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Business Acquisitions

12 Months Ended

Dec. 31, 2019

NOTE 2. BUSINESS ACQUISITIONS

2019 Acquisitions

In September 2019, we completed the acquisition of Artesyn pursuant to the Stock Purchase Agreement (“Acquisition Agreement”), as amended, dated May 14, 2019. Pursuant to the Acquisition Agreement, we acquired all of Artesyn’s issued and outstanding shares for a preliminary purchase price of $361.3 million, net of cash acquired, including the assumption of certain liabilities and subject to an adjustment for net working capital. The purchase price included the contingent consideration related to a potential payment back to the seller per the Acquisition Agreement for any tax benefit arising from the utilization of acquired net operating losses through 2021 at the federal income tax rate of 21.0%. The amount recorded represents our best estimate of the present value of the tax benefit we will achieve utilizing the acquired net operating losses through 2021. In connection with the Acquisition Agreement, we entered into a credit agreement that provided us with aggregate financing of $500.0 million which was used to partially fund the Artesyn acquisition. See Note 22. Credit Facility for additional details related to the credit agreement. Advanced Energy is in the process of finalizing the assessment of fair value for the assets acquired and liabilities assumed related to the Artesyn acquisition.

Artesyn’s Embedded Power business is one of the world’s largest providers of highly engineered, application-specific power supplies for demanding applications. This acquisition will diversify our product portfolio and give us access to additional growth markets, including hyperscale data centers, telecom infrastructure in next generation 5G networks, embedded industrial power applications and medical power for diagnostic and treatment applications.

The components of the fair value of the total consideration transferred for the acquisition is as follows:



Cash paid for acquisition	$	389,326
Non-cash consideration		2,000
Contingent consideration and working capital adjustments		(6,848)
Total fair value of consideration transferred		384,478
Less cash acquired		(23,225)
Total purchase price	$	361,253

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed from the acquisition in 2019:


	Preliminary: September 10, 2019		Measurement Period Adjustments		Preliminary: December 31, 2019
Accounts and other receivable, net	$	128,221	$	-	$	128,221
Inventories		140,678		(900)		139,778
Property and equipment		65,016		(1,984)		63,032
Operating lease right-of-use assets		60,217		(144)		60,073
Goodwill		143,262		(30,222)		113,040
Intangible assets		125,000		(1,000)		124,000
Deferred income tax assets		14,767		(14,767)		—
Other assets		61,511		2,507		64,018
Total assets acquired		738,672		(46,510)		692,162
Accounts payable		144,652		50		144,702
Operating lease liability		59,634		477		60,111
Pension liability		48,494		192		48,686
Deferred income tax liabilities		37,218		(31,372)		5,846
Other liabilities		80,876		(9,312)		71,564
Total liabilities assumed		370,874		(39,965)		330,909
Total fair value of net assets acquired	$	367,798	$	(6,545)	$	361,253

A summary of the intangible assets acquired, amortization method and estimated useful lives are as follows:


			Amortization
	Artesyn		Method	Useful Life
Technology	$	28,000	Straight-line	5
Customer relationships		75,000	Straight-line	15
Tradename		21,000	Straight-line	10
Total	$	124,000

Goodwill and intangible assets are recorded in the functional currency of the entity and are subject to changes due to translation at each balance sheet date. The goodwill represents expected operating synergies from combining operations with the acquired companies and the estimated value associated with the enhancements to our comprehensive product lines and access to new markets. Advanced Energy is still evaluating the fair value for the assets acquired and liabilities assumed related to the Artesyn acquisition. Accordingly, the purchase price allocation presented above is preliminary.

2018 Acquisitions

In September 2018, Advanced Energy acquired LumaSense Technologies Holdings, Inc. ("LumaSense"), a privately held company with primary operations in Santa Clara, California, Frankfurt, Germany, and Ballerup, Denmark for a purchase price of $84.7 million, net of cash acquired.

In May 2018, Advanced Energy acquired the electrostatic technology and product line (“Electrostatic Product Line”) from Monroe Electronics, Inc. ("Monroe"), a privately held electronics manufacturer in Lyndonville, New York for $3.0 million in cash.

In February 2018, Advanced Energy acquired Trek Holding Co., LTD ("Trek"), a privately held company with operations in Tokyo, Japan and Lockport, New York, for $6.1 million, net of cash acquired. Trek has a 95% ownership interest in its U.S. subsidiary which is also its primary operation.

The components of the fair value of the total consideration transferred for our 2018 acquisitions are as follows:


			Electrostatic
	Trek		Product Line		LumaSense		Total
Cash paid for acquisition	$	11,723	$	3,000	$	94,946	$	109,669
Less cash acquired		(5,651)		—		(10,262)		(15,913)
Total purchase price	$	6,072	$	3,000	$	84,684	$	93,756

In 2019, Advanced Energy finalized the assessment of fair value for the assets acquired and liabilities assumed related to the LumaSense acquisition. The following table summarizes the fair values of the assets acquired and liabilities assumed from the LumaSense acquisition, including measurement period adjustments.


