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Acquisitions and Joint Ventures
3 Months Ended
Mar. 31, 2023
Business Combinations [Abstract]  
Acquisitions and Joint Ventures

14. Acquisitions and Joint Ventures

Malvar Engineering Limited

On January 10, 2023, the Company acquired 100% of the equity interests of Malvar Engineering Limited, including its subsidiaries Arkanum Management Limited and Wakefield Acoustics Limited (collectively, "Wakefield"), for $4.1 million in cash, which was financed with a draw on the Company’s revolving credit facility, and $0.4 million of deferred cash consideration. As additional consideration, the former owners are entitled to earn-out payments based upon specified financial results through July 31, 2023. Based on projections at the acquisition date, the Company estimated the fair value of the earn-out to be $0.6 million. As of March 31, 2023, the earnout liability recorded in “Accounts payable and accrued expenses” on the Condensed Consolidated Balance Sheets is $0.6 million. Wakefield is a producer of industrial engineered noise control solutions, including custom acoustical gen-set packages, ambient air baffles, acoustical louvres, and skid enclosures, primarily serving server farms for data centers, standby and emergency power generation, oil and gas, petrochemical, commercial construction, infrastructure, and general manufacturing industries. This acquisition advances the Company's position within the industrial silencing and noise attenuation market by adding a range of solutions and access to new geographic markets within the Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.

(in thousands)

 

 

 

Current assets

 

$

3,240

 

Property and equipment

 

 

635

 

Intangible - finite life

 

 

1,778

 

Goodwill

 

 

4,779

 

Total assets acquired

 

 

10,432

 

Current liabilities assumed

 

 

(4,860

)

Deferred income tax liability

 

 

(444

)

Net assets acquired

 

$

5,128

 

The Company acquired customer lists and tradename intangible assets valued at $1.5 million and $0.3 million, respectively. These assets were determined to have useful lives of 10 years.

During the three months ended March 31, 2023, Wakefield accounted for $2.5 million in revenue and $0.1 million of net income included in the Company’s results.

Transcend Solutions

On March 31, 2023, the Company acquired 100% of the equity interests of Transcend Solutions, LLC ("Transcend") for $22.4 million, including $20.0 million in cash, which was financed with a draw on the Company’s revolving credit facility, $2.4 million of deferred cash consideration, consisting of $0.4 million of holdback payable within one year and $2.0 million of notes payable due in equal installments over two years. Transcend is a process filtration solution design and manufacturing

company with applications in hydrocarbon and chemical processing. This acquisition improves the Company's short-cycle and long-cycle mix and expands the Company's reach into midstream oil and gas, liquified natural gas, hydrocarbon processing, and chemical processing applications within the Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.

(in thousands)

 

 

 

Current assets (including cash of $52)

 

$

2,614

 

Property and equipment

 

 

1,153

 

Goodwill

 

 

19,601

 

Other assets

 

 

231

 

Total assets acquired

 

 

23,599

 

Current liabilities assumed

 

 

(1,203

)

Net assets acquired

 

$

22,396

 

General Rubber LLC

On March 7, 2022, the Company, through the EFM JV, acquired 100% of the equity interests of General Rubber LLC ("GRC") for $19.7 million in cash, which was financed with a combination of a draw on the Company's revolving credit facility and issuance of term debt by the EFM JV. As additional consideration, the former owners of GRC were issued 10% of the equity interest in the EFM JV, resulting in the Company holding 63% of the equity in the joint venture. The fair value ascribed to the equity interest of the former owners of GRC was approximately $4.1 million. As of March 31, 2023, there were $15.2 million in current assets, $27.4 million in long-lived assets, and $30.1 million in total liabilities related to the EFM JV included in the Condensed Consolidated Balance Sheets. For the three months ended March 31, 2023, the EFM JV accounted for $9.4 million in revenue included in the Company's results.

GRC engineers and manufactures non-metallic expansion joints and flow control products including rubber expansion joints, ducting expansion joints, and industrial pinch and duck bill valves, serving the industrial water and wastewater markets. The acquisition diversifies and expands the EFM JV product offerings within the Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.

(in thousands)

 

 

 

Current assets (including cash of $137)

 

$

4,963

 

Property and equipment

 

 

459

 

Goodwill

 

 

11,120

 

Intangible - finite life

 

 

8,380

 

Total assets acquired

 

 

24,922

 

Current liabilities assumed

 

 

(714

)

Deferred income tax liability

 

 

(388

)

Net assets acquired

 

$

23,820

 

 

 

 

 

The Company acquired customer lists and tradename intangible assets valued at $7.7 million and $0.7 million, respectively. These assets were determined to have useful lives of 10 years.

 

During the three months ended March 31, 2022, GRC accounted for $0.7 million in revenue and $0.3 million of net income included in the Company’s results.

Compass Water Solutions, Inc.

