)

Acquisitions

The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company. At the time of the acquisition and

March 31, 2019,

the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

Agile Magnetics

On the last business day of the

first

quarter of fiscal year

2019,

the Company acquired Regional Mfg. Specialists, Inc. (now named Agile Magnetics). The New Hampshire based, privately held company is a provider of high-reliability magnetics to customers in the semiconductor, military, aerospace, healthcare, and general industrial industries. The Company has included the results of Agile in its Electronics segment in the condensed consolidated financial statements.

The Company paid

$39.2

million in cash for all of the issued and outstanding equity interests of Agile. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values on the closing date. The Company has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible asset based on the preliminary valuation results. Goodwill recorded from this transaction is attributable to expanded capabilities of the combined organization which will allow for improved responsiveness to customer demands via a larger pool of engineering resources and local manufacturing.

Intangible assets of

$18.2

million are preliminarily recorded, consisting of

$14.3

million of customer relationships,

$3.8

million for trademarks, and

$0.1

million for a non-compete arrangement. The goodwill of

$15.6

million preliminarily recorded in connection with the transaction is deductible for income tax purposes. The Company’s assigned fair values are preliminary as of

March 31, 2019

until such time as the valuation can be finalized.

The components of the fair value of the Agile acquisition, including the preliminary allocation of the purchase price at

March 31, 2019,

are as follows (in thousands):

	Preliminary Allocation September 30, 2018			Adjustments		Adjusted Allocation March 31, 2019
Fair value of business combination:
Cash payments	$	39,194			-		39,194
Less, cash acquired		(1	)		-		(1	)
Total	$	39,193			-		39,193

	Preliminary Allocation September 30, 2018			Adjustments			Adjusted Allocation March 31, 2019
Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	1,928			(35	)		1,893
Inventories		2,506			268			2,774
Customer Backlog		-			220			220
Property, plant, & equipment		1,318			(348	)		970
Identifiable intangible assets		13,718			4,432			18,150
Goodwill		20,142			(4,528	)		15,614
Liabilities assumed		(419	)		(9	)		(428	)
Total	$	39,193			-			39,193

Tenibac-Graphion Inc.

During

August

of fiscal year

2019,

the Company acquired Tenibac-Graphion Inc. (“Tenibac”). The Michigan based privately held company is a provider of chemical and laser texturing services for the automotive, medical, packaging, and consumer products markets. The Company has included the results of Tenibac in its Engraving segment in the condensed consolidated financial statements.

The Company paid

$57.3

million in cash for all of the issued and outstanding equity interests of Tenibac. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. Goodwill recorded from this transaction is attributable to the complimentary services that the combined business can now offer to our customers, through increased responsiveness to customer demands, and providing innovative approaches to solving customer needs by offering a full line of mold and tool services to customers.

Intangible assets of

$16.9

million are preliminarily recorded, consisting of

$11.3

million of customer relationships to be amortized over a period of

nine

years,

$4.2

million for trademarks, and

$1.4

million of other intangibles assets. The Company’s assigned fair values are preliminary as of

March 31, 2019

until reviewed closing financial statements, including U.S.

338

(h)

elections, can be prepared by an independent accountant and agreed to by both parties as required by the stock purchase agreement. The goodwill of

$33.8

million created by the transaction is deductible for income tax purposes.

The components of the fair value of the Tenibac acquisition, including the preliminary allocation of the purchase price at

March 31, 2019,

are as follows (in thousands):

	Preliminary Allocation September 30, 2018			Adjustments		Adjusted Allocation March 31, 2019
Fair value of business combination:
Cash payments	$	57,284			-		57,284
Less cash acquired		(558	)		-		(558	)
Total	$	56,726			-		56,726

	Preliminary Allocation September 30, 2018			Adjustments			Adjusted Allocation March 31, 2019
Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	5,023			(1,245	)		3,778
Inventories		324			-			324
Customer backlog		1,000			(800	)		200
Property, plant, & equipment		2,490			510			3,000
Identifiable intangible assets		15,960			944			16,904
Goodwill		32,949			830			33,779
Liabilities assumed		(1,020	)		(239	)		(1,259	)
Total	$	56,726			-			56,726

Piazza Rosa Group

During the

first

quarter of fiscal year

2018,

the Company acquired the Piazza Rosa Group. The Italy-based privately held company is a leading provider of mold and tool treatment and finishing services for the automotive and consumer products markets. We have included the results of the Piazza Rosa Group in our Engraving segment.

The Company paid

$10.1

million in cash for all of the issued and outstanding equity interests of the Piazza Rosa Group and also paid

$2.8

million subsequent to closing in order to satisfy assumed debt of the entity at the time of acquisition. The Company has estimated that total cash consideration will be adjusted by

$2.6

million based upon achievement of certain revenue metrics over the

three

years following acquisition. The Company made the

first

payment of

$0.9

million during the

first

quarter of

2019

based on achievement of the revenue metrics during the

first

year.

The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. Goodwill recorded from this transaction is attributable to potential revenue increases from the combined competencies with Standex Engraving’s worldwide presence and Piazza Rosa Group’s texturizing capabilities. The combined companies create a global tool finishing service leader and open additional opportunities in the broader surface engineering market.

Intangible assets of

$4.1

million were preliminarily recorded, consisting of

$2.3

million of customer relationships to be amortized over a period of

eight

years,

$1.6

million for trademarks, and

$0.2

million of other intangibles assets. The Company finalized its purchase accounting for this acquisition in the

first

quarter of fiscal year

2019

and reduced the identifiable intangible asset estimate by

$0.6

million at that time. The goodwill of

$7.1

million created by the transaction is

not

deductible for income tax purposes.

The components of the fair value of the Piazza Rosa Group acquisition, including the final allocation of the purchase price are as follows (in thousands):

	Preliminary Allocation September 30, 2017		Adjustments		Final Allocation
Fair value of business combination:
Total cash consideration	$	10,056	$	-	$	10,056
Fair value of contingent consideration		-		2,617		2,617
Total	$	10,056	$	2,617	$	12,673

	Preliminary Allocation September 30, 2017			Adjustments			Final Allocation
Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	2,678		$	1,664		$	4,342
Inventories		637			(2	)		635
Property, plant, and equipment		5,005			558			5,563
Identifiable intangible assets		4,087			(615	)		3,472
Goodwill		6,218			858			7,076
Liabilities assumed		(7,387	)		-			(7,387	)
Deferred taxes		(1,182	)		154			(1,028	)
Total	$	10,056		$	2,617		$	12,673

Acquisition-Related Costs

Acquisition-related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation and (ii) acquisition-related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do

not

include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.

Deferred compensation costs relate to payments due to the Horizon Scientific seller of

$3.0

million on the

second

anniversary and

$5.6

million on the

third

anniversary of the closing date of the purchase. For the

three

and

nine

months ended

March 31, 2019

we recorded deferred compensation costs of

$0.7

million and

$2.1

million respectively related to estimated deferred compensation earned by the Horizon Scientific seller to date which are nearly equal to the amounts recorded during the same periods in fiscal year

2018.

The payments are contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date.

Acquisition related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions.

The components of acquisition-related costs are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2019		2018		2019		2018
Deferred compensation arrangements	$	703	$	702	$	2,107	$	2,108
Other acquisition-related costs		102		552		245		854
Total	$	805	$	1,254	$	2,352	$	2,962