Note 18 - Acquisition of Businesses

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE

18

– Acquisition of Business

es

:

CID Resources

On

May 2, 2018,

the Company acquired CID Resources, Inc., a Delaware corporation (“CID”), which manufactures medical uniforms, lab coats, and layers, and sells its products to specialty uniform retailers, ecommerce medical uniform retailers, and other retailers.

The purchase price in the acquisition consisted of the following: (a) approximately

$84.4

million in cash, subject to adjustment for cash on hand, indebtedness, unpaid Seller expenses and working capital (excluding cash), in each case as of the closing date, and (b) the issuance of

150,094

shares of the Company’s common stock to an equityholder of CID. The working capital adjustment was based on the difference between working capital as of the closing date and a target amount of approximately

$39.5

million.

Fair Value of Consideration Transferred

A summary of the purchase price is as follows (in thousands):

Cash consideration at closing	$	84,430
Superior common stock issued		3,763
Cash and working capital adjustment		2,521
Total Consideration	$	90,714

Assets Acquired and Liabilities Assumed

The total purchase price was allocated to the tangible and intangible assets and liabilities of CID based on their estimated fair values as of

May 2, 2018.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of CID based on their estimated fair values as of the effective date of the transaction.

The assets and liabilities of CID shown below are based on our preliminary estimates of their acquisition date fair values. Our final fair value determination

may

be different than those shown below.

The following is our preliminary assignment of the aggregate consideration (in thousands):

Cash	$	1,360
Accounts receivable		9,657
Prepaid expenses and other current assets		1,248
Inventories		30,692
Property, plant and equipment		1,134
Contract assets		2,535
Identifiable intangible assets		41,020
Goodwill		17,968
Total assets	$	105,614
Accounts payable		4,472
Deferred tax liability		9,461
Other current liabilities		967
Total liabilities	$	14,900

The Company recorded

$41.0

million in identifiable intangibles at fair value, consisting of

$26.0

million in acquired customer relationships,

$0.8

million for a non-compete agreement and

$14.2

million for the brand name.

Goodwill was calculated as the difference between the fair value of the consideration and the values assigned to the assets acquired and liabilities assumed. This goodwill will

not

be deductible for tax purposes.

The intangible assets associated with the customer relationships are being amortized for

fifteen

years beginning on

May 2, 2018

and the non-compete agreement is being amortized for

five

years. The trade name is considered an indefinite-life asset and as such is

not

being amortized.

The Company recognized amortization expense on these acquired intangible assets of

$1.3

million for the year ended

December 31, 2018.

For the year ended

December 31, 2018,

the Company incurred and expensed transaction related expenses of approximately

$2.1

million. This amount is included in selling and administrative expenses on the consolidated statements of comprehensive income.

On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the entire year ended

December 31, 2018

net sales would have increased approximately

$22.3

million. Net income would have increased

$2.7

million or

$0.17

per share.

On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the years ended

December 31, 2017

and

2016,

net sales would have increased approximately

$65.3

million and

$61.2

respectively. Net income would have increased

$0.4

million in or

$0.02

per share in

2017

and increased

$0.3

million and

$0.02

per share in

2016.

BAMKO

On

March 8, 2016,

the Company closed on the acquisition of substantially all of the assets of BAMKO, Inc. The transaction had an effective date of

March 1, 2016.

The purchase price for the asset acquisition consisted of approximately

$15.2

million in cash, net of cash acquired, the issuance of approximately

324,000

restricted shares of Superior’s common stock that vest over a

five

-year period, potential future payments of approximately

$5.5

million in additional contingent consideration through

2021,

and the assumption of certain liabilities of BAMKO, Inc. The transaction also included the acquisition of BAMKO, Inc.’s subsidiaries in Hong Kong, China, Brazil and England as well as an affiliate in India.

Fair Value of Consideration Transferred

A summary of the purchase price is as follows (in thousands):
Cash consideration at closing, net of cash acquired	$	15,161
Restricted shares of Superior common stock issued		4,558
Contingent consideration		5,205
Total Consideration	$	24,924

Assets Acquired and Liabilities Assumed

The total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of BAMKO, Inc. based on their estimated fair values as of

March 1, 2016.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and assumed liabilities of BAMKO based on their fair values as of the effective date of the transaction.

The following is our assignment of the aggregate consideration (in thousands):

Accounts receivable	$	4,885
Prepaid expenses and other current assets		3,200
Inventories		236
Property, plant and equipment		199
Other assets		100
Identifiable intangible assets		11,360
Goodwill		6,994
Total assets	$	26,974
Accounts payables		1,314
Other current liabilities		736
Total liabilities	$	2,050

The Company recorded

$11.4

million in identifiable intangibles at fair value, consisting of

$2.1

million in acquired customer relationships,

$0.4

million in non-compete agreements from the former owners of BAMKO, Inc., and

$8.9

million for the acquired trade name.

The estimated fair value for acquisition-related contingent consideration payable is

$4.0

million as of

December 31, 2018.

The current portion of

$0.9

million is expected to be paid in the

second

quarter of

2019.

The Company will continue to evaluate this liability for remeasurement at the end of each reporting period and any change will be recorded in the Company’s consolidated statement of comprehensive income. The carrying amount of the liability

may

fluctuate significantly and actual amounts paid

may

be materially different from the estimated value of the liability.

