Acquisition (Notes)

12 Months Ended

Jan. 31, 2020

Mergers, Acquisitions and Dispositions Disclosures

NOTE 5 — ACQUISITIONS

DLT Acquisition

On November 25, 2019, the Company completed the acquisition of DLT, a premier software and cloud solutions aggregator focused on the U.S. public sector. The Company acquired all of the outstanding shares of DLT for a preliminary purchase price of approximately $210 million in cash, subject to certain working capital and other adjustments. The DLT acquisition enables Tech Data to proactively develop opportunities, accelerate growth and simplify complexity for its channel partners that are serving the U.S. public sector space.

The Company has accounted for the DLT acquisition as a business combination and allocated the preliminary estimated purchase price to the estimated fair values of assets acquired and liabilities assumed. The Company has not yet completed its evaluation and determination of certain assets acquired and liabilities assumed, primarily (i) the final valuation of intangible assets related to customer and vendor relationships and trade names, (ii) the final assessment and valuation of certain other assets acquired and liabilities assumed, including accounts receivable, accrued expenses and other liabilities and (iii) the final assessment and valuation of certain tax amounts. Therefore, the final fair values of the assets acquired and liabilities assumed may vary from the Company's preliminary estimates.

The preliminary allocation of the estimated purchase price to assets acquired and liabilities assumed is as follows:



(in thousands)
Cash	$	545
Accounts receivable	218,978
Prepaid expenses and other current assets	22,977
Property and equipment, net	4,207
Goodwill	82,889
Intangible assets	226,390
Other assets, net	52,539
Total assets	608,525

Accounts payable, accrued expenses and other current liabilities	297,811
Revolving credit loans and other long-term debt	91,026
Other long-term liabilities	9,220
Total liabilities	398,057

Estimated purchase price	$	210,468

The allocation of the preliminary value of identifiable intangible assets is comprised of approximately $208.0 million of customer and vendor relationships with an amortization period of 15 years and $18.4 million of trade names with an amortization period of 10 years. The significant estimation uncertainty was primarily due to the sensitivity of the fair value determined using a discounted cash flow model to underlying assumptions including forecasted revenue growth rates, forecasted profit margin, customer and vendor attrition rates and the discount rate. These significant assumptions are forward looking and could be affected by future economic and market conditions. Goodwill is the excess of the consideration transferred over the net assets recognized and primarily represents the expected cost synergies of the combined company and assembled workforce and is expected to be deductible for tax purposes. Pro forma information has not been provided as the acquisition was not material to the Company's consolidated financial position or results of operations.

TS Acquisition

On February 27, 2017, Tech Data acquired all of the outstanding shares of TS for an aggregate purchase price of approximately $2.8 billion, comprised of approximately $2.5 billion in cash and 2,785,402 shares of the Company's common stock, valued at approximately $247 million based on the closing price of the Company's common stock on February 27, 2017. TS delivered data center hardware and software solutions and services and the TS acquisition strengthened the Company's end-to-end solutions portfolio and deepened its value added capabilities in the data center and next-generation technologies. The total cash consideration payable to Avnet was subject to certain working capital and other adjustments, as determined through the process established in the interest purchase agreement. In August 2018, the Company executed a settlement agreement with Avnet, resulting in a final working capital adjustment of $120 million which was paid to Avnet during the third quarter of fiscal 2019. As the measurement period had concluded, a gain of $9.6 million was recorded in “acquisition, integration and restructuring expenses” in the Consolidated Statement of Income for the year ended January 31, 2019, representing the difference between the final working capital adjustment and the Company’s prior estimate. Additionally, as part of the settlement agreement, the Company and Avnet reached agreement on the final geographic allocation of the purchase price for tax reporting purposes which resulted in the recognition of a deferred tax asset in the U.S. for future tax deductions related to the

amortization of goodwill for tax purposes. The recognition of the deferred tax asset in the U.S. resulted in an income tax benefit of $13.0 million during fiscal 2019.

The Company has accounted for the TS acquisition as a business combination and allocated the purchase price to the fair values of assets acquired and liabilities assumed.

The allocation of the purchase price to assets acquired and liabilities assumed is as follows:




(in millions)
Cash	$	176
Accounts receivable	1,830
Inventories	239
Prepaid expenses and other current assets	100
Property and equipment, net	62
Goodwill	727
Intangible assets	919
Other assets, net	151
Total assets	4,204

Other current liabilities	1,169
Revolving credit loans and long-term debt	134
Other long-term liabilities	99
Total liabilities	1,402

Purchase price	$	2,802

Identifiable intangible assets are comprised of approximately $875 million of customer relationships with a weighted-average amortization period of 14 years and $44 million of trade names with an amortization period of 5 years. Goodwill is the excess of the consideration transferred over the net assets recognized and primarily represents the expected revenue and cost synergies of the combined company and assembled workforce. Approximately $1.2 billion of the goodwill and identifiable intangible assets are expected to be deductible for tax purposes. The Company has recorded certain indemnification assets for expected amounts to be received from Avnet related to liabilities recorded for unrecognized tax benefits and other items (See Note 9 – Income Taxes for further discussion).

Included within the Company’s Consolidated Statement of Income are estimated net sales for the year ended January 31, 2018, of approximately $7.6 billion from TS subsequent to the acquisition date of February 27, 2017. As the Company began integrating certain sales and other functions after the closing of the acquisition, these amounts represent an estimate of the TS net sales for the fiscal year ended January 31, 2018. It is not necessarily indicative of how the TS operations would have performed on a stand-alone basis. As a result of certain integration activities subsequent to the date of acquisition, it is impracticable to disclose earnings from TS in fiscal 2018 for the period subsequent to the acquisition date.

The following table presents unaudited supplemental pro forma information as if the TS acquisition had occurred at the beginning of fiscal 2017. The pro forma results presented are based on combining the stand-alone operating results of the Company and TS for the periods prior to the acquisition date after giving effect to certain adjustments related to the transaction. The pro forma results exclude any benefits that may result from potential cost synergies of the combined company and certain non-recurring costs. As a result, the pro forma information below does not purport to present what actual results would have been had the acquisition actually been consummated on the date indicated and it is not necessarily indicative of the results of operations that may result in the future.



Year ended January 31:	2018
(in millions)	(unaudited)
Pro forma net sales	$	34,268
Pro forma net income	$	129

Adjustments reflected in the pro forma results include the following:


•	Amortization of acquired intangible assets


•	Interest costs associated with the transaction


•	Removal of certain non-recurring transaction costs of $20 million in fiscal 2018


•	Tax effects of adjustments based on an estimated statutory tax rate

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Impact of adoption of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)"