Acquisitions

3 Months Ended

Mar. 31, 2021

Acquisitions

Eleos Acquisition

On February 1, 2021, pursuant to a membership interest purchase agreement ("MIPA"), the Company, through a wholly owned subsidiary, acquired 79.44% of the issued and outstanding membership interests of Eleos Technologies, LLC ("Eleos"), a Greenville, South Carolina based software provider, specializing in mobile driving platforms, which complement the Company's suite of services. The total purchase price consideration, including cash on hand and net working capital adjustments, consisted of $41.5 million in cash to the sellers at closing, which was funded through cash-on-hand and borrowing on the Revolver on the transaction date. At closing, $4.1 million of the cash consideration was placed in escrow to secure certain of the sellers' indemnification obligations and other items.

The MIPA included that both the buyer and sellers would file an election under the Internal Revenue Code Section 754 to adjust the tax basis of the Company's assets and liabilities, with respect to the buyer's purchase of the equity. The MIPA contains customary representations, warranties, covenants, and indemnification provisions for transactions of this nature.

The goodwill recognized represents expected synergies from combining the operations of Eleos with the Company, including enhanced service offerings, as well as other intangible assets that did not meet the criteria for separate recognition. The goodwill is expected to be deductible for tax purposes.

The purchase price allocation for the acquisition is preliminary and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date, pending the completion of the valuation of acquired tangible assets, an independent valuation of certain acquired intangible assets, assessment of lease agreements, assessment of certain liabilities, the calculation of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed, and assessment of other tax related items. As the Company obtains more information, the preliminary purchase price allocation disclosed below is subject to change. Any future adjustments to the preliminary purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date.

The following table summarizes the fair value of the consideration transferred as of the acquisition date:


	February 1, 2021 Opening Balance Sheet as Reported at March 31, 2021

Fair value of the consideration transferred	$	41,518

Cash and cash equivalents	2,237

Trade and other receivables	545
Prepaid expenses and other assets	47


Operating lease right-of-use assets	560
Identifiable intangible assets 1	15,850


Total assets	19,239

Accounts payable	(156)
Accrued payroll and payroll-related expenses	(605)
Accrued liabilities	(1,391)
Operating lease liabilities – current and noncurrent portions	(560)
Other long-term liabilities	(475)
Total liabilities	(3,187)

Noncontrolling interest	(10,281)
Total stockholders' equity	(10,281)

Goodwill	$	35,747

1 Includes $8.8 million in customer relationships, $0.2 million in noncompete agreements, $3.5 million in internally-developed software, and a $3.4 million trade name.

Warehousing Co. Acquisition

On January 1, 2020, pursuant to a stock purchase agreement (the "SPA") the Company, through a wholly owned subsidiary, acquired 100.0% of the equity interests of a warehousing-related company (the "Warehousing Co.") with locations throughout the Central US.

The total purchase price consideration of $66.9 million included $48.2 million in cash to the sellers at closing, which was funded through cash-on-hand and borrowing on the Revolver on the transaction date. At closing, $6.8 million of the cash consideration was placed in escrow to secure certain of the sellers' indemnification obligations. During the third quarter of 2020, the escrow proceeds were released to the sellers pursuant to the SPA. The purchase price also included contingent consideration consisting of three additional annual payments of up to $8.1 million each (or $24.3 million in total), representing the maximum possible annual deferred payments to the sellers based on Warehousing Co.'s earnings before interest and taxes ("EBIT") for each of the calendar years ending December 31, 2020, December 31, 2021, and the annualized six-month period ending June 30, 2022. In order to estimate Warehousing Co.'s future performance, the Company utilized the Monte Carlo simulation method using certain inputs, including Warehousing Co.'s forecasted EBIT, discount rate, dividend yields, expected volatility, and expected stock returns during the above measurement periods. Based on the above inputs, the present value of the total contingent consideration, along with the estimated net working capital adjustment, equaled $18.7 million as of January 1, 2020. During the measurement period, the net working capital adjustment was reduced by $0.4 million based on the actual versus estimated net working capital adjustment as of the transaction date. This adjustment resulted in the total estimated contingent consideration and net working capital adjustment decreasing to $18.3 million. The total purchase price consideration, as if adjusted at the January 1, 2020 transaction date, is identified in the table below.

During the fourth quarter of 2020, the Company paid the first annual payment of $8.1 million as a result of the achievement of Warehousing Co.’s EBIT performance target for the calendar year December 31, 2020. Additionally, during the fourth quarter of 2020, the Company increased the estimated fair value of the remaining contingent consideration representing the final two annual payments, resulting in a $6.7 million fair value adjustment of the deferred earnout, which was recorded in “Miscellaneous operating expenses” in the consolidated statement of comprehensive income. As such, as of March 31, 2021 and December 31, 2020, the remaining estimated contingent consideration was $16.2 million representing the fair value of the remaining annual deferred payments for the calendar year ending December 31, 2021 and the annualized six-month period ending June 30, 2022.

The SPA included an election under the Internal Revenue Code Section 338(h)(10). Accordingly, the book and tax basis of the acquired assets and liabilities are the same as of the purchase date. The SPA contains customary representations, warranties, covenants, and indemnification provisions.

The goodwill recognized represents expected synergies from combining the operations of Warehousing Co. with the Company, including enhanced service offerings, as well as other intangible assets that did not meet the criteria for separate recognition. The goodwill is expected to be deductible for tax purposes.

The purchase price was allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The purchase price allocation was open for adjustments through the end of the measurement period, which closed one year from the January 1, 2020 acquisition date.

The following table summarizes the fair value of the consideration transferred as of the acquisition date:


	January 1, 2020 Opening Balance Sheet as Reported at March 31, 2020		Adjustments		January 1, 2020 Opening Balance Sheet as Reported at March 31, 2021

Fair value of the consideration transferred	$	66,854	$	(410)	$	66,444

Cash and cash equivalents	1,388		—		1,388

Trade and other receivables	3,301		—		3,301
Prepaid expenses	608		—		608
Other current assets	78		—		78
Property and equipment	1,938		—		1,938
Operating lease right-of-use assets	12,356		—		12,356
Identifiable intangible assets 1	55,681		—		55,681
Deferred tax assets	54		—		54
Other noncurrent assets	404		—		404
Total assets	75,808		—		75,808

Accounts payable	(347)		—		(347)
Accrued liabilities	(644)		—		(644)
Operating lease liabilities – current portion	(4,451)		—		(4,451)
Operating lease liabilities – less current portion	(7,905)		—		(7,905)


Total liabilities	(13,347)		—		(13,347)

Goodwill	$	4,393	$	(410)	$	3,983

1 Includes $53.8 million in customer relationships, $0.7 million in noncompete agreements, $0.6 million in internally developed software, and a $0.6 million trade name.