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Acquisitions and Divestitures of and Investments in Businesses and Technologies

9 Months Ended

Oct. 31, 2019

Acquisitions of and Investments in Businesses and Technologies

ACQUISITIONS AND DIVESTITURES OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES

Fiscal year 2020

There were no significant business acquisitions and divestitures or purchases of technologies in the three- and nine-month period ended October 31, 2019.

On October 31, 2019, the Company entered into an agreement to acquire a majority ownership of Dot Technology Corp., ("DOT^®"). DOT^® is located in Regina, Saskatchewan, Canada, and designs autonomous agriculture solutions and manufactures a unique U-shaped agriculture platform to autonomously handle a large variety of agriculture implements. The Company has the option to purchase the remaining noncontrolling interest of DOT^® in ten years following the close of the transaction. The Company deposited approximately $3,000 towards the purchase price of DOT^® in the third quarter of fiscal 2020 and the deposit is reported in "Other assets" and "Other investing activities" on the Consolidated Balance Sheet and Consolidated Statements of Cash Flows, respectively. This transaction closed on November 13, 2019.

In addition, subsequent to October 31, 2019, the Company acquired Smart Ag, Inc., ("Smart Ag^®"). Smart Ag^® is a technology company located in Ames, Iowa, that develops autonomous farming solutions for agriculture. This transaction closed on November 1, 2019.

Both acquisitions will align under the Company's Applied Technology Division and will complement the division's suite of precision ag products and solutions. The aggregate purchase price was approximately $62,000 and will primarily be allocated to intangible assets and goodwill. The Company anticipates completing a majority of the purchase accounting for both acquisitions in the fourth quarter of fiscal 2020.

Fiscal year 2019

On January 1, 2019, the Company completed the acquisition of substantially all of the assets ("AgSync Acquisition") of AgSync Inc. ("AgSync"), an Indiana corporation, headquartered in Wakarusa, Indiana. This acquisition is aligned under the Company’s Applied Technology Division and is expected to enhance its Slingshot^® platform by delivering a more seamless logistics solution for ag retailers, aerial applicators, custom applicators and enterprise farms. The AgSync Acquisition constitutes a business and, as such, was accounted for as a business combination; however, the business combination was not significant enough to warrant pro-forma financial information.

The purchase price was approximately $9,700, which included potential earn-out payments with an estimated fair value of $2,052. The earn-out is contingent upon achieving certain revenue milestones. The purchase price of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed is reflected as goodwill, which is fully tax deductible. The Company completed the valuation and the purchase price allocation during the first quarter of fiscal 2020. This resulted in an adjustment in the fiscal 2020 first quarter that increased the purchase price and the estimated fair value of the contingent earn-out payments by approximately $300. The goodwill and identifiable intangible assets recorded as part of the purchase price allocation at October 31, 2019, were $4,526 and $5,700, respectively.

During the first quarter of fiscal 2019, Aerostar sold its client private business for $832, which resulted in an immaterial gain in the three-months ended April 30, 2018. In fiscal 2018, Aerostar actively marketed the sale of its client private business and as such, classified it as held for sale.

In the first quarter of fiscal 2019, the Company sold its ownership interest of approximately 22 percent in Site-Specific Technology Development Group, Inc. (SST) with a carrying value of $1,937. This investment was being accounted for as an equity method investment. Raven received $6,556 in cash at closing which was reported as "Proceeds from sale or maturity of investments" in the Consolidated Statements of Cash Flows. The Company recognized a gain on the sale of $5,785 for the three-months ended April 30, 2018. The gain was reported in "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive Income. The gain included a fifteen percent hold-back provision held in an escrow account which was received in the second quarter of fiscal 2020.

Acquisition-related Contingent Consideration

The Company has contingent liabilities related to the acquisition of AgSync in fiscal 2019 as well as prior acquisitions of Colorado Lining International, Inc. (CLI) in fiscal 2018; Raven Europe B.V. (Raven Europe), formerly named SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG), in fiscal 2015; and Aerostar Technical Solutions, Inc. (ATS), formerly named Vista Research, Inc. (Vista), completed in fiscal 2012. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires the Company to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable (Level 3 fair value measures).

Changes in the fair value of the liability for acquisition-related contingent consideration are as follows:


	Three Months Ended						Nine Months Ended
	October 31, 2019		October 31, 2018		October 31, 2019		October 31, 2018
Beginning balance	$	3,579	$	2,950	$	4,172	$	3,046
Fair value of contingent consideration acquired	—		—		310		—
Change in fair value of the liability	100		182		343		585
Contingent consideration earn-out paid	(723)		(721)		(1,869)		(1,220)
Ending balance	$	2,956	$	2,411	$	2,956	$	2,411

Classification of liability in the consolidated balance sheet
Accrued liabilities	$	813	$	1,764	$	813	$	1,764
Other liabilities, long-term	2,143		647		2,143		647
Balance at October 31	$	2,956	$	2,411	$	2,956	$	2,411

For the AgSync Acquisition, the Company entered into a contingent earn-out agreement, not to exceed $3,500. The earn-out is to be paid annually over three years after the purchase date, contingent upon achieving certain revenue milestones. The Company has made no payments on this potential earn-out liability as of October 31, 2019.

In the acquisition of CLI, the Company entered into a contingent earn-out agreement, not to exceed $2,000. The earn-out is paid annually for three years after the purchase date, contingent upon achieving certain revenue milestones and operational synergies. To date, the Company has paid a total of $1,333 of this potential earn-out liability.

In connection with the acquisition of Raven Europe, the Company entered into a contingent earn-out agreement, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date, contingent upon achieving certain revenue milestones. To date, the Company has paid a total of $2,146 of this potential earn-out liability.

Related to the acquisition of ATS in 2012, the Company was committed to making annual payments based upon earn-out percentages on specific revenue streams for seven years after the purchase date. The Company made the final payment in the first quarter of fiscal 2020 and has no further contingent obligations related to acquisition of ATS.

Schedule of Business Acquisitions by Acquisition, Contingent Consideration [Table Text Block]

Changes in the fair value of the liability for acquisition-related contingent consideration are as follows:


	Three Months Ended						Nine Months Ended
	October 31, 2019		October 31, 2018		October 31, 2019		October 31, 2018
Beginning balance	$	3,579	$	2,950	$	4,172	$	3,046
Fair value of contingent consideration acquired	—		—		310		—
Change in fair value of the liability	100		182		343		585
Contingent consideration earn-out paid	(723)		(721)		(1,869)		(1,220)
Ending balance	$	2,956	$	2,411	$	2,956	$	2,411

Classification of liability in the consolidated balance sheet
Accrued liabilities	$	813	$	1,764	$	813	$	1,764
Other liabilities, long-term	2,143		647		2,143		647
Balance at October 31	$	2,956	$	2,411	$	2,956	$	2,411

Schedule of Subsequent Events