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Business Combinations
12 Months Ended
Dec. 31, 2022
Business Combinations  
Business Combinations

Note 4—Business Combinations

Acquisition of PLH

On August 1, 2022, we acquired PLH Group, Inc. (“PLH”) in an all-cash transaction valued at approximately $438.3 million, net of cash acquired (the “PLH acquisition”). PLH is a utility-focused specialty construction company with concentrations in growing

regions of the United States. The transaction directly aligns with our strategic focus on higher-growth, higher margin markets and expands our capabilities in the power delivery, communications, and gas utilities markets. The total purchase price was funded through a combination of borrowings under our term loan facility and borrowings under our revolving credit facility.

The table below represents the purchase consideration and the preliminary estimated fair values of the assets acquired and liabilities assumed from PLH as of the acquisition date. Significant changes since our initial estimates reported in the third quarter of 2022 primarily relate to $18.4 million of project adjustments increasing the fair value of contract liabilities acquired, a $13.7 million reduction in the fair value of acquired intangibles, a $6.0 million reduction in deferred tax assets and a $4.9 million reduction in the fair value of fixed assets acquired. As a result of this and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill increased by approximately $49.2 million since the third quarter of 2022. The final determination of fair value for certain assets and liabilities is subject to further change and will be completed as soon as the information necessary to complete the analysis is obtained. These amounts, which may differ materially from these preliminary estimates, will continue to be refined during the one-year measurement period, as defined in ASC 805, which ends during the third quarter of 2023. The primary areas of the preliminary estimates that are not yet finalized relate to property, plant and equipment, contract assets and liabilities, deferred income taxes, uncertain tax positions, the fair value of certain contractual obligations, and accounts receivable. Consideration amounts are also subject to changes resulting from the finalization of post-closing working capital adjustments (inclusive of cash).

Purchase consideration (in thousands)

Total purchase consideration

$

481,493

Less cash and restricted cash acquired

(43,152)

Net cash paid

$

438,341

Identifiable assets acquired and liabilities assumed (in thousands)

Cash, cash equivalents and restricted cash

$

43,152

Accounts receivable

74,918

Contract assets

75,359

Prepaid expenses and other current assets

13,590

Property, plant and equipment

58,587

Operating lease assets

16,340

Intangible assets:

 

Customer relationships

77,300

Tradename

11,600

Other long-term assets

 

6,466

Accounts payable and accrued liabilities

(103,015)

Contract liabilities

(43,853)

Long-term debt (including current portion)

(3,313)

Noncurrent operating lease liabilities, net of current

(12,004)

Deferred tax liability

(5,234)

Other long-term liabilities

(4,136)

Total identifiable net assets

205,757

Goodwill

275,736

Total purchase consideration

$

481,493

We incorporated the majority of the PLH operations into our Utilities segment with the remaining operations going to our Energy/Renewables and Pipeline segments. Goodwill associated with the PLH acquisition principally consists of expected benefits from the expansion of our services into the utilities market and the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce. Based on the current tax treatment, goodwill is not expected to be deductible for income tax purposes.

The intangible assets acquired with the PLH acquisition consisted of Customer relationships of $77.3 million and Tradenames of $11.6 million. The Customer relationships and Tradenames are being amortized over a weighted average useful life of

15 years and 1.9 years, respectively. For the period from August 1, 2022, the acquisition date, to December 31, 2022, PLH contributed revenue of $367.9 million and gross profit of $38.2 million.

Acquisition costs related to PLH were $15.7 million for the year ended December 31, 2022, and are included in “Transaction and related costs” on the Condensed Consolidated Statements of Income. Such costs primarily consisted of professional fees paid to advisors.

Acquisition of B Comm, LLC

On June 8, 2022 we acquired B Comm, LLC (“B Comm”) in an all-cash transaction valued at approximately $36.0 million, net of cash acquired. B Comm is a provider of maintenance, repair, upgrade and installation services to the communications markets. The transaction directly aligns with the strategy to grow our MSA revenue base and expand our communication services within the utility markets. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date consisted of $4.8 million of fixed assets, $13.2 million of working capital, $10.2 million of intangible assets and $10.1 million of goodwill. The final determination of fair value for the assets acquired and liabilities assumed is subject to further change and will be completed as soon as possible, but no later than one year from the acquisition date. The preliminary estimates that are not yet finalized relate to accrued liabilities. We incorporated the operations of B Comm into our Utilities segment. Goodwill associated with the B Comm acquisition principally consists of the value of the assembled workforce. Based on the current tax treatment, goodwill is expected to be deductible for income tax purposes over a 15-year period.

Acquisition of Alberta Screw Piles, Ltd.

