ACQUISITIONS

12 Months Ended

Dec. 31, 2022

ACQUISITIONS

ACQUISITIONS

2.    ACQUISITIONS

FPH Group

On May 30, 2022, the Company acquired 100% of the direct and indirect legal and beneficial ownership of the shares of FPH Group Inc., a corporation incorporated pursuant to the laws of the Province of Ontario and the membership interests of Transtar International, LLC, a Michigan limited liability company, collectively “FPH”. FPH is an Ontario, Canada headquartered industry leader in the development of technically advanced, reliable and cost-effective electrical drive systems which provide high torque and precision motion for the defense industry, as well as light weighting technologies for existing and future ground-based vehicles in the defense industry. FPH provides concept engineering, prototyping, validation, and production. FPH also develops composites, advanced materials and hybrid products and systems that achieve significant weight reduction and higher strength. This acquisition provides the Company with a deeper penetration within defense applications including the necessary manufacturing licenses and certifications.

The initial purchase price was $42,159 consisting of cash of $39,359 funded through borrowings under the Amended Revolving Facility, $550 in Company stock (22,886 shares at $24.01 closing stock price on May 27, 2022), and $2,250 in the form of 93,728 exchangeable shares (based on the closing price of an equivalent share of the Company’s common stock) of an indirect wholly-owned subsidiary of the Company, each of which is initially exchangeable into one share of Company common stock, subject to adjustment, in accordance with a Support Agreement entered into concurrently with the closing of the transaction. Subsequent to the acquisition date, the Company made measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital and income tax matters which resulted in a decrease of the purchase price of $1,119, a decrease in trade receivables of $61, an increase of deferred income tax liabilities of $1,607, an increase in other current liabilities of $621, and an increase to goodwill of $1,170. The purchase price allocation is subject to adjustments based on a final determination of certain tax matters.

The Company incurred $1,057 of transaction costs related to the acquisition of FPH, which are included in business development on the condensed consolidated statements of income and comprehensive income.

The preliminary allocation of the purchase price paid for FPH is based on estimated fair values of the assets acquired and liabilities assumed of FPH as of May 30, 2022, and is as follows (in thousands):

Cash and cash equivalents	$	1,755
Trade receivables		3,100
Inventories		4,576
Other assets, net		174
Property, plant, and equipment		624
Right of use assets		4,165
Intangible assets		22,611
Goodwill		14,484
Other current liabilities		(1,577)
Deferred revenue		(776)
Lease liabilities		(4,165)
Net deferred income tax liabilities		(3,931)
Net purchase price	$	41,040

The intangible assets acquired consist of customer lists of $16,173, technology of $5,731, and a trade name of $707, which are being amortized over 12, 10 and 10 years, respectively. Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other operations and FPH that are expected to occur as a result of the combined engineering knowledge, the ability of each of the operations to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize FPH’s management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of this acquisition are included in the consolidated financial statements beginning on the date of the acquisition. Revenue of FPH included within the consolidated statements of income and comprehensive income for the year ended December 31, 2022 was $12,113. Earnings were $607 inclusive of $1,426 of intangible amortization in the year ended December 31, 2022.

The goodwill resulting from the FPH acquisition is tax deductible.

ThinGap and Airex

On May 24, 2022, the Company acquired 100% of the outstanding stock of ThinGap, Inc. (“ThinGap”), a privately-owned California headquartered developer and manufacturer of high performance, zero clogging slotless motors for use in aerospace, defense, and medical applications that require precise performance in a compact, yet high-torque-to-volume solutions. ThinGap designs, engineers, and manufactures low profile, brushless DC motor kits and assemblies that utilize a proprietary wave-wound stator architecture and highly optimized rotors. ThinGap expands the Company’s precision motion capabilities and advances its strategy to provide integrated motion solutions in the robotics, semiconductor, and instrumentation markets.

On June 17, 2022, the Company acquired 100% of the membership interests of Airex, LLC (“Airex”), a privately-owned New Hampshire headquartered developer of high precision electromagnetic components and solutions for the aerospace and defense, life sciences, semiconductor, and commercial industrial applications. Airex combines its patented winding technology with robotic manufacturing to produce linear motors – ironless and iron core, rotary motors, voice coils, wound electromagnetic components and sub-components. Airex expands the Company’s motor offerings as well as enhances its quality systems to support broad mission critical defense programs, as well as other high demanding industries.

