Business Combinations

3 Months Ended

Mar. 31, 2020

Business Combination Separately Recognized Transaction [Abstract]

Business Combination Disclosure [Text Block]

Note 2 – Business Combinations

Houghton

On August 1, 2019, the Company completed the Combination, whereby the Company acquired all of the issued and outstanding shares of Houghton from Gulf Houghton Lubricants, Ltd. and certain other selling shareholders in exchange for a combination of cash and shares of the Company’s common stock in accordance with the Share Purchase Agreement, dated April 4, 2017. Houghton is a leading global provider of specialty chemicals and technical services for metalworking and other industrial applications. The Company believes that combining Quaker’s and Houghton’s products and service offerings will allow Quaker Houghton to better serve its customers in its various end markets.

The Combination was subject to certain regulatory and shareholder approvals. At a shareholder meeting held during 2017, the Company’s shareholders approved the issuance of new shares of the Company’s common stock at closing of the Combination. Also in 2017, the Company received regulatory approvals for the Combination from China and Australia. The Company received regulatory approvals from the European Commission (“EC”) during the second quarter of 2019 and the U.S. Federal Trade Commission (“FTC”) in July 2019. The approvals from the FTC and the EC required the concurrent divestiture of certain steel and aluminum related product lines of Houghton, which were sold by Houghton on August 1, 2019 for approximately $37 million in cash. The final remedy agreed with the EC and the FTC was consistent with the Company’s previous expectation that the total divested product lines would be approximately 3% of the combined company’s net sales.

The following table summarizes the fair value of consideration transferred in the Combination:

Cash transferred to Houghton shareholders (a)		$	170,829
Cash paid to extinguish Houghton debt obligations			702,556
Fair value of common stock issued as consideration (b)			789,080
	Total fair value of consideration transferred	$	1,662,465

(a) A portion is held in escrow by a third party, subject to indemnification rights that lapse upon the achievement of certain milestones.

(b) Amount was determined based on approximately 4.3 million shares, comprising 24.5% of the common stock of the Company immediately after the closing, and the closing price per share of Quaker Chemical Corporation common stock of $182.27 on August 1, 2019.

The Company accounted for the Combination under the acquisition method of accounting. This method requires the recording of acquired assets, including separately identifiable intangible assets, at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. The determination of the estimated fair value of assets acquired, including indefinite and definite-lived intangible assets, requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, customer attrition rates, royalty rates, asset lives and market multiples, among other items. Fair values were determined by management, using a variety of methodologies and resources, including external independent valuation experts. The valuation methods included physical appraisals, discounted cash flow analyses, excess earnings, relief from royalty, and other appropriate valuation techniques to determine the fair value of assets acquired and liabilities assumed.

The following table presents the current preliminary estimated fair values of Houghton net assets acquired:

				Measurement
		August 1,		Period		August 1, 2019
		2019 (1)		Adjustments		(as adjusted)
Cash and cash equivalents		$	75,821	$	—	$	75,821
Accounts receivable, net			178,922		—		178,922
Inventories, net			95,193		—		95,193
Prepaid expenses and other assets			10,652		207		10,859
Property, plant and equipment			115,529		(66)		115,463
Right of use lease assets			10,673		—		10,673
Investments in associated companies			66,447		—		66,447
Other non-current assets			4,710		1,553		6,263
Intangible assets			1,028,400		—		1,028,400
Goodwill			494,915		(23)		494,892
	Total assets purchased		2,081,262		1,671		2,082,933
Short-term borrowings, not refinanced at closing			9,297		—		9,297
Accounts payable, accrued expenses and other accrued liabilities			150,078		146		150,224
Deferred tax liabilities			205,082		(28)		205,054
Long-term lease liabilities			6,607		—		6,607
Other non-current liabilities			47,733		1,553		49,286
	Total liabilities assumed		418,797		1,671		420,468
	Total consideration paid for Houghton		1,662,465		—		1,662,465
	Less: cash acquired		75,821		—		75,821
	Less: fair value of common stock issued as consideration		789,080		—		789,080
	Net cash paid for Houghton	$	797,564	$	—	$	797,564

(1)As previously disclosed in the Company’s 2019 Form 10-K.As of March 31, 2020, the allocation of the purchase price for the Combination has not been finalized and the one-year measurement period has not ended. While not currently expected, further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed. Houghton assets acquired and liabilities assumed have been assigned to each of the Company’s reportable segments on a specific identification or allocated basis, as applicable. Measurement period adjustments recorded during the first quarter of 2020 related primarily to the recognition of other non-current assets and other non-current liabilities based on additional information obtained regarding certain tax audits and associated rights to indemnification.

