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Business Combinations

12 Months Ended

Dec. 31, 2020

Ingersoll Rand Industrial Acquisition

On February 29, 2020 Ingersoll Rand completed the acquisition of Ingersoll Rand Industrial for the total estimated purchase consideration of approximately $6,937.0 million which represents Ingersoll Rand common stock with a fair value of $6,919.5 million and the balance equal to the fair value attributable to pre-acquisition service for replacement equity awards and deferred compensation arrangements settled in shares (or valued by reference to shares) of Ingersoll Rand common stock. Ingersoll Rand Industrial is a global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services. Ingersoll Rand acquired Ingersoll Rand Industrial to extend and enhance its portfolio of products to address market opportunities in the compressor, blower, pump and other industrial product markets.

Immediately prior to the merger, Trane Technologies plc (formerly known as Ingersoll-Rand plc) (“Old IR” or “Trane Technologies”) completed a spin-off in which it distributed one share of common stock of Ingersoll-Rand Industrial US. Holdco, Inc. (“SpinCo”), par value $0.01 per share, for each share of Old IR, outstanding as of the record date for the spin-off on February 24, 2020. In accordance with the merger agreement by and among Ingersoll Rand, Old IR, SpinCo and Charm Merger Sub Inc., a wholly owned subsidiary of Ingersoll Rand (“Merger Sub”), Merger Sub merged with and into SpinCo (the “acquisition”) and each share of common stock of SpinCo, par value $0.01 per share (“SpinCo common stock”), issued and outstanding immediately prior to the acquisition was converted into the right to receive 0.8824 shares of common stock of Ingersoll Rand, par value $0.01 per share (“Ingersoll Rand common stock”). Immediately after the consummation of the acquisition, approximately 50.1% of the outstanding shares of Ingersoll Rand common stock on a fully-diluted basis was held by SpinCo stockholders and approximately 49.9% of the outstanding shares of the Company common stock on a fully-diluted basis was held by pre-acquisition Ingersoll Rand stockholders. Since Ingersoll Rand (formerly named Gardner Denver Holdings, Inc.) is the accounting acquirer, the fair value of the equity issued by Ingersoll Rand to SpinCo stockholders in the acquisition was determined by reference to the market price of Ingersoll Rand common stock. Accordingly, the purchase consideration below reflects the estimated fair value of the Ingersoll Rand shares issued in exchange for shares of SpinCo common stock in the acquisition, which is based on the final closing price of shares of Ingersoll Rand common stock prior to the effective time of the acquisition on February 28, 2020 of $32.79 per share. The Company incurred acquisition costs of $87.3 million, including $42.3 million and $45.0 million in the years ended December 31, 2020 and 2019, respectively. These costs are presented within “Other operating expenses, net” in the Consolidated Statements of Operations. In addition, the Company incurred $1.0 million in registration fees to issue shares for the acquisition of Ingersoll Rand Industrial. The $1.0 million reduced “Capital in excess of par value” of the Consolidated Balance Sheets.

The agreements between Ingersoll Rand and Trane Technologies contain customary post-closing procedures covering the measurement of working capital and the funded status of benefits plan obligations of Ingersoll Rand Industrial at the time of the spin-off. These post-closing procedures are ongoing as of December 31, 2020 and, upon completion, may result in payments to or proceeds from Trane Technologies. Should any payments or proceeds arise after the end of the measurement period, the Company will recognize any related adjustments to acquired assets or assumed liabilities within earnings in the period the adjustments are determined.

Purchase Price Allocation

In accordance with the FASB’s ASC 805 Business Combinations, Ingersoll Rand was determined to be the accounting acquirer. As such, the Company applied the acquisition method of accounting to the identifiable assets and liabilities of Ingersoll Rand Industrial, which have been measured at estimated fair value as of the date of the business combination.

Ingersoll Rand Industrial’s assets and liabilities were measured at estimated fair values at February 29, 2020, primarily using Level 3 inputs except for debt, which was measured using Level 2 inputs and noncontrolling interests, which was measured using Level 1 inputs. Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of the acquisition date.

The following table summarizes the allocation of consideration to the identifiable assets acquired and liabilities assumed by the Company, with the excess of purchase price over the fair value of Ingersoll Rand Industrial’s net assets recorded as goodwill. The initial accounting for the acquisition is substantially complete and no material changes are anticipated.