The purchase price, collectively, for ThinGap and Airex was $16,527, comprised of $8,224 in cash funded through borrowings under the Amended Revolving Credit Facility and $8,303 in Company stock (376,500 shares, of which 29,631 shares are subject to an indemnification holdback, at a weighted average stock price of $22.05). Subsequent to the acquisition dates, the Company made measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital which resulted in an increase of purchase price of $91, an increase in deferred revenue of $181, and an increase to goodwill of $272. These purchase price allocations are subject to adjustments based on a final determination of certain tax matters.

The Company incurred $257 of transaction costs related to these acquisitions in 2022, which are included in business development on the condensed consolidated statements of income and comprehensive income.

The preliminary allocation of the purchase price paid is based on estimated fair values of the assets acquired and liabilities assumed as of May 24, 2022 for ThinGap and June 17, 2022 for Airex and is, collectively, as follows:

Cash and cash equivalents	$	1,074
Trade receivables		1,295
Inventories		1,686
Other assets, net		636
Property, plant, and equipment		202
Right of use assets		888
Intangible assets		6,000
Goodwill		7,072
Other current liabilities		(574)
Deferred revenue		(426)
Lease liabilities		(888)
Net deferred income tax liabilities		(347)
Net purchase price	$	16,618

The intangible assets acquired consist of customer lists of $3,800, technology of $2,000 and trade names of $200, which are being amortized over weighted average useful lives of 10, 12.5 and 10 years, respectively. Goodwill generated in these acquisitions is related to the assembled workforce, synergies with Allied Motion’s other operations that are expected to occur as a result of the combined engineering knowledge, the ability of the operations to integrate products into more fully integrated system solutions and Allied Motion’s ability to utilize ThinGap and Airex management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of these acquisitions are included in the consolidated financial statements beginning on the date of the acquisition. Revenue included within the consolidated statement of income and comprehensive (loss) income for the year ended December 31, 2022, related to ThinGap and Airex, collectively, was $4,217. Earnings were $337 inclusive of $653 of intangible amortization for the year ended December 31, 2022, respectively.

The goodwill resulting from the ThinGap acquisition is not tax deductible. The goodwill resulting from the Airex acquisition is tax deductible.

2021 Acquisitions

Spectrum Controls

On December 30, 2021, the Company acquired Spectrum Controls, Inc. (“Spectrum Controls”), a Washington headquartered innovator and manufacturer of industrial Input/Output (“I/O”) and universal communications gateway products. Spectrum Controls designs and manufactures a wide range of highly sophisticated I/O modules, marquee displays, and industrial gateways for broad industrial controls applications through partnerships with programmable logic controller (“PLC”) manufacturers and distributors. This acquisition provides the Company with the opportunity to enhance its position as a value-added solutions supplier to the industrial automation and industrial controls market.

The purchase price was $68,711, consisting of $44,046 paid at closing, $26,076 in cash funded through borrowings under the Amended Revolving Facility and $17,970 in Company stock (502,512 shares at $35.76 closing stock price on December 29, 2021). The remaining $24,665 of purchase price represents the acquisition date fair value of two remaining payments of $12,500 each to be paid in two equal installments no later than January 4, 2023 and January 4, 2024, respectively, comprised of 50% cash and 50% in Company stock. As of December 31, 2022, $12,500 is included in accrued liabilities and $12,277 is included in other long-term liabilities on the consolidated balance sheet. On January 4, 2023, the contractual payment of both cash and Company stock was made for the first required deferred acquisition payment. Subsequent to the acquisition date, the Company made immaterial measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital. The allocation of the purchase price is final.

The Company incurred $191 and $93 of transaction costs related to the acquisition of Spectrum Controls in 2022 and 2021, respectively, which are included in business development on the consolidated statements of income and comprehensive income.

The allocation of the purchase price paid for Spectrum Controls is based on fair values of the assets acquired and liabilities assumed of Spectrum Controls as of December 30, 2021 and is as follows (in thousands):

Cash and cash equivalents	$	96
Trade receivables		3,612
Inventories		4,052
Other assets, net		560
Property, plant and equipment		278
Intangible assets		34,800
Goodwill		26,608
Current liabilities		(1,267)
Net purchase price	$	68,739

The intangible assets acquired consist of customer lists of $21,000, technology of $13,500, and a trade name of $300, which are being amortized over 18, 10 and 10 years, respectively. Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other operations and Spectrum Controls that are expected to occur as a result of the combined engineering knowledge, the ability of each of the operations to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize Spectrum Controls’ management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of this acquisition are included in the consolidated financial statements beginning on the date of the acquisition. Revenue and earnings related to Spectrum Controls included within the consolidated statement of income and comprehensive income for the year ended December 31, 2021 were inconsequential.

