Acquisitions |
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Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | ACQUISITIONS Trumbull Acquisition On October 3, 2022, the Company completed the acquisition of certain assets and assumption of certain liabilities of the municipal waterworks division of Trumbull Industries, Inc., as well as certain assets and assumption of certain liabilities of an affiliated entity, Trumbull Manufacturing, Inc. (collectively “Trumbull”), in a transaction valued up to $45 million, subject to working capital adjustments (the “Trumbull Acquisition”). Trumbull has three locations and distributes a variety of infrastructure products to the waterworks industry. The transaction price was funded with cash on hand. Given the size of the purchase price, a full purchase price allocation has not been presented. The preliminary purchase price allocation include $23 million to net working capital, $18 million to customer relationships and $6 million to goodwill. Earthsavers Acquisition On June 28, 2022, the Company completed the acquisition of certain assets and assumption of certain liabilities of Earthsavers Erosion Control, LLC (“Earthsavers”) in a transaction valued up to $25 million, subject to working capital adjustments (the “Earthsavers Acquisition”). Earthsavers has three locations and produces and distributes a variety of geosynthetic materials, including wattles, erosion control blankets and a broad array of geotextile products. The transaction price was funded with cash on hand. Given the size of the purchase price, a full purchase price allocation has not been presented. The preliminary purchase price allocation include $9 million to goodwill, $7 million to net working capital and $7 million to customer relationships. L&M Acquisition On August 30, 2021, the Company completed the acquisition of certain assets and assumption of certain liabilities of L&M Bag & Supply Co., Inc. (“L&M”) in a transaction valued at $60 million, subject to working capital adjustments (the “L&M Acquisition”). L&M is a specialized supplier of geotextile fabrics and geogrids, as well as silt fences, turbidity barriers and safety fences, weed control fabric and sod staples. The transaction price was funded with cash on hand. Pacific Pipe Acquisition On August 9, 2021, the Company completed the acquisition of all of the outstanding shares of Pacific Pipe Company, Inc. (“Pacific Pipe”) in a transaction valued at $103 million, subject to working capital adjustments (the “Pacific Pipe Acquisition”). Pacific Pipe has four branch locations and serves municipalities and contractors in the water, wastewater, storm drainage and irrigation industries throughout Hawaii with a broad product offering. The transaction price was funded with cash on hand. Water Works Supply Co. On August 17, 2020, the Company completed the acquisition of certain assets and assumption of certain liabilities of Water Works Supply Co. (“WWSC”) in a transaction valued at approximately $12 million, subject to a working capital adjustment (the “WWSC Acquisition”). The transaction price was funded through cash on hand. Given the size of the purchase price, a full purchase price allocation has not been presented. However, significant components of the final purchase price allocation include $6 million to customer relationships, $3 million to net working capital, and $2 million to goodwill. R&B Co. On March 11, 2020, the Company completed the acquisition of all of the outstanding shares of R&B Co. (“R&B”) in a transaction valued at $215 million, subject to a working capital adjustment (the “R&B Acquisition”). The transaction price consisted of $212 million of initial cash consideration, subject to working capital adjustments, and $3 million of contingent consideration to be paid upon satisfaction of certain conditions to either the sellers of R&B or certain former R&B employees and recognized as compensation expense. During fiscal 2021, the Company settled the R&B contingent consideration liability. With the R&B Acquisition, the Company added approximately 10 branch locations to the business, which expanded the Company's presence in California and strengthened the Company's ability to offer complementary waterworks products and fusible services. The transaction price was funded with cash on hand. The R&B Acquisition included a contingent consideration arrangement of up to $3 million that was payable to the R&B sellers if certain R&B employees failed to complete a post-acquisition one-year service period. The range of the undiscounted amounts payable by the Company under the contingent consideration agreement was between zero and $3 million. The fair value of the contingent consideration recognized on the acquisition date of zero was determined based on the expectation that all former R&B employees would be retained during the one-year retention period (a level 3 fair value measurement based on unobservable inputs). Other Acquisitions During fiscal 2022, the Company completed the acquisition of certain assets and liabilities in transactions valued at $54 million, subject to working capital adjustments (the “Other 2022 Acquisitions”). Given the lack of significance of these transactions, individually and in the aggregate, a full purchase price allocation has not been presented. However, a substantial portion of the aggregate purchase price was allocated to customer relationships, goodwill and net working capital. During fiscal 2021, the Company completed the acquisition of certain assets and liabilities in transactions valued at $11 million, subject to working capital adjustments (the “Other 2021 Acquisitions”). Given the lack of significance of these transactions, individually and in the aggregate, a full purchase price allocation has not been presented. However, a substantial portion of the aggregate purchase price was allocated to customer relationships, goodwill and net working capital. In the above transactions, to the extent applicable, the excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents the assembled workforce and anticipated long-term growth in new markets, customers and products. Goodwill associated with the Trumbull Acquisition, the Earthsavers Acquisition, the L&M Acquisition, the WWSC Acquisition, Other 2022 Acquisitions and Other 2021 Acquisitions are fully deductible by the Company for U.S. income tax purposes. The following table represents the final allocation of the transaction price to the fair value of identifiable assets acquired and liabilities assumed in the L&M Acquisition, Pacific Pipe Acquisition and R&B Acquisition:
The following reconciles the total consideration to net assets acquired:
Pro Forma Financial Information The following pro forma information presents a summary of the results of operations for the periods indicated as if the Pacific Pipe and L&M acquisitions had been completed as of February 3, 2020 and the R&B Acquisition and associated senior notes issuance had been completed as of February 4, 2019. The pro forma financial information is based on the historical financial information for the Company and Pacific Pipe, L&M and R&B, along with certain pro forma adjustments. These pro forma adjustments consist primarily of: •Increased amortization expense related to the intangible assets acquired in the acquisitions; •Increased interest expense to reflect the fixed rate notes entered into in connection with the R&B Acquisition, including interest and amortization of deferred financing costs; •Reclassification of direct acquisition transaction costs, retention bonuses and inventory fair value adjustments from the period incurred to periods these expenses would have been recognized given the assumed transaction dates identified above; •The related income tax effects of the aforementioned adjustments and legal entity restructuring performed to effect the R&B Acquisition; and •The related income tax effects of the aforementioned adjustments to the provision for income taxes for the Blocker Companies. The following pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results. In addition, the pro forma information does not reflect the cost of any integration activities, benefits from any synergies that may be derived from the acquisitions or revenue growth that may be anticipated.
As a result of integration of the acquisitions, including the consolidation of certain acquired and existing branches, it is impracticable to identify the explicit financial performance associated with the Pacific Pipe, L&M and R&B acquisitions. As such, the Company has not presented the post-acquisition net sales and net income for the Pacific Pipe, L&M and R&B acquisitions. Intangible Assets For each of the acquisitions discussed above, the Company valued intangible assets acquired, which included customer relationships, non-compete agreements, and trademarks. The customer relationship intangible assets represent the value associated with those customer relationships in place at the date of the respective acquisitions. The Company valued the customer relationships using an excess earnings method using various inputs such as customer attrition rate, revenue growth rate, gross margin percentage and discount rate. Cash flows associated with the existing relationships are expected to diminish over time due to customer turnover. The Company reflected this expected diminishing cash flow through the utilization of an annual customer attrition rate assumption and in its method of amortization. The non-compete intangible asset represents the value associated with a non-compete agreement for former executives in place at the date of the respective acquisitions. The trademark intangible asset represents the value associated with the brand names in place at the date of the respective acquisitions. A summary of the intangible assets acquired and assumptions utilized in the valuation, for the acquisitions is as follows:
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