Acquisitions

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Acquisitions

3. Acquisitions

Stratiform

On December 29, 2016, we completed the acquisition of Stratiform, Inc. for C$2.1 million in cash (or $1.6 million). Stratiform is an industry-leading provider of cloud IT solutions that include consulting, professional and managed services to clients across Canada. As part of the Stratiform acquisition, we agreed to pay certain contingent earn-out consideration related to years ending December 31, 2017, 2018 and 2019 (each year the “measurement period”), and payable 90 days in arrears following each measurement period. As of December 31, 2016, we have estimated that the fair value of contingent consideration to be paid throughout the earn-out periods to be approximately $0.7 million, of which we have included $0.3 million in each of “Accrued expenses and other current liabilities” and “Other long-term liabilities” on our Consolidated Balance Sheet as of December 31, 2016.

Systemax

On December 1, 2015, we completed the acquisition of certain Business to Business (B2B) assets of Systemax’s North American Technology Group (NATG) for $14 million in cash. We acquired the right to hire approximately 400 B2B sales representatives located across the United States and Canada, all rights to the NATG B2B customer list, certain B2B customer and vendor contracts, trademarks and other intellectual property rights including the TigerDirect brand, and certain fixed assets and equipment. We did not acquire cash, accounts receivable, inventory or assume trade payables in connection with the transaction. Also at closing, the parties entered into a transition services agreement to facilitate an orderly transition of the purchased assets. We assumed certain leases and entered into certain subleases for office space where the approximate 400 B2B sales representatives currently work.

In January 2016, we exercised an option in our purchase agreement and paid $0.4 million related to our purchase of additional customer list information, which was recorded as an increase to goodwill associated with the Systemax assets acquisition. As of December 31, 2016, we have finalized the fair value determination and purchase price allocation for the Systemax acquisition, and there has been no other change to the preliminary accounting for the Systemax acquisition and the related purchase price allocation.

Based on the final purchase price allocation, we recorded the following fair values of the certain assets acquired and liabilities assumed at the date of the Systemax asset acquisition (in thousands):

Purchase price paid	$	14,000
Property and equipment		706
Intangible assets:
Customer relationships(1)		4,700
Trademarks and trade names(2)		2,020
Non-compete agreements(3)		270
Total intangible assets		6,990
Total assets acquired		7,696
Accrued liabilities		473
Capital lease payables		507
Total liabilities assumed		980
Goodwill(4)	$	7,284

(1)	Estimated useful life of this asset is 20 years.
(2)	Estimated useful life of this asset is 3 years.
(3)	Estimated useful life of this asset is 5 years.
(4)	This goodwill acquired as part of the Acrodex acquisition is recorded as part of our Canada segment, and it is not deductible for tax purposes

Following the completion of the acquisition on December 1, 2015, the results of our TigerDirect operations, which generated $12.5 million of net sales and $0.7 million of operating profit since the date of acquisition, have been included in the results of our Commercial, Public Sector and Canada operating segments for the year ended December 31, 2015.

Acrodex

On October 26, 2015, PCM Sales Canada, Inc., a wholly-owned subsidiary of PCM, Inc., completed the acquisition of all the outstanding common stock of Acrodex, Inc. (“Acrodex”) for a total purchase price of approximately C$16.7 million (or $13.6 million, net of cash acquired). Acrodex, headquartered in Edmonton, Alberta (Canada), provides full end-to-end infrastructure solutions from initial plan and design, through procurement and installation, to full support and on-going management. Acrodex’s core business areas include software value-added reseller services, software asset management and hardware sales and services, including client device products, servers, storage, networks, printers and a full complement of accessories and devices. Services are a significant component to Acrodex’s product mix and include managed services, cloud-based services, consulting, IT management and other IT service areas.

The accounting for the acquisition of Acrodex was finalized as of September 30, 2016. We have finalized the final fair value determination and purchase price allocation for the Acrodex acquisition, and there has been no other change to the preliminary accounting for the Acrodex acquisition and the related purchase price allocation. Based on the final purchase price allocation, we recorded the following estimated fair values of the certain assets acquired and liabilities assumed at the date of the Acrodex acquisition (in thousands):

Purchase price paid, net of cash acquired	$	13,566
Accounts receivable		14,330
Inventories		2,351
Prepaid expenses and other current assets		224
Property and equipment		1,098
Intangible assets:
Customer relationships(1)		1,657
Trademarks and trade names(2)		380
Non-compete agreements(3)		236
Total intangible assets		2,273
Other long-term assets		62
Total assets acquired		20,338
Accounts payable		6,190
Accrued liabilities		3,144
Deferred revenue		13
Total liabilities assumed		9,347
Goodwill(4)	$	2,575

(1)	Estimated useful life of this asset is 20 years.
(2)	Estimated useful life of this asset is 3 years.
(3)	Estimated useful life of this asset is 5 years.
(4)	This goodwill acquired as part of the Acrodex acquisition is recorded as part of our Canada segment, and it is not deductible for tax purposes.

In March 2016 and June 2016, we paid an additional $0.2 million and $0.1 million, respectively, related to adjustments to the net asset value as defined in the agreement, which was recorded as an increase to goodwill resulting from the Acrodex acquisition.

Following the completion of the Acrodex acquisition on October 26, 2015, the results of our Acrodex operations, which generated $16.7 million of net sales and $0.6 million of operating profit since the date of acquisition, have been included in the results of our Canada operating segment.