The goodwill resulting from the Spectrum Controls acquisition is tax deductible.

ORMEC & ALIO

On November 2, 2021, the Company acquired 100% of the outstanding stock of ORMEC Systems Corp. (“ORMEC”), a New York headquartered developer and manufacturer of mission critical electro-mechanical automation solutions and motion control products including multi-axis controls, electronic drives and actuators for the automation and aerospace industries. In addition to its products, ORMEC designs and manufactures complete electro-mechanical and software solutions for custom automation applications. ORMEC strengthens the Company’s technical expertise and adds a higher level of precision motion control systems and solutions to its offerings.

On November 4, 2021, the Company acquired 100% of ALIO Industries (“ALIO”), a Colorado headquartered innovator and manufacturer of advanced linear and rotary motion systems for nano-precision applications. ALIO designs, engineers, and manufactures nano technology motion systems for state-of-the-art applications in silicon photonics, micro

assembly, digital pathology, genome sequencing, laser processing and microelectronics. ALIO is well recognized for their technology and expertise in nanometer level positioning. This expertise in high precision positioning and robotic technology solutions is expected to enhance the Company’s portfolio of motion solution offerings.

The purchase price, collectively, for ORMEC and ALIO was $33,458, comprised of $23,333 in cash funded through borrowings under the Amended Revolving Credit Facility, $5,526 in Company stock (150,038 shares at a weighted average stock price of $36.83), and the fair value of contingent consideration of $4,900, offset by a $301 estimated working capital provision. Subsequent to the acquisition dates, the Company made immaterial measurement period adjustments to the initial purchase price allocation due to adjustments to closing working capital. The allocation of purchase price is final.

The Company incurred $130 and $409 of transaction costs related to these acquisitions in 2022 and 2021, respectively, which is included in business development on the consolidated statements of income and comprehensive income.

The allocation of the purchase price paid is based on fair values of the assets acquired and liabilities assumed as of November 2, 2021 for ORMEC and November 4, 2021 for ALIO and is, collectively, as follows (in thousands):

Cash and cash equivalents	$	2,059
Trade receivables		1,416
Inventories		2,802
Other assets, net		88
Property, plant and equipment		669
Right of use assets		1,005
Intangible assets		10,200
Goodwill		20,114
Other current liabilities		(1,028)
Deferred revenue		(2,063)
Lease liabilities		(1,005)
Net deferred income tax liabilities		(662)
Net purchase price	$	33,595

The intangible assets acquired consist of technology of $5,700, customer lists of $4,000, and trade names of $500, which are being amortized over weighted average useful lives of 11, 6 and 10 years, respectively. Goodwill generated in these acquisitions is related to the assembled workforce, synergies with Allied Motion’s other operations that are expected to occur as a result of the combined engineering knowledge, the ability of the operations to integrate products into more fully integrated system solutions and Allied Motion’s ability to utilize ORMEC and ALIO’s management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of these acquisitions are included in the consolidated financial statements beginning on the date of the acquisition. Revenue included within the consolidated statement of income and comprehensive income for the year ended December 31, 2021, related to ORMEC and ALIO, collectively, was $2,063 and earnings were not material. The acquisition of ALIO includes contingent consideration initially measured at a fair value of $4,900. This consideration was reduced by $800 during the year ended December 31, 2022, based upon fair valuation of the contingent consideration, and due to an anticipated shift in the timing of the earnings of the acquired entity, largely reflecting supply chain issues experienced within the industry. Contingent consideration of $4,100 is included in other long-term liabilities as of December 31, 2022. A further explanation of the valuation process is disclosed in Note 1, Business and Summary of Significant Accounting Policies. The contingent consideration represents the estimated fair value of the Company’s obligations, under a purchase agreement, to make additional payments if certain earnings goals are met through 2024.

The goodwill resulting from the ORMEC acquisition is not tax deductible. The goodwill resulting from the ALIO acquisition is tax deductible.

Pro Forma Financial Information

The following pro forma financial information presents the combined results of operations if the FPH, ThinGap, and Airex acquisitions had occurred as of January 1, 2021 and Spectrum Controls, ORMEC, and ALIO as of January 1, 2020.

	Year ended December 31,
	2022		2021		2020
Revenues	$	513,803	$	470,589	$	415,577
Income before income taxes		28,032		22,883		17,633

The pro forma information includes certain adjustments, including depreciation and amortization expense, interest expense, and certain other adjustments, together with related income tax effects. The pro forma amounts do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of these acquisitions. The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would have been had these transactions actually occurred on the date presented or to project the combined company’s results of operations or financial position for any future period.