Purchase Price	Estimated Fair Value, as Previously Reported		Measurement Period Adjustments(4)		Estimated Fair Value, as Adjusted
Fair value of Ingersoll Rand common stock issued for Ingersoll Rand Industrial outstanding common stock(1)	$	6,919.5	$	—	$	6,919.5
Fair value attributable to pre-merger service for replacement equity awards(2)	8.6		—		8.6
Fair value attributable to pre-merger service for deferred compensation plan(3)	8.9		—		8.9
Total purchase consideration	$	6,937.0	$	—	$	6,937.0
Purchase Price Allocation
Cash	$	41.3	$	(2.5)	$	38.8
Accounts receivable	579.9		8.5		588.4
Inventories	576.2		50.7		626.9
Other current assets	136.9		(49.7)		87.2
Property, plant and equipment	520.0		(3.5)		516.5
Goodwill	4,278.2		607.7		4,885.9
Intangible assets	4,501.3		(734.7)		3,766.6
Other noncurrent assets	269.8		1.1		270.9
Total current liabilities, including current maturities of long-term debt of $19.0 million	(830.6)		78.1		(752.5)
Deferred tax liability	(900.6)		66.9		(833.7)
Long-term debt, net of debt issuance costs and an original issue discount	(1,851.7)		—		(1,851.7)
Other noncurrent liabilities	(310.4)		(22.6)		(333.0)
Noncontrolling interest	(73.3)		—		(73.3)
	$	6,937.0	$	—	$	6,937.0

(1)Represents the fair value of 211,023,522 shares of the Company’s common stock issued for Ingersoll Rand Industrial outstanding common stock multiplied by $32.79, the price per share of common stock as of the closing price on February 28, 2020.

(2)Represents the fair value of the replacement equity awards to the extent those related to services provided by the employee of Ingersoll Rand Industrial prior to closing. See Note 17 “Stock-Based Compensation Plans” for additional information about the replacement equity awards.

(3)Represents the fair value of the deferred compensation plan liabilities that must be settled in shares of the plan sponsor's common stock. See Note 11 “Benefit Plans” for additional information on assumed deferred compensation plan liabilities.

(4)The measurement period adjustments were to refine fair value measurements of intangible assets and carrying amounts of certain assets and liabilities, as well as adjustments to related deferred tax liabilities.

Summary of Significant Fair Value Methods

The methods used to determine the fair value of significant identifiable assets and liabilities included in the allocation of purchase price are discussed below.

Inventories

Acquired inventory was comprised of finished goods, work in process and raw materials. The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value. The fair value step-up of inventory of $116.2 million is comprised of step-up of inventory measured on a First In First Out (“FIFO”) basis of $70.3 million and inventories measured on a Last In First Out (“LIFO”) basis of $45.9 million. Inventory measured on a FIFO basis was amortized to “Cost of sales” in the consolidated financial statements as the inventory is sold. For inventories measured on a LIFO basis, the acquired inventory became the LIFO base layer inventory and is evaluated for lower-of-cost-or-market adjustments in subsequent periods as necessary.

Property, Plant and Equipment

The fair value of property, plant and equipment was primarily calculated using replacement costs adjusted for the age and condition of the asset, with the exception of real property which was calculated using the market approach, and is summarized below.


Land and buildings	$	215.1

Machinery and equipment	256.9
Office furniture and equipment	13.4
Other	1.0
Construction in progress	30.1
Total property, plant and equipment	$	516.5

Identifiable Intangible Assets

The fair value and weighted average useful life of the Ingersoll Rand Industrial identifiable intangible assets are as follows.


	Fair Value		Weighted Average Useful Life (Years)
Tradenames(1)	$	1,312.0	Indefinite
Developed technology(2)	236.0		7
Customer relationships(3)	2,101.0		13
Backlog(4)	81.2		<1
Other(5)	36.4		2
Total identifiable intangible assets	$	3,766.6

(1)Tradenames were identified from brands of Ingersoll Rand Industrial. The fair value of tradenames were determined using a relief from royalty methodology which estimates the cost savings generated by a company related to the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. The discount rate used was determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted average cost of capital and weighted average return on assets. Tradenames are expected to have an indefinite useful life.

(2)Developed technology was identified from the products of Ingersoll Rand Industrial. Fair values were determined using a relief from royalty methodology with similar methodology and assumptions as described in the tradename description above. The economic useful lives were determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

(3)Customer relationships represent the fair value of existing relationships with the Ingersoll Rand Industrial customers. Their fair values were determined using the Multi-Period Excess Earning Method which involves isolating the net earnings attributable to the asset being measured based on present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. This method includes a valuation of the assembled workforce, using the Cost Approach, for purposes of calculating contributory asset charges to be used in the Multi-Period Excess Earning Method valuations. The economic useful lives were determined based on historical customer attrition rates.

