Note 17 - Business Combinations

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

17.         Business Combinations 

See Note 5 - Goodwill and Other Intangible assets for information on 2022 Goodwill impairments.

Acquisition of Coax Fiber Solutions

Effective  March 7, 2022, GTS, an OIG subsidiary included in the Telecommunications segment, entered into a share purchase agreement to acquire Coax Fiber Solutions (CFS), a Georgia based GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and missile crews for telecommunications, power, gas, water, CCTV, ATMS, and traffic signal cable installation. GTS paid $0.8 million and issued 125,000 shares of restricted common stock to the Seller to purchase CFS with the stock valued at $146,000. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded opening balance items of $0.4 million of current assets, $0.5 million of fixed assets, $1.5 million of goodwill, and $1.5 million of liabilities as part of this transaction. As this was a stock acquisition, goodwill is not tax deductible. 

Front Line Power Construction, LLC

On November 17, 2021, Kurt A. Johnson, Jr. (the Active Seller) and Tidal Power Group LLC, a Texas limited liability company (the Passive Seller and together with the Active Seller, collectively, the Sellers), and Orbital Infrastructure Group, Inc., a Colorado corporation (Buyer or the Company) entered into a Membership Unit Purchase Agreement (the Purchase Agreement).  Under the Purchase Agreement, the Company purchased all of the issued and outstanding membership interests of Front Line Power Construction, LLC (FLP) from the Sellers for the purpose of expanding the Company’s market opportunities and creating synergies. FLP is a Houston-based full-service electrical infrastructure service company that provides construction, maintenance, and emergency response services. The Company has included the financial results of FLP in the consolidated financial statements from the date of acquisition and recorded $9.2 million of revenues and $98 thousand loss for the period from November 17, 2021 through December 31, 2021. The transaction costs associated with the acquisition were approximately $230 thousand and were recorded in general and administrative expense. The acquisition date fair value of the consideration transferred for FLP was approximately $219.2 million, which consisted of the following (in thousands):

Cash	$	101,536
Working capital adjustment payable		14,092
Fair value of unsecured promissory notes		86,001
Fair value of common stock issued to Sellers		17,612
Fair value of purchase consideration	$	219,241

The cash consideration paid by the Buyer includes cash paid to the Sellers of $101.5 million, cash paid for the Sellers indebtedness of $1.0 million, and cash paid for the Sellers transaction expenses of $4.4 million. The Company funded the FLP acquisition through the issuance of a $105 million term loan on November 17, 2021, with a maturity date of November 21, 2026 (see Note 7).

The Buyer issued two unsecured promissory notes to the Sellers of FLP, in the aggregate principal amount outstanding of $86.7 million (the Seller Notes) and an estimated fair value of $86.0 million. The Seller Notes as amended are due in full, including any accrued and unpaid interest, on May 31, 2023 and accrue interest at a rate of 6% per annum. The Sellers also received a total of 11,622,018 shares of restricted common stock of the Buyer. The fair value of the unsecured promissory notes and the Buyer equity issued to Sellers was estimated using a market approach. 

The Company accounted for the acquisition as a business combination in accordance with ASC Topic 805, Business Combinations.  The Company applied the acquisition method, which requires the assets acquired and liabilities assumed be recorded at fair value with limited exceptions. The following table summarizes the fair values of assets and preliminary purchase price allocation for assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Cash and cash equivalents	$	6,779
Trade accounts receivable		15,726
Contract assets		2,092
Prepaid expenses and other current assets		481
Property and equipment		18,730
Other long-term assets		531
Indefinite lived intangible assets		15,027
Definite lived intangible assets		93,211
Accounts payable		(620	)
Contract liabilities		(120	)
Accrued expenses		(2,747	)
Net assets acquired		149,090
Goodwill		70,151
Purchase price allocation	$	219,241

The excess of the fair value of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce, synergies, and expanded market opportunities, for which there is no basis for U.S. income tax purposes.  Goodwill amounts are not amortized, but are rather tested for impairment at least annually during the second quarter.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands):

