Acquisitions

6 Months Ended

Jul. 03, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

Acquisitions

During the six months ended July 3, 2022, we completed three acquisitions. On January 17, 2022, we acquired macmon secure GmbH (Macmon) for $42.4 million, net of cash acquired. Macmon, based in Berlin, Germany, is a leading provider of products and services that secure network infrastructure in a variety of mission critical industries. On March 3, 2022, we acquired NetModule AG (NetModule) for $23.5 million, net of cash acquired. NetModule, based in Bern, Switzerland, is a leading provider of reliable, fast and secure wireless network infrastructures through advanced capabilities in 5G and WiFi6 technologies in a variety of mission critical industries with a strong focus on mass transit and intelligent traffic systems within the transportation vertical. On April 15, 2022, we acquired Communication Associates, Inc. (CAI) for $18.7 million, net of cash acquired. CAI is headquartered in Anniston, Alabama and designs, manufactures, and sells a range of plug-in radio frequency filters used in outside plant hybrid fiber-coax nodes. The results of operations of each acquisition have been included in our results of operations from their respective acquisition dates. The three acquisitions were not material to our consolidated results of operations. Macmon and NetModule are included in the Industrial Automation Solutions segment, and CAI is included in the Enterprise Solutions segment. All three acquisitions were funded with cash on hand. The following table summarizes the estimated, preliminary fair values of the assets acquired and liabilities assumed for all three acquisitions in total as of their respective acquisition dates (in thousands):

Receivables	$	6,527
Inventory	8,278
Other current assets	369
Property, plant and equipment	1,375
Intangible assets	38,709
Goodwill	52,823
Operating lease right-of-use assets	6,167
Total assets acquired	$	114,248
Accounts payable	$	2,497
Accrued liabilities	6,716
Long-term debt	2,440
Deferred income taxes	9,610
Long-term operating lease liabilities	2,926
Other long-term liabilities	5,936
Total liabilities assumed	$	30,125
Net assets	$	84,123

The above purchase price allocation is preliminary and subject to revision as additional information about the fair value of individual assets and liabilities becomes available. The preliminary measurement of receivables, intangible assets, goodwill, deferred income taxes, and other assets and liabilities are subject to change. A change in the estimated fair value of the net assets acquired will change the amount of the purchase price allocable to goodwill.

The preliminary fair value of acquired receivables is $6.5 million, which is equivalent to its gross contractual amount. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the preliminary fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations.

For purposes of the above allocation, we based our preliminary estimate of the fair values for intangible assets on valuation studies performed by a third party valuation firm. We used various valuation methods including discounted cash flows, lost income, excess earnings, and relief from royalty to estimate the preliminary fair value of the identifiable intangible assets (Level 3 valuation). Goodwill and other intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to the expansion of industrial automation and broadband & 5G product offerings in end-to-end solutions. Our tax basis in the acquired goodwill is zero. The intangible assets related to the three acquisitions consisted of the following:

	Fair Value		Amortization Period
	(In thousands)		(In years)
Intangible assets subject to amortization:
Developed technologies	$	30,726	4.2
Customer relationships	4,677		15.0
Trademarks	2,806		2.0
Sales backlog	200		0.9
Non-compete agreements	300		4.0
Total intangible assets subject to amortization	$	38,709
Intangible assets not subject to amortization:
Goodwill	$	52,823	n/a
Total intangible assets not subject to amortization	$	52,823
Total intangible assets	$	91,532
Weighted average amortization period			5.3

The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the developed technology intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period and pattern of consumption of the intangible asset. The useful life for the customer relationship intangible asset was based on our forecasts of estimated sales from recurring customers. The useful life for the trademarks was based on the period of time we expect to continue to go to market using the trademarks.

Opterna International Corp.

Our acquisition of Opterna International Corp. (Opterna) in 2019 included potential earn-out consideration. As of the acquisition date, we estimated the fair value of the earn-out to be $5.8 million. The earn-out period ended in 2021, and the financial targets tied to the earn-out were not achieved. We reduced the earn-out liability to zero and recognized a $5.8 million benefit in Selling, General and Administrative Expenses in the six months ended July 4, 2021. This benefit was excluded from Segment EBITDA of our Enterprise Solutions segment.