Goodwill was calculated as the difference between the fair value of the consideration and the values assigned to the assets acquired and liabilities assumed.

The intangible assets associated with the customer relationships will be amortized for

seven

years beginning on

March 1, 2016

and the non-compete agreement will be amortized for

five

years and

ten

months. The trade name is considered an indefinite-life asset and as such will

not

be amortized.

The Company recognized amortization expense on these acquired intangible assets of

$0.4

million,

$0.4

million and

$0.3

million for the years ended

December 31, 2018,

2017,

and

2016,

respectively.

For the year ended

December 31, 2016,

the Company incurred and expensed transaction related expenses of approximately

$1.1

million. This amount is included in selling and administrative expenses on the consolidated statements of comprehensive income.

On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the years ended

December 31, 2016

net sales would have increased approximately

$6.6

million. Net income would have increased

$1.1

million or

$0.08

per share for the year ended

December 31, 2016.

Public Identity

On

August 21, 2017,

BAMKO acquired substantially all of the assets and assumed certain liabilities of PublicIdentity, Inc. (“Public Identity”) of Los Angeles, CA. Public Identity is a promotional products and branded merchandise agency that provides innovative, high quality merchandise and promotional products to corporate clients and universities across the country.

The purchase price for the acquisition consisted of

$0.8

million in cash, the issuance of approximately

54,000

restricted shares of Superior’s common stock and future payments of approximately

$0.4

million in additional consideration through

2020.

The majority of the shares issued vest over a

three

-year period. The fair value of the consideration transferred is approximately

$2.3

million. Based up on their acquisition date fair values, we have assigned approximately

$1.7

million to identifiable intangible assets and approximately

$0.6

million to goodwill.

Tangerine Promotions

On

November 30, 2017,

BAMKO closed on the acquisition of substantially all of the assets of Tangerine Promotions, Ltd. and Tangerine Promotions West, Inc. (collectively “Tangerine”). The transaction had an effective date of

December 1, 2017.

Tangerine is a promotional products and branded merchandise agency that serves many well-known brands. The company is

one

of the leading providers of Point-of-Purchase (POP) and Point-of-Sale (POS) merchandise in the country. The purchase price for the asset acquisition consisted of approximately

$7.2

million in cash, subject to adjustment, the issuance of approximately

83,000

restricted shares of Superior’s common stock that vests over a

four

-year period, the potential future payments of approximately

$5.5

million in additional contingent consideration through

2021,

and the assumption of certain liabilities.

The foregoing description of the asset purchase agreement does

not

purport to be complete and is subject to, and qualified in its entirety by, the full text of the agreement, which is filed as an exhibit to this Annual Report.

Fair Value of Consideration Transferred

A summary of the purchase price is as follows (in thousands):
Cash consideration at closing	$	7,222
Restricted shares of Superior common stock issued		1,657
Contingent consideration		3,209
Total Consideration	$	12,088

Assets Acquired and Liabilities Assumed

The total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of Tangerine based on their estimated fair values as of

December 1, 2017.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and assumed liabilities of Tangerine based on their estimated fair values as of the effective date of the transaction.

The following is our assignment of the aggregate consideration (in thousands):

Accounts receivable	$	5,051
Prepaid expenses and other current assets		969
Property, plant and equipment		131
Identifiable intangible assets		6,495
Goodwill		4,169
Total assets	$	16,815
Accounts payables		3,374
Other current liabilities		1,353
Total liabilities	$	4,727

The Company recorded

$6.5

million in identifiable intangibles at fair value, consisting of

$3.1

million in acquired customer relationships,

$0.2

million in non-compete agreements from the former owners of Tangerine, and

$3.2

million for the acquired trade name.

The estimated fair value for acquisition-related contingent consideration payable is

$2.4

million as of

December 31, 2018.

We do

not

expect to make a payment in the

second

quarter of

2019.

The Company will continue to evaluate this liability for remeasurement at the end of each reporting period and any change will be recorded in the Company’s consolidated statement of comprehensive income. The carrying amount of the liability

may

fluctuate significantly and actual amounts paid

may

be materially different from the estimated value of the liability.

Goodwill was calculated as the difference between the fair value of the consideration and the values assigned to the assets acquired and liabilities assumed.

The intangible assets associated with the customer relationships will be amortized for

seven

years beginning on

December 1, 2017

and the non-compete agreement will be amortized for

seven

years. The trade name is considered an indefinite-life asset and as such will

not

be amortized.

The Company recognized amortization expense on these acquired intangible assets of

$0.6

million and

$0.1

million for the years ended

December 31, 2018

and

2017

respectively.

For the year ended

December 31, 2017,

the Company incurred and expensed transaction related expenses of approximately

$0.2

million. This amount is included in selling and administrative expenses on the consolidated statements of comprehensive income.

On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the entire year ended

December 31, 2017

and year ended

December 31, 2016,

net sales would have increased approximately

$35.1

million and  

$43.1

million respectively.  Net income would have increased

$0.1

million or

$0.01

per share in

2017

and decreased

$2.4

million or

$0.17

per share in

2016.