Business Combinations

3 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Combinations

Business Combinations:

Acquisition of Danya International, LLC

On May 3, 2016, the Company acquired 100% of the equity interests of Dayna International, LLC for a purchase price of $38.75 million. The acquisition was financed through a combination of:

• borrowings of $30.0 million under the Company’s senior credit facility,

• cash on hand of approximately $3.75 million,

• 670,242 restricted shares of DLH common stock, valued at $2.5 million based on the 20 day volume-weighted average price (VWAP) of DLH stock, or $3.73 per share, and

• $2.5 million pursuant to a subordinated loan arrangement with the Company’s largest stockholder.

After giving effect to the issuance of the shares of common stock issued to Seller at closing, As of December 31, 2016 the Seller beneficially owns approximately 6.0% of the Company’s outstanding shares.

The acquisition of Danya International is consistent with the Company’s growth strategy, which calls for the development of new customers and service offerings both organically and through mergers and acquisitions.

We used the acquisition method of accounting for this transaction, whereby the assets acquired and liabilities assumed are recognized based upon their estimated fair values at the acquisition date.

The total base purchase price for Danya was $38.75 million, with adjustments as necessary based on a finalized working capital calculation compared to the target prescribed in the acquisition agreement as amended. A $0.47 million working capital adjustment to the purchase price was finalized in December 2016, and the final $0.25 million payment made to the seller.

As of December 31, 2016 the Company completed it valuation of the transaction and finalized the adjustments to the estimated values recognized at September 30, 2016. Therefore the Company recognized an increase to the fair value of intangibles in the amount of $9.5 million with a corresponding decrease to goodwill. Additionally, the change to the estimated amounts resulted in a decrease in amortization of $.3 million in the current quarter. The change was based on the final valuation which calculated the value for each type of intangible asset. See Note 4 for further presentation.

We allocated total acquisition consideration and the finalized allocation of fair value to the related assets and liabilities as follows:

(Amounts in thousands)
Cash	$	36,720
Common stock, fair value	2,500
Total Consideration	$	39,220
(Amounts in thousands)
Net assets acquired
Cash and cash equivalents	$	4,009
Accounts receivable	5,712
Other current assets	444
Total current assets	10,165
Accounts payable and accrued expenses	(5,013		)
Payroll liabilities	(1,432		)
Net working capital surplus	3,720
Property and equipment, net	403
Intangible assets:
Customer relationships	16,626
Covenant not to compete	480
Trade name	517
Other long term assets	81
Net identifiable assets acquired	18,107
Goodwill	17,393
Net assets acquired	$	39,220

During the three months ended December 31, 2016, Danya contributed approximately $8.7 million of revenue and $0.9 million income from operations.

The following table presents certain results for the three months ended December 31, 2016 and 2015 as though the acquisition of Danya had occurred on October 1, 2014. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of our results if the acquisition had taken place on that date. The pro forma results presented below include amortization charges for acquired intangible assets and adjustments to interest expense incurred and exclude related acquisition expenses.

	(in thousands)
	Three Months Ended
	December 31,
Pro forma results	2016		2015
Revenue	$	26,111	$	28,507
Net income	$	324	$	(388	)
Number of shares outstanding - basic	11,201		10,949
Number of shares outstanding - diluted	12,690		10,949
Basic earnings per share	$	0.03	(0.04		)
Diluted earnings per share	$	0.03	(0.04		)