Acquisitions |
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Acquisitions | 2. Acquisitions On November 30, 2023 (“acquisition date”), we completed the acquisition of LRC/MSG for $278.0 million, subject to customary closing adjustments, plus an estimated amount related to tax make-whole agreements with the seller. We purchased all of the outstanding equity interests in LRC/MSG and the purchase price was funded by our new $150.0 million senior secured term loan, as described further in Note 14, a draw of $100 million under our existing revolver and the remainder from cash on hand. The acquired businesses are longstanding asphalt paving and asphalt and aggregates producers and suppliers. LRC/MSG operates strategically located asphalt plants and sand and gravel mines serving the greater Memphis area and northern Mississippi. The buyer of LRC/MSG, Granite Southeast, is a wholly-owned subsidiary of Granite Construction Incorporated. LRC/MSG's results are reported in the Central operating group in both the Construction and Materials segments. The Central operating group is most similar in geography, and LRC/MSG's 2023 operating results were not material. LRC/MSG’s customers are in both the public and private sector. We have accounted for this transaction in accordance with ASC Topic 805, Business Combinations (“ASC 805”). We have included LRC/MSG's operating results in our consolidated statements of operations since the acquisition date. Revenue attributable to LRC/MSG for the year ended December 31, 2023 was $7.7 million and the loss before taxes for the year ended December 31, 2023 was $2.3 million. Preliminary Purchase Price Allocation In accordance with ASC 805, the total purchase price and assumed liabilities were allocated to the net tangible and identifiable intangible assets based on their estimated fair values as of November 30, 2023, as presented in the table below. These estimates are subject to revision, which may result in adjustments to the values presented below. There are certain provisional estimates that are subject to finalization, one of which is related to tax make-whole agreements with the seller of approximately $22.0 million, which will be finalized upon the former owners of LRC/MSG paying their personal tax burden related to the sale of the businesses. As we continue to integrate the acquired business, we may obtain additional information on the acquired tangible and identifiable intangible net assets which, if significant, may require revisions to preliminary valuation assumptions, estimates and resulting fair values. We expect to finalize these amounts within 12 months from the acquisition date.
In addition, on April 24, 2023, we completed the purchase of Coast Mountain Resources (2020) Ltd. (“CMR”) for $26.6 million. CMR is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land. This acquisition did not have a material impact on our results of operations. The tangible assets acquired and liabilities assumed were approximately $28.5 million and $7.1 million, respectively, resulting in acquired goodwill of $5.1 million. The tangible assets balance consists primarily of equipment, vehicles and the right-to-mine which are reported in Property and equipment, net. CMR results are reported in the Mountain operating group in the Materials segment. Intangible assets The following table lists amortized intangible assets from the LRC/MSG acquisition that are included in intangible assets in the consolidated balance sheets as of December 31, 2023 (in thousands):
The fair value of customer relationships was estimated as of the acquisition date utilizing the multi-period excess earnings method. This method discounts to present value the projected cash flows attributable to the customer relationships. The significant estimates and assumptions used in determining the fair value included discount rates, revenue growth rates, projected EBITDA margins and customer revenue attrition rates. The net amortization expense related to the acquired amortized intangible assets for the year ended December 31, 2023 was included in cost of revenue and selling, general and administrative expenses in the consolidated statements of operations. All of the acquired intangible assets will be amortized on a straight-line basis. Amortization expense related to the acquired amortized intangible asset balances at December 31, 2023 is expected to be recorded in the future as follows: $13.3 million in 2024; $6.1 million in 2025; $6.1 million in 2026; $6.1 million in 2027; $6.1 million in 2028; and $71.9 million thereafter. Goodwill Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The factors that contributed to the recognition of goodwill from the acquisitions of LRC/MSG and CMR include strengthening and expanding our vertically integrated home markets. For the LRC/MSG acquisition, we recorded $80.8 million of goodwill which is expected to be deductible for tax purposes. $63.0 million and $17.8 million were allocated to our Construction and Materials segments, respectively. For the CMR acquisition, we recorded $5.1 million in goodwill that was allocated to our Materials segment and is not expected to be deductible for income tax purposes. Pro Forma Financial Information The unaudited pro forma financial information in the table below summarizes the combined results of operations of Granite and LRC/MSG as though the companies had been combined as of January 1, 2022. The CMR acquisition is not included in the pro forma financial information as the effects of the business would not have a material impact. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2022, nor does it intend to be a projection of future results.
These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of LRC/MSG to reflect the additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and equipment and intangible assets had been applied starting on January 1, 2022. Additionally, these amounts reflect adjustment for additional interest that would have been incurred as a result of incurring debt for the acquisition over the periods in the pro forma financial information. Acquisition and integration expenses related to LRC/MSG that were incurred during the year ended December 31, 2023 are reflected in the year ended December 31, 2022 due to the assumed timing of the transaction. The statutory tax rate of 26% was used for both 2023 and 2022 for the pro forma adjustments. During the year ended December 31, 2023, we incurred $5.0 million of acquisition and integration expenses associated with the LRC/MSG and CMR acquisitions which were primarily related to professional services.
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