On March 1, 2022, we acquired ASP for a cash price of approximately $4.1 million. In addition, the sellers could receive a contingent earnout payment of up to $3.2 million based on achievement of certain operating targets over the one-year periods ending March 1, 2023 and March 1, 2024, respectively. The estimated fair value of the contingent consideration on the acquisition date was $2.8 million. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date consisted of $2.6 million of fixed assets and working capital, and $4.3 million of goodwill. The final determination of fair value for the assets acquired and liabilities assumed is subject to further change and will be completed as soon as possible, but no later than one year from the acquisition date. The preliminary estimates that are not yet finalized relate to accounts receivable and accrued liabilities. We incorporated the operations of ASP into our Energy/Renewables segment. Goodwill associated with the ASP acquisition principally consists of the value of the assembled workforce. Based on the current Canadian tax treatment, goodwill is expected to be deductible at a rate of 5% per year.

Acquisition of Future Infrastructure Holdings, LLC.

On January 15, 2021, we acquired Future Infrastructure Holdings, LLC (“FIH”) for approximately $604.7 million, net of cash acquired. FIH is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the communications, regulated gas utility, and infrastructure markets. FIH furthers our strategic plan to expand our service lines, enter new markets, and grow our MSA revenue base. The transaction directly aligns with our strategy to grow in large, higher growth, higher margin markets, and expands our utility services capabilities.

During the fourth quarter of 2021, we finalized the estimate of fair values of the assets acquired and liabilities assumed of FIH. The tables below represent the purchase consideration and estimated fair values of the assets acquired and liabilities assumed. Significant changes since our initial estimates reported in the first quarter of 2021 primarily relate to a $6.5 million reduction in the purchase consideration for the final working capital true-up and a $4.0 million increase in the final valuation of intangible assets. As a result of these and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill decreased by approximately $7.2 million since the first quarter of 2021. Adjustments recorded to the estimated fair values of the assets acquired and liabilities assumed are recognized in the period in which the adjustments are determined and calculated as if the accounting had been completed as of the acquisition date.

Purchase consideration (in thousands)

Total purchase consideration

$

615,249

Less cash and restricted cash acquired

(10,525)

Net cash paid

$

604,724

Identifiable assets acquired and liabilities assumed (in thousands)

Cash and cash equivalents

$

10,525

Accounts receivable

54,337

Contract assets

32,343

Prepaid expenses and other current assets

483

Property, plant and equipment

56,128

Operating lease assets

13,105

Intangible assets:

 

Customer relationships

122,000

Tradename

4,400

Other long-term assets

 

6,976

Accounts payable and accrued liabilities

(29,838)

Contract liabilities

(2,256)

Long-term debt (including current portion)

(959)

Noncurrent operating lease liabilities, net of current

(10,975)

Other long-term liabilities

(7,581)

Total identifiable net assets

248,688

Goodwill

366,561

Total purchase consideration

$

615,249

We incorporated the operations of FIH into our Utilities segment. Goodwill associated with the FIH acquisition principally consists of expected benefits from the expansion of our services into the communications market and the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce. Based on the current tax treatment, goodwill is expected to be deductible for income tax purposes over a 15-year period.

The intangible assets acquired with the FIH acquisition consisted of Customer relationships of $122.0 million and Tradenames of $4.4 million. The Customer relationships and Tradenames are being amortized over a weighted average useful life of 19 years and one year, respectively.

For the period from January 15, 2021, the acquisition date, to December 31, 2021, FIH contributed revenue of $266.6 million and gross profit of $43.6 million.

Acquisition related costs were $14.6 million for the year ended December 31, 2021, and are included in “Transaction and related costs” on the Consolidated Statements of Income. Such costs primarily consisted of professional fees paid to advisors and the expense associated with the purchase of Primoris common stock by certain employees of FIH at a 15 percent discount.

Supplemental Unaudited Pro Forma Information for the twelve months ended December 31, 2022 and 2021

The following pro forma information for the twelve months ended December 31, 2022 and 2021 presents our results of operations as if the acquisition of PLH had occurred at the beginning of 2021 and FIH had occurred at the beginning of 2020. The supplemental pro forma information has been adjusted to include:

the pro forma impact of amortization of intangible assets and depreciation of property, plant and equipment;

the pro forma impact of nonrecurring transaction and related costs primarily consisting of advisor fees and transaction bonuses payments to select PLH employees directly attributable to the acquisition; and

the pro forma tax effect of both income before income taxes, and the pro forma adjustments, calculated using an effective tax rate of 16.5% and 23.8% for the twelve months ended December 31, 2022 and 2021, respectively.

The pro forma results are presented for illustrative purposes only and are not necessarily indicative of, or intended to represent, the results that would have been achieved had the PLH and FIH acquisitions been completed on January 1, 2021 and 2020, respectively. For example, the pro forma results do not reflect any operating efficiencies and associated cost savings that we might have achieved with respect to the acquisition (in thousands, except per share amounts):

Year Ended December 31,

    

2022

    

2021

(unaudited)

(unaudited)

Revenue

$

4,814,237

$

4,138,778

Income before provision for income taxes

149,125

79,421

Net income

124,537

60,543

Weighted average common shares outstanding:

Basic

 

53,200

 

52,674

Diluted

 

53,759

 

53,161

Earnings per share:

Basic

$

2.34

$

1.15

Diluted

2.32

1.14