Cryo Technologies, Inc. (“Applied Cryo”). Applied Cryo is a manufacturer of engineered equipment servicing multiple applications, including cryogenic trailers and mobile storage equipment for the oil and gas markets and equipment for the distribution of liquified hydrogen, oxygen, argon, nitrogen and other cryogenic gases.

The fair value of consideration paid by the Company in connection with the Applied Cryo acquisition was as follows (in thousands):

Cash	$	98,559
Plug Power Stock		46,697
Contingent consideration		14,000
Settlement of preexisting relationship		2,837
Total consideration	$	162,093

Included in the $98.6 million of cash consideration above, $10.0 million is consideration held by our paying agent in connection with this acquisition reported as restricted cash, with a corresponding accrued liability as of December 31, 2021 on the Company’s consolidated balance sheet.

The contingent consideration represents the estimated fair value associated with earn-out payments of  up to $30.0 million that the sellers are eligible to receive in the form of cash or shares of the Company’s Common Stock (at the Company’s election). Of the total earnout consideration, $15.0 million is related to the achievement of certain production targets during the period of January 1, 2022 through July 1, 2024, and $15.0 million is associated with the achievement of certain cost targets during the same period.

The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Cash	$	1,180
Accounts receivable		4,123
Inventory		24,655
Prepaid expenses and other assets		1,506
Property, plant and equipment		4,515
Right of use asset		2,788
Identifiable intangible assets		70,484
Lease liability		(2,672)
Accounts payable, accrued expenses and other liabilities		(8,206)
Deferred tax liability		(16,541)
Deferred revenue		(12,990)
Total net assets acquired, excluding goodwill	$	68,842

Identifiable intangible assets consisted of developed technology, non-compete agreements, backlog, tradename, and customer relationships.

The fair value of the developed technology totaling $26.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The application of the relief from royalty approach involves estimating the value of an intangible asset by quantifying the present value of the stream of market derived royalty payments that the owner of the intangible asset is exempted or ‘relieved’ from paying. The fair value of the tradename totaling $13.7 million was calculated using the relief from royalty approach. The fair value of the acquired customer relationships totaling $26.6 million was calculated using the multi-period excess earnings method (“MPEEM”) approach which is a variant of the income approach. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of

generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. Therefore, to determine cash flow from the exploitation of customer relationships, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow. The fair value of the customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements and backlog was $3.9 million.

In addition to identifiable intangible assets, the fair value of acquired work in process and finished goods inventory was estimated based on the estimated selling price less costs to be incurred and a market participant profit rate.

Included in the purchase consideration are four contingent earn-out payments (as described above): the first production earn-out, second production earn-out, the first cost earn-out, and the second cost earn-out. Due to the nature of the earn-outs, as outlined in the purchase agreement, a scenario based method (“SBM”) was used to value these contingent payments as the payments are milestone based in nature. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $14.0 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was remeasured as of December 31, 2021, and the change was immaterial to the consolidated statement of operations for the year ended December 31, 2021.  

Included in Applied Cryo’s net assets acquired are net deferred tax liabilities of $16.5 million. In connection with the acquisition of these net deferred tax liabilities, the Company reduced its valuation allowance by $16.5 million and recognized a tax benefit $16.5 million during the year ended December 31, 2021.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Applied Cryo acquisition was calculated as follows (in thousands):

Consideration paid	$	162,093
Less: net assets acquired		(68,842)
Total goodwill recognized	$	93,251

Frames Holding B.V. Acquisition

On December 9, 2021, the Company acquired 100% of the outstanding shares of Frames Holding B.V. (“Frames”). Frames, a leader in turnkey systems integration for the energy section, designs, builds, and delivers processing equipment, separation technologies, flow control and safeguarding systems, renewable energy and water solutions.

The fair value of consideration paid by the Company in connection with the Frames acquisition was as follows (in thousands):

Cash	$	94,541
Contingent consideration		29,057
Settlement of preexisting relationship		4,263
Total consideration	$	127,861

The contingent consideration represents the estimated fair value associated with earn-out payments of  up to €30.0 million that the sellers are eligible to receive in the form of cash or shares of the Company’s Common Stock. The contingent consideration is related to the achievement of certain production targets during the four years following the closing date and is payable in two equal installments. The first target is achieved when the Company has shipped or has made ready for shipment 100MW of containerized electrolyzer systems, or non-containerized electrolyzer systems or arrays. The remaining targets are achieved when the Company has shipped or has made ready for shipment an additional 50MW of containerized electrolyzer systems, or non-containerized electrolyzer systems or arrays, with a maximum of additional 150MW.

The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):

Cash	$	45,394
Accounts receivable		17,910
Inventory		34
Prepaid expenses and other assets		3,652
Property, plant and equipment		709
Right of use asset		1,937
Contract asset		9,960
Identifiable intangible assets		50,478
Lease liability		(1,937)
Contract liability		(22,737)
Accounts payable, accrued expenses and other liabilities		(18,465)
Deferred tax liability		(4,105)
Provision for loss contracts		(2,636)
Warranty provisions		(7,566)
Total net assets acquired, excluding goodwill	$	72,628

Identifiable intangible assets consisted of developed technology, non-compete agreements, backlog, tradename, and customer relationships.

The fair value of the developed technology totaling $5.3 million was calculated using the relief from royalty approach which is a variant of the income approach. The fair value of the tradename totaling $11.6 million was calculated using the relief from royalty approach. The fair value of the acquired customer relationships totaling $27.2 million was calculated using the MPEEM approach which is a variant of the income approach. The fair value of the customer relationships was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired customer relationships. The fair value of the non-compete agreements totaling $4.9 million was calculated using the with and without income approach. The fair value of the backlog was $1.4 million.

Included in the purchase consideration are four contingent earn-out payments (as described above). Due to the nature of the earn-outs, as outlined in the purchase agreement, a scenario based analysis using the probability of achieving the milestone expectations was used to determine the fair value of the contingent consideration. These fair value measurements were based on unobservable inputs and are considered to be level 3 financial instruments.

In connection with the acquisition, the Company recorded on its consolidated balance sheet a liability of $29.1 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was remeasured as of December 31, 2021, and the change was immaterial to the consolidated statement of operations for the year ended December 31, 2021.

Included in Frames’ net assets acquired are net deferred tax liabilities of $4.1 million.

The goodwill was primarily attributed to the value of synergies created with the Company’s current and future offerings and the value of the assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes. Goodwill associated with the Frames acquisition was calculated as follows (in thousands):

Consideration paid	$	127,861
Less: net assets acquired		(72,628)
Total goodwill recognized	$	55,233

The above estimates are preliminary in nature and subject to adjustments. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectible. We have not identified any material unrecorded pre-acquisition contingencies where the related asset or

liability, or an impairment is probable and the amount can be reasonably estimated. Purchased goodwill is not expected to be deductible for tax purposes.

Neither the Applied Cryo Technologies acquisition nor the Frames acquisition was material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.