	Fair Value		Useful Life
Customer relationships	$	84,012	15 years
Backlog		9,186	1 year
Tradename		15,027	Indefinite
Software		13	3 years
Total intangible assets	$	108,238

Full Moon Telecom, LLC

Effective October 22, 2021, the Company's subsidiary, Gibson Technical Services, Inc. ("GTS") entered into and closed upon a Purchase Agreement by and among the Company and the owners of Full Moon Telecom, LLC (“Full Moon”). Full Moon is a Florida-based privately-owned telecommunications service provider that offers an extensive array of wireless service capabilities and experience including Layer 2/Layer 3 Transport, Radio Access Network (“RAN”) Integration, test and turn-up of Small Cell systems and Integration/Commissioning of Distributed Antenna (“DAS”) systems. 

The acquisition adds revenues and was accretive to earnings for GTS and OIG in its first fiscal quarter with the Company. Full Moon is a wholly-owned subsidiary of GTS, expanding GTS’s service offerings to its customers.

Full Moon’s additional capabilities include providing site surveys, regulatory support, project management, continuous wave testing, scanner walks, optimization/data collection and E911 data validation and testing.  These additional skill sets combined with Full Moon’s RAN integration and DAS commissioning efforts have allowed for an expanded service offering and turnkey approach to ensuring the on time delivery and quality on end-to-end solutions to wireless customers. Factors that contribute to the Company’s goodwill in Full Moon Telecom, LLC, include the highly skilled and technically competent workforce at Full Moon. This workforce when combined with Gibson Technical Services and IMMCO provide synergies that increase the unique portfolio of services provided to their customers and further penetrate the telecommunications market.

Subject to the terms and conditions set forth in the Purchase Agreement, the purchase consideration for 100% of the ownership of Full Moon was $2.0 million, with the consideration structured as follows:

$1.2 million in cash paid at closing less the amount needed to pay certain outstanding debt of Full Moon; and plus or minus the amount needed for estimated closing working capital to equal a 2 to 1 ratio; and

227,974 shares of restricted common stock issued to the Full Moon owners with an aggregate fair value of $368 thousand based upon a per share value of $1.614. 

The Purchase Agreement provided for the adjustment of the selling price to adjust the final closing working capital at the acquisition date as a post-closing adjustment for net working capital above or below a 2-1 ratio for the closing working capital ratio estimated on the acquisition date and to be finalized within 45 days after the closing date of October 22, 2021. This was calculated to be an additional $381 thousand of cash consideration. 

The Purchase Agreement contains various customary representations, warranties and covenants.

The Company accounted for the acquisition as a business combination in accordance with ASC Topic 805, Business Combinations.  The Company applied the acquisition method, which requires the assets acquired and liabilities assumed be recorded at fair value with limited exceptions. The following table summarizes the fair values and preliminary purchase of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Cash and cash equivalents	$	747
Trade accounts receivable		297
Property and equipment		124
Intangible, Tradename (indefinite)		159
Intangible, Customer relationships (10-year life)		210
Accounts payable		(197	)
Accrued expenses and other liabilities		(182	)
Net assets acquired		1,158
Goodwill		826
Purchase price allocation	$	1,984

The Company has included the financial results of Full Moon Telecom, LLC in the consolidated financial statements from the date of acquisition and recorded $1.0 million of revenues and $0.3 million of earnings for the period from October 22, 2021 through December 31, 2021.

IMMCO, Inc.