(4)Backlog primarily relates to the dollar value of purchase arrangements with customers, effective, as of a given point in time, that are based on mutually agreed terms which, in some cases, may still be subject to completion of written documentation and may be changed or cancelled by the customer, often without penalty. Ingersoll Rand Industrial’s backlog consists of these arrangements

with assigned shipment dates expected, in most cases, within three to twelve months. The fair value were determined using the Multi-Period Excess Earning Method. The economic useful lives were based on the time to fulfill the outstanding order backlog obligation.

(5)Other intangible assets is primarily comprised of software.

The Company believes that the amounts of purchased intangible assets recorded represent the fair values of and approximates the amounts a market participant would pay for these intangible assets as of the acquisition date.

Leases, including lease liabilities and right-of-use (“ROU”) assets

Lease liabilities, included in “Accrued liabilities” and “Other non-current liabilities” in the Consolidated Balance Sheets, at the acquisition date, were measured at the present value of the future minimum lease payments over the remaining lease term and the incremental borrowing rate of Ingersoll Rand as if the acquired leases were new leases as of the acquisition date. ROU assets included in “Other assets” in the Consolidated Balance Sheets as of the acquisition date, are equal to the amount of the lease liability at the acquisition date adjusted for any off-market terms of the lease. The remaining lease term was based on the remaining term at the acquisition date plus any renewal or extension options that the Company is reasonably certain will be exercised.

Pension and Other Postretirement Liabilities

Ingersoll Rand recognized a pretax net liability representing the net funded status of Ingersoll Rand Industrial’s defined-benefit pension and other postretirement benefit (“OPEB”) plans. See Note 11 “Benefit Plans” for further information on the pension and OPEB arrangements.

Long-Term Debt

Ingersoll Rand Services Company incurred $1,900.0 million of indebtedness under the Credit Agreement dated as of February 28, 2020 among Ingersoll Rand Services Company, as borrower, Citibank, N.A. as administrative agent and collateral agent and the lenders party thereto (the “Senior Secured Credit Facility”) prior to the closing of the acquisition, and the indebtedness under the Senior Secured Credit Facility will mature February 28, 2027. Ingersoll Rand incurred a total of $26.9 million debt issuance costs associated with the $1,900.0 million loan under the Senior Secured Credit Facility. The $1,900.0 million of indebtedness under the Credit Agreement was reduced by a $2.4 million original issue discount.

The fair value for long term debt was determined based on the total indebtedness less debt issuance costs as the debt consummated at the time of closing of the acquisition.

Deferred Income Tax Assets and Liabilities

The acquisition was structured as a merger and therefore, the Company assumed the historical tax basis of Ingersoll Rand Industrial’s assets and liabilities. The deferred income tax assets and liabilities include the expected future federal, state and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the acquisition in the jurisdictions in which legal title of the underlying asset or liability resides. See Note 15 “Income Taxes” for further information related to income taxes.

Noncontrolling Interests

As of the date of acquisition, Ingersoll Rand Industrial assumed a controlling interest of approximately 74% in Ingersoll-Rand India Limited. The remaining shares were owned by unaffiliated shareholders and traded on India stock exchanges, representing a noncontrolling interest. Ingersoll Rand’s fair value of noncontrolling interest was based on market quote of Indian Rupee 639.2 per share, available on the last trading day on February 28, 2020 prior to the closing date of the acquisition. Considering noncontrolling shares of 8.2 million, the fair value of noncontrolling interest is $73.3 million.

Other Assets Acquired and Liabilities Assumed (excluding Goodwill)

The Company utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities as it was determined that carrying values represented the fair value of those items at the acquisition date.

Goodwill

The excess of the consideration for the acquisition over the fair value of net assets acquired was recorded as goodwill. The goodwill is attributable to expected synergies and expanded market opportunities from combining the Company’s operations with those of Ingersoll Rand Industrial. The goodwill created in the acquisition is not expected to be deductible for tax purposes. See Note 8 “Goodwill and Other Intangible Assets” for the allocation of goodwill among the Company's segments.

Results of Ingersoll Rand Industrial Subsequent to the Acquisition

The operating results of Ingersoll Rand Industrial have been included in the Company’s consolidated financial statements from the date of acquisition through December 31, 2020. The Company’s consolidated statements of operations for the year ended December 31, 2020 included revenues of $2,930.3 million and net loss of $10.8 million, which includes the effects of purchase accounting adjustments, primarily the amortization of intangible assets and the impacts on operating expenses of fair value adjustments to acquired inventory and property, plant and equipment.

Unaudited Pro Forma Information

The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Ingersoll Rand Industrial as if the acquisition had been completed on January 1, 2019. The pro forma results have been prepared for comparative purposes only and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on January 1, 2019. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved.