On May 3, 2022, the Company acquired 100% of the equity interests of Compass Water Solutions, Inc. ("Compass") for $9.0 million in cash, which was financed with a draw on the Company’s revolving credit facility, and $2.0 million in notes payable to the former owners over two years. As additional consideration, the former owners are entitled to earn-out payments based upon a multiple of specified financial results through April 30, 2023. Based on projections at the acquisition date, the Company estimated the fair value of the earn-out to be $1.4 million. As of March 31, 2023, the earnout liability recorded in “Accounts payable and accrued expenses” on the Condensed Consolidated Balance Sheets is $1.2 million.

Compass is a leading global supplier of membrane-based industrial water and wastewater treatment systems that help customers achieve regulatory compliance of water discharge at the lowest lifecycle cost. The acquisition diversifies and expands the

Company's industrial water product offerings within the Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.

 

(in thousands)

 

 

 

Current assets (including cash of $334)

 

$

4,796

 

Property and equipment

 

 

101

 

Goodwill

 

 

4,848

 

Intangible - finite life

 

 

4,900

 

Total assets acquired

 

 

14,645

 

Current liabilities assumed

 

 

(623

)

Deferred income tax liability

 

 

(1,627

)

Net assets acquired

 

$

12,395

 

 

 

 

 

The Company acquired customer lists and tradename intangible assets valued at $4.4 million and $0.5 million, respectively. These assets were determined to have useful lives of 10 years.

Western Air Ducts Ltd.

 

On June 22, 2022, the Company acquired 100% of the equity interests of Western Air Ducts Limited for $10.7 million in cash, which was financed with a draw on the Company’s revolving credit facility, and deferred cash consideration of $0.8 million payable in one year.

 

Western Air Ducts is a leading European supplier of dust and fume extraction solutions, providing consultation, design, manufacturing, installation, and service. The acquisition diversifies and expands the Company's industrial air product offerings within the Industrial Process Solutions segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.

 

(in thousands)

 

 

 

Current assets (including cash of $1,557)

 

$

2,711

 

Property and equipment

 

 

188

 

Goodwill

 

 

7,344

 

Intangible - finite life

 

 

3,158

 

Total assets acquired

 

 

13,401

 

Current liabilities assumed

 

 

(1,127

)

Deferred income tax liability

 

 

(824

)

Net assets acquired

 

$

11,450

 

 

 

 

 

The Company acquired customer lists and tradename intangible assets valued at $2.8 million and $0.4 million, respectively. These assets were determined to have useful lives of 10 years.

 

DS21 Co., Ltd.

 

On September 19, 2022, the Company acquired 100% of the equity interests of DS21 Co., Ltd. ("DS21") for $9.2 million, including $8.9 million in cash, which was financed with a draw on the Company’s revolving credit facility, and deferred cash consideration of $0.3 million payable in one year.

 

DS21 is a South Korean-based design and manufacturing firm specializing in innovative water and wastewater treatment solutions. The addition of DS21 advances the Company's leadership position in niche oily water and produced water treatment, demineralization water treatment and ultra-pure water supply applications within the Company's Engineered Systems segment. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of closing.

 

(in thousands)

 

 

 

Current assets (including cash of $1,453)

 

$

5,099

 

Property and equipment

 

 

4,112

 

Intangible - finite life

 

 

422

 

Deferred income taxes

 

 

557

 

Other assets

 

 

169

 

Total assets acquired

 

 

10,359

 

Current liabilities assumed

 

 

(1,008

)

Other liabilities

 

 

(113

)

Net assets acquired

 

$

9,238

 

 

 

 

 

The Company acquired customer lists and tradename intangible assets valued at $0.1 million and $0.3 million, respectively. These assets were determined to have useful lives of 10 years.

The Company has finalized the valuation of assets acquired and liabilities assumed related to the acquisition of GRC. The approximate fair values of the assets acquired and liabilities assumed related to the remaining acquisitions are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as the Company finalizes the valuation of assets acquired and liabilities assumed. These changes could result in material variances between the Company's future financial results, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.

Goodwill recognized represents value the Company expects to be created by combining the various operations of the acquired businesses with the Company’s operations, including the expansion into markets within existing business segments, access to new customers and potential cost savings and synergies. Goodwill related to this acquisition is not deductible for tax purposes.

Acquisition and integration expenses on the Condensed Consolidated Statements of Income are related to acquisition activities, which include retention, legal, accounting, banking, and other expenses.

The following unaudited pro forma financial information represents the Company’s results of operations as if these acquisitions had occurred at the beginning of the fiscal year prior to the acquisition:

 

 

Three months ended March 31,

 

(in thousands, except per share data)

 

2023

 

 

2022

 

Net sales

 

$

116,116

 

 

$

103,015

 

Net income attributable to CECO Environmental Corp.

 

$

2,021

 

 

$

2,662

 

Earnings per share:

 

 

 

 

 

 

Basic

 

$

0.06

 

 

$

0.08

 

Diluted

 

$

0.06

 

 

$

0.08

 

The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired intangible assets with finite life, reflect additional interest expense on debt used to fund the acquisition, and to record the income tax consequences of the pro forma adjustments. These pro forma results do not purport to be indicative of the results of operations that would have occurred had the purchase been made as of the beginning of the periods presented or of the results of operations that may occur in the future.