En Pointe

On April 1, 2015, we completed the acquisition of certain assets of En Pointe, one of the nation’s largest independent IT solutions providers, headquartered in Southern California. En Pointe is the largest acquisition by PCM to date based on revenues, and is expected to significantly enhance PCM’s relationships with several key vendor partners, provide incremental advanced technical certifications and operational expertise in key practice areas, and bring the consolidated business significantly increased scale. We acquired the assets of En Pointe’s IT solutions provider business, excluding cash and other current tangible assets such as accounts receivable. The assets were acquired by an indirect wholly-owned subsidiary of PCM, which subsidiary now operates under the En Pointe brand. Under the terms of the agreement, we paid an initial purchase price of $15 million in cash and an additional $2.3 million for inventory. We agreed to pay certain contingent earn-out consideration, including 22.5% of the future adjusted gross profit of the business and 10% of certain service revenues over the three years following the closing of the acquisition. As of December 31, 2016, we have estimated that the fair value of contingent consideration to be paid throughout the earn-out period ending March 31, 2018 to be approximately $38.6 million, representing no change from December 31, 2015. During 2016 and 2015, we made $13.1 million and $8.9 million, respectively, of earn-out payments to the sellers of En Pointe. The fair value of this contingent consideration is determined and accrued based on a probability weighted average of possible outcomes that would occur should certain financial metrics be reached. Because there is no market data available to use in valuing the contingent consideration, the Company developed its own assumptions related to the future financial performance of the businesses to determine the fair value of this liability. As such, the valuation of the contingent consideration is determined using Level 3 inputs. The significant inputs into the calculation of the contingent consideration as of December 31, 2016 and 2015 include projected gross profit values of En Pointe and the weighted average cost of capital, which was determined to be 13%. The undiscounted estimate of the range of outcomes for the earn-out liability is approximately $10.0 million to $76.9 million.

The accounting for the acquisition of En Pointe was finalized as of December 31, 2015. The purchase price has been allocated to the acquired assets and assumed liabilities, which include, but are not limited to, fixed assets, licenses, intangible assets and professional liabilities, based on estimated fair values as of the date of acquisition. Based on the final purchase price allocation, we recorded the following estimated fair values of the certain assets acquired and liabilities assumed at the date of the En Pointe acquisition (in thousands):

Purchase price paid	$	17,295
Inventories		4,004
Prepaid expenses and other current assets		1,598
Property and equipment		439
Intangible assets:
Customer relationships(1)		4,500
Trademarks and trade names(2)		2,000
Non-compete agreements(3)		1,860
Total intangible assets		8,360
Other long-term assets		115
Total assets acquired		14,516
Accounts payable		2,157
Accrued liabilities		1,489
Earn-out liabilities		38,625
Deferred revenue		276
Total liabilities assumed		42,547
Goodwill(4)	$	45,326

(1)	Estimated useful life of this asset is 20 years.
(2)	Estimated useful life of this asset is 3 years.
(3)	Estimated useful life of this asset is 4 years.
(4)	This goodwill acquired as part of the En Pointe acquisition is recorded as part of our Commercial and Public Sector segments.
	The goodwill resulting from the En Pointe acquisition is deductible for tax purposes.

As of December 31, 2016, we had $13.3 million and $3.4 million of accrued earn-out liability included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, on our Consolidated Balance Sheets. As of December 31, 2015, we had $13.2 million and $16.5 million of accrued earn-out liability included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, on our Consolidated Balance Sheets. We recorded approximately $2.3 million and $1.0 million of amortization expense during the years ended December 31, 2016 and 2015, respectively, related to the $8.4 million of intangible assets acquired in the En Pointe transaction.

The following table sets forth our results of operations on a pro forma basis as though the En Pointe acquisition had been completed as of the beginning of the periods presented (in thousands, except per share amounts):

	2015			2014
Net sales	$	1,779,975		$	1,767,963
Operating profit (loss)		(24,531	)		22,484
Income (loss) from continuing operations		(17,415	)		10,369
Net income (loss)		(17,725	)		8,799
Basic and Diluted Earnings (Loss) Per Common Share
Basic	$	(1.47	)	$	0.72
Diluted		(1.47	)		0.68
Weighted average number of common shares outstanding:
Basic		12,049			12,251
Diluted		12,049			12,881

Real Estate Transactions

In March 2015, we completed the purchase of real property in Irvine, California (the “Irvine Property”) for approximately $5.8 million and financed $4.9 million with a long-term note. The real property includes approximately 60,000 square feet of office and warehouse space and land. Certain of our subsidiaries were tenants of the building, which are continuing to use the office and warehouse space. In September 2015, we listed the Irvine Property for sale. See Note 5 below for more information.

In January 2015, we completed the purchase of certain real property in Lewis Center, Ohio for approximately $6.6 million. We paid approximately $2.2 million in cash and financed $4.575 million with a long-term note. The $4.575 million term note provides for a five-year term with a 25 year principal amortization period that began in February 2015, and bears interest at a variable rate of LIBOR plus 2.25%. The real property includes approximately 12.4 acres of land together with a building for office and warehouse space of approximately 144,000 square feet. Certain of our subsidiaries were tenants of the building, which are continuing to use the office and warehouse space.

For more information on the financing arrangements on the real estate transactions discussed above, see Note 8 below.