Combination and other acquisition-related expenses have been and are expected to continue to be significant. The Company incurred total costs of $8.3 million and $5.3 million for the three months ended March 31, 2020 and 2019, respectively, related to the Combination and other acquisition-related activities. These costs included certain legal, financial and other advisory and consultant costs related to due diligence, regulatory approvals and integration planning and post-closing integration activities. These costs also include $0.5 million of accelerated depreciation charges during the three months ended March 31, 2020 and $0.9 million of interest costs to maintain the bank commitment (“ticking fees”) for the Combination during the three months ended March 31, 2019. The Company had current liabilities related to the Combination and other acquisition-related activities of $6.1 million and $6.6 million as of March 31, 2020 and December 31, 2019, respectively, primarily recorded within other accrued liabilities on its Condensed Consolidated Balance Sheets.

Norman Hay

On October 1, 2019, the Company completed its acquisition of the operating divisions of Norman Hay plc (“Norman Hay”), a private U.K. company that provides specialty chemicals, operating equipment, and services to industrial end markets. The acquisition adds new technologies in automotive, original equipment manufacturer (“OEM”), and aerospace, as well as engineering expertise which is expected to strengthen the Company’s existing equipment solutions platform. The acquired Norman Hay assets and liabilities were assigned to the Global Specialty Businesses reportable segment. The original purchase price was 80.0 million GBP, on a cash-free and debt-free basis, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels.

The following table presents the preliminary estimated fair values of Norman Hay net assets acquired:

				Measurement
		October 1,		Period		October 1, 2019
		2019 (1)		Adjustments		(as adjusted)
Cash and cash equivalents		$	18,981	$	—	$	18,981
Accounts receivable, net			15,471		—		15,471
Inventories, net			8,213		—		8,213
Prepaid expenses and other assets			4,203		—		4,203
Property, plant and equipment			14,981		—		14,981
Right of use lease assets			10,608		—		10,608
Intangible assets			51,088		—		51,088
Goodwill			29,384		(166)		29,218
	Total assets purchased		152,929		(166)		152,763
Long-term debt included current portions			485		—		485
Accounts payable, accrued expenses and other accrued liabilities			13,488		(708)		12,780
Deferred tax liabilities			12,746		708		13,454
Long-term lease liabilities			8,594		—		8,594
	Total liabilities assumed		35,313		—		35,313
	Total consideration paid for Norman Hay		117,616		(166)		117,450
	Less: estimated purchase price settlement (2)		3,287		(3,287)		—
	Less: cash acquired		18,981		—		18,981
	Net cash paid for Norman Hay	$	95,348	$	3,121	$	98,469

(1) As previously disclosed in the Company’s 2019 Form 10-K.

(2) The Company finalized its post-closing adjustments for the Norman Hay acquisition and paid approximately 2.5 million GBP during the first quarter of 2020 to settle such adjustments.

As of March 31, 2020, the allocation of the purchase price for Norman Hay has not been finalized and the one-year measurement period has not ended. Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed

Other Acquisitions

In March 2020, the Company acquired the remaining 49% ownership interest in one of its South African affiliates, Quaker Chemical South Africa Limited (“QSA”) for 16.7 million ZAR, or approximately $1.0 million, from its joint venture partner PQ Holdings South Africa. QSA is a part of the Company’s Europe, Middle East and Africa (“EMEA”) reportable segment. As this acquisition was a change in an existing controlling ownership, the Company recorded $0.7 million of excess purchase price over the carrying value of the non-controlling interest in Capital in excess of par value. In addition, subsequent to the date of these Condensed Consolidated Financial Statements, in May 2020 the Company acquired a company from Denmark for an approximately $3 million note, which will be settled subsequent to the filing of this Form 10-Q in the second quarter of 2020 with the Company’s common stock. In 2018 the Company purchased certain formulations and product technology for the mining industry for $1.0 million, with $0.5 million of the purchase price paid at signing and the remaining $0.5 million of the purchase price paid during the first quarter of 2019.