	2020		2019
Revenues	$	5,398.0	$	6,146.5
Net Income (Loss)	164.8		101.1

The unaudited pro forma information includes adjustments for the purchase price allocation (including, but not limited to, amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to stock-based compensation expense, fair value adjustments to acquired inventories, the purchase accounting effect on deferred revenue, interest expense and amortization of debt issuance costs, transaction costs and related tax impacts) and the alignment of accounting policies.

The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the years ended December 31, 2020 and 2019 that are directly attributable to the acquisition.


	2020		2019
Increase (decrease) to revenue as a result of deferred revenue fair value adjustment, net of tax	$	13.8	$	(13.8)
Increase (decrease) to expense as a result of inventory fair value adjustment, net of tax	(89.6)		89.6
Increase (decrease) to expense as a result of transaction costs, net of tax	(34.8)		34.8

Transactions with Trane Technologies

Ingersoll Rand and Trane Technologies plc entered into several agreements as of February 29, 2020 covering administrative, tax and supply arrangements. These include a Transition Services Agreement to provide corporate function support for a period of not longer than twenty-four calendar months. During the year ended December 31, 2020, the Company incurred expenses of $25.1 million for services received under the Transition Service Agreement and related agreements.

Other Acquisitions

The Company acquired the following businesses during the three years ended December 31, 2020. Proforma information has not been provided as the acquisitions did not have a material impact on the Company’s Consolidated Statements of Operations individually or in the aggregate. The revenues and operating income of each of the acquisitions below are included in the Company’s consolidated financial statements from the acquisition date.

Acquisition of Albin Pump SAS

On September 1, 2020, the Company acquired Albin Pump SAS (“Albin”), a manufacturer of electric peristaltic pumps. The company acquired Albin for cash consideration, net of cash acquired, of $15.5 million and deferred consideration of $0.9 million. The results of this business are reported within the Precision and Science Technologies segment from the date of acquisition.

Other Acquisitions in 2020

The Company acquired two sales and service businesses, one in the United States and one in Europe, in the Industrial Technologies and Services segment for cash consideration of $15.0 million and deferred consideration of $5.1 million.

Acquisition of Air Compressors and Blowers North Limited

On August 19, 2019, the Company acquired Air Compressors and Blowers North Limited (“ACBN”), a provider of vacuum pumps, blowers and compressors. The Company acquired certain assets of ACBN for total consideration of $7.0 million. The results of ACBN are included in the Industrial Technologies and Services segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of Oina VV AB

On July 3, 2019, the Company acquired Oina VV AB (“Oina”) which specializes in customized pump solutions for liquid handling processes for use in medical, process and industrial applications. The Company acquired all of the assets and assumed certain liabilities of Oina for total consideration, net of cash acquired, of $10.0 million. The results of Oina are included in the Precision and Science Technologies segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of MP Pumps, Inc.

On December 12, 2018, the Company acquired MP Pumps, Inc. (“MP Pumps”), a leading manufacturer of specialty industrial pumps and associated aftermarket parts. The Company acquired all of the assets and assumed certain liabilities of MP Pumps for total consideration, net of cash acquired, of $58.5 million. The results of MP Pumps are included in the Precision and Science Technologies segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of DV Systems, Inc.

On November 2, 2018, the Company acquired DV Systems, Inc. (“DV Systems”), a leading manufacturer of rotary screws and piston compressors and associated aftermarket parts. The Company acquired all of the assets and assumed certain liabilities of DV Systems for total consideration, net of cash acquired, of $16.1 million. The results of DV Systems are included in the Industrial Technologies and Services segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of PMI Pump Parts

On May 29, 2018, the Company acquired PMI Pump Parts (“PMI”), a leading manufacturer of plungers and other well service pump consumable products. The Company acquired all of the assets and assumed certain liabilities of PMI for total consideration, net of cash acquired, of $21.0 million. The results of PMI are included in the High Pressure Solutions segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of Runtech Systems Oy

On February 8, 2018, the Company acquired 100% of the stock of Runtech Systems Oy (“Runtech”), a leading global manufacturer of turbo vacuum technology systems and optimization solutions for industrial applications. The Company acquired all of the assets and assumed certain liabilities of Runtech for total cash consideration of $94.9 million, net of cash acquired. The results of Runtech are included in the Industrial Technologies and Services segment. The purchase price allocation resulted in the recording of $63.6 million of goodwill and $31.3 million of amortizable intangible assets as of the acquisition date. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition Revenues and Operating Income

The revenue included in the financial statements for these acquisitions subsequent to their acquisition date was $105.8 million, $137.6 million and $96.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. For the years ended December 31, 2020, 2019 and 2018, operating income included in the financial statements for the acquisitions described above, subsequent to their date of acquisition was $14.0 million, $19.1 million and $8.3 million, respectively.