	Preliminary: December 31, 2018		Measurement Period Adjustments		Adjusted: December 31, 2019
Accounts and other receivable, net	$	7,167	$	-	$	7,167
Inventories		9,372		-		9,372
Property and equipment		1,353		-		1,353
Goodwill		48,032		(11,774)		36,258
Intangible assets		26,000		17,240		43,240
Deferred income tax assets		8,116		(1,785)		6,331
Other assets		5,126		878		6,004
Total assets acquired		105,166		4,559		109,725
Accounts payable		5,734		-		5,734
Deferred income tax liabilities		7,984		3,715		11,699
Other liabilities		6,764		844		7,608
Total liabilities assumed		20,482		4,559		25,041
Total fair value of net assets acquired	$	84,684	$	-	$	84,684

During 2019, we adjusted the estimated values of the assets acquired and liabilities assumed based upon the final valuation report. These adjustments included additional liabilities, changes to deferred taxes and changes in the allocation of excess purchase price between goodwill and intangibles.

The final fair values of the assets acquired and liabilities assumed from our acquisitions in 2018 are as follows:


			Electrostatic
	Trek		Product Line		LumaSense		Total
Accounts and other receivable, net	$	2,818	$	77	$	7,167	$	10,062
Inventories		3,941		292		9,372		13,605
Property and equipment		594		50		1,353		1,997
Goodwill		—		1,220		36,258		37,478
Intangible assets		788		1,400		43,240		45,428
Deferred income tax assets		606		—		6,331		6,937
Other assets		854		—		6,004		6,858
Total assets acquired		9,601		3,039		109,725		122,365
Accounts payable		747		39		5,734		6,520
Deferred income tax liabilities		—		—		11,699		11,699
Other liabilities		2,782		—		7,608		10,390
Total liabilities assumed		3,529		39		25,041		28,609
Total fair value of net assets acquired	$	6,072	$	3,000	$	84,684	$	93,756

A summary of the intangible assets acquired in 2018, amortization method and estimated useful lives are as follows:


							Method and Useful life
			Electrostatic				Amortization
	Trek		Product Line		LumaSense		Method	Useful Life
Technology	$	671	$	1,200	$	35,530	Straight-line	10 - 15
Customer relationships		117		200		4,360	Straight-line	10
Tradename		—		—		3,350	Straight-line	10
Total	$	788	$	1,400	$	43,240

Pro forma results for Advanced Energy Inc. giving effect to the Artesyn Embedded Power Business and LumaSense Technologies Holdings, Inc. Transactions

The following unaudited pro forma financial information presents the combined results of operations of Advanced Energy, LumaSense and Artesyn as if each of the acquisitions had been completed at the beginning of the fiscal year prior to their acquisition. The unaudited pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of the year prior to the acquisition dates, nor are they indicative of future results.

The unaudited pro forma financial information for the year ended December 31, 2019 includes Advanced Energy’s results, including the post-acquisition results of LumaSense, since September 1, 2018 and the post-acquisition results of Artesyn, since September 10, 2019. The unaudited pro forma financial information for the year ended December 31, 2019 and 2018 combines Advanced Energy’s results with the pre-acquisition results of Artesyn and LumaSense for that period.

The following table presents our unaudited pro forma results for the acquisitions of Artesyn and LumaSense:


	Year Ended December 31,
	2019				2018
	As Reported		Pro Forma		As Reported		Pro Forma
Total sales	$	788,948	$	1,202,790	$	718,892	$	1,350,037
Net income attributable to Advanced Energy Industries, Inc.	$	64,941	$	83,104	$	147,025	$	158,422
Earnings per share:
Basic earnings per share	$	1.70	$	2.17	$	3.76	$	4.05
Diluted earnings per share	$	1.69	$	2.16	$	3.74	$	4.03

The unaudited pro forma results for all periods presented include adjustments made to account for certain costs and transactions that would have been incurred had the acquisitions been completed at the beginning of the year prior to the year of acquisition. These include adjustments to amortization charges for acquired intangible assets, interest and financing expenses, transaction costs, amortization of purchased gross profit and the alignment of various accounting policies. These adjustments are net of any applicable tax impact and were included to arrive at the pro forma results above.

Artesyn’s operating results have been included in the Advanced Energy’s operating results for the periods subsequent to the completion of the acquisition on September 10, 2019. During the year ended December 31, 2019, Artesyn contributed total sales of $220.3 million and net income of $7.1 million, including interest and other expense associated with the financing of the transaction.