Effective  July 28, 2021, the Company entered into a share purchase agreement to acquire IMMCO, Inc., an Atlanta-based telecommunications company providing enterprise solutions to the cable and telecommunications industries since 1992. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), with the shareholders of IMMCO (the "Seller"). Orbital Infrastructure Group paid $16 million and issued 874,317 shares of restricted common stock issued to the Seller ($2.5 million estimated fair value as of  July 28, 2021) plus a $0.6 million working capital adjustment for a combined total of $19.1 million. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded $11.0 million of goodwill as part of this transaction and all of this goodwill is deductible for tax purposes. Factors that contribute to the Company’s goodwill at IMMCO include the significant synergies added to the Company’s Telecommunications segment by expanding the depth and breadth of the customer solutions provided. Acquisition-related expenses incurred during the year ended December 31, 2021 for the IMMCO acquisitions were approximately $0.6 million before taxes, which were recognized within the Selling, general and administrative expense line of the Condensed Consolidated Statements of Operations.

The purchase consideration was as follows (in thousands):

Purchase Consideration
Cash payment	$	16,597
Fair value of common stock issued to Sellers		2,024
Total	$	18,621

The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition (in thousands):

Cash and cash equivalents	$	1,634
Trade accounts receivable, net		1,254
Contract assets		1,001
Prepaid expenses and other current assets		551
Property and equipment		760
Intangible, customer relationships		3,800
Intangible, trade name		1,162
Intangible, technology know how		1,459
Other long-term assets		76
Deferred tax liability		(2,090	)
Liabilities assumed		(2,100	)
Net assets acquired		7,507
Goodwill		11,114
Purchase price allocation	$	18,621

The Company has included the financial results of IMMCO, Inc.in the consolidated financial statements from the date of acquisition and recorded $3.7 million of revenues and $2.8 million of net income for the period from July 28th, 2021 through December 31, 2021.The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the net income of IMMCO, Inc. 

Gibson Technical Services, Inc.

Effective  April 13, 2021, the Company entered into a share purchase agreement to acquire Gibson Technical Services, an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), dated as of  April 13, 2021, between Orbital Infrastructure Group and the shareholders of GTS (the "Seller"). Orbital Infrastructure Group paid $22 million and issued 5,929,267 shares of restricted common stock issued to the Seller ($16.9 million estimated fair value as of  April 13, 2021) for a combined total of $38.9 million. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded $12.3 million of goodwill as part of this transaction and all of this goodwill is deductible for tax purposes. Factors that contributed to the Company’s goodwill in Gibson Technical Services included GTS’s sterling reputation within the telecommunications industry which when combined with the Company’s resources, provided synergies that helped OIG penetrate the telecommunications market. Acquisition-related expenses incurred during the year ended December 31, 2021 were approximately $0.9 million before tax which were recognized within the Selling, general and administrative expense line of the Condensed Consolidated Statements of Operations.

The purchase consideration was as follows (in thousands):

Cash payment	$	22,000
Fair value of common stock issued to Sellers		16,932
Total	$	38,932

The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition (in thousands).

Cash and cash equivalents	$	610
Trade accounts receivable		7,871
Contract assets		1,686
Contingent receivable		1,424
Prepaid expenses and other current assets		408
Property and equipment		3,795
Right of use assets - Operating leases		860
Intangible, customer relationships (10-year life)		16,075
Intangible, tradename (indefinite life)		6,388
Intangible, non-compete agreements (5-year life)		385
Other long-term assets		123
Deferred tax liability		(9,048	)
Liabilities assumed		(3,984	)
Net assets acquired		26,593
Goodwill		12,339
Purchase price allocation	$	38,932

The Company has included the financial results of Gibson Technical Services, Inc.in the consolidated financial statements from the date of acquisition and recorded $23.1 million of revenues and $9.2 million of earnings for the period from April 13, 2021 through December 31, 2021. The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the total earnings of GTS. 

The table below summarizes the unaudited condensed pro forma information of the results of operations of Orbital Infrastructure Group, Inc. for the year ended December 31, 2021 as though the Company's 2021 acquisitions had been completed as of January 1, 2020 (in thousands):

	(Unaudited)
	For the Years Ended December 31,
	2021
Gross revenue	$	158,625
Loss from continuing operations, net of income taxes	$	(69,671	)