Acquisitions

12 Months Ended

Dec. 31, 2020

ACQUISITIONS:

The results of the acquired businesses have been included in Quanta’s consolidated financial statements beginning on the respective acquisition dates. During the year ended December 31, 2020, Quanta acquired a contractor located in the United States that provides electric power distribution, transmission and substation maintenance and construction, directional boring and emergency restoration services; a professional engineering business located in the United States that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies, as well as permitting and utility locating services; a business located in the United States that provides aviation services primarily for the utility industry; an electric power infrastructure business located in the United States that primarily provides underground conduit services; a business located in the United States that specializes in the deployment of short- and long-haul fiber optic cable and utilities; an industrial services business located in Canada that performs catalyst handling services, including changeover and shutdown maintenance, for customers in the refining and chemical industries; and a business located in the United States that provides heavy, civil, industrial and energy related services and specializes in the construction and maintenance of pipelines and metering stations. The aggregate consideration for these acquisitions was $351.7 million paid or payable in cash (subject to certain adjustments) and 1,334,469 shares of Quanta common stock, which had a fair value of $57.1 million as of the respective acquisition dates. Additionally, one of the acquisitions includes the potential payment of up to $6.9 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a five-year post-acquisition period. Based on the estimated fair value of the contingent consideration, Quanta recorded $2.3 million of liabilities as of the acquisition date. The results of the industrial services business and the business that specializes in the construction and maintenance of pipelines and metering stations have generally been included in the Underground Utility and Infrastructure Solutions segment and the results of the remaining businesses generally included in the Electric Power Infrastructure Solutions segment.

On August 30, 2019, Quanta acquired The Hallen Construction Co., Inc. (Hallen), a underground utility and infrastructure solutions business located in the United States that specializes in gas distribution and transmission services, and to a lesser extent, underground electric distribution and transmission services. During the year ended December 31, 2019, Quanta also acquired two specialty utility foundation and pole-setting contractors serving the southeast United States; an electric power specialty contracting business located in the United States that provides aerial power line and construction support services; a business located in the United States that provides technical training materials to electric utility workers; an electric power company specializing in project management and, to a lesser extent, water and wastewater projects located in the United States; and an electrical infrastructure solutions business located in Canada. The aggregate consideration for these acquisitions was $395.3 million paid or payable in cash, subject to certain adjustments, and 60,860 shares of Quanta common stock, which had a fair value of $1.8 million as of the respective acquisition date. A portion of the cash consideration in connection with the Hallen acquisition was placed in an escrow account, which, subject to certain conditions, could be utilized to reimburse Quanta for obligations associated with certain contingent liabilities assumed by Quanta in the transaction. See Legal Proceedings — Hallen Acquisition Assumed Liability in Note 14 for additional information related to these liabilities. The results of Hallen have generally been included in the Underground Utility and Infrastructure Solutions segment and the results of the other acquired businesses have generally been included in the Electric Power Infrastructure Solutions segment.

During the year ended December 31, 2018, Quanta acquired an electrical infrastructure solutions business specializing in substation construction and relay services, a postsecondary educational institution that provides training and programs for workers in the industries Quanta serves and two communications infrastructure services businesses, all of which are located in the United States. The aggregate consideration for these acquisitions was $108.3 million paid or payable in cash, subject to certain adjustments, and 679,668 shares of Quanta common stock, which had a fair value of $22.9 million as of the respective acquisition dates. Additionally, the acquisitions of the postsecondary educational institution and one of the communications infrastructure solutions businesses include the potential payment of up to $18.0 million of contingent consideration, payable if the acquired businesses achieve certain performance objectives over five- and three-year post-acquisition periods. Based on the estimated fair value of the contingent consideration, Quanta recorded $16.5 million of liabilities as of the respective acquisition

dates. The results of the acquired businesses have generally been included within the Electric Power Infrastructure Solutions segment.

The following table summarizes the aggregate consideration paid or payable as of December 31, 2020 for the acquisitions completed in 2020 and 2019 and presents the allocation of these amounts to net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price adjustments. These allocations require significant use of estimates and are based on information that was available to management at the time these consolidated financial statements were prepared. Quanta uses a variety of information to estimate fair values, including quoted market prices, carrying amounts and valuation techniques such as discounted cash flows. When deemed appropriate, third-party appraisal firms are engaged to assist in fair value determination of fixed assets, intangible assets and certain other assets and liabilities.

Quanta is finalizing its fair value assessments for the acquired assets and assumed liabilities related to businesses acquired during 2020, and further adjustments to the purchase price allocations may occur. As of December 31, 2020, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to tax estimates and inventory. Consideration amounts are also subject to the finalization of closing working capital adjustments and the completion of conditions precedent in order to close on agreements for the purchase real property related to certain of the businesses acquired in 2020. The following table summarizes the fair value of total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed (in thousands).


	2020		2019
Consideration:
Cash paid or payable	$	351,671	$	395,258
Value of Quanta common stock issued	57,119		1,791
Contingent consideration	2,250		—
Fair value of total consideration transferred or estimated to be transferred	$	411,040	$	397,049

Accounts receivable	$	74,848	$	112,142
Contract assets	8,919		11,869
Other current assets	51,836		14,290
Property and equipment	133,065		60,133
Other assets	14		149
Identifiable intangible assets	96,826		192,786
Contract liabilities	(10,324)		(11,856)
Other current liabilities	(27,156)		(73,698)
Deferred tax liabilities, net	(3,185)		(12,414)
Other long-term liabilities	—		(5,345)

Total identifiable net assets	324,843		288,056
Goodwill	86,197		112,132
Fair value of net assets acquired	411,040		400,188
Bargain purchase gain	—		(3,139)
Fair value of total consideration transferred or estimated to be transferred	$	411,040	$	397,049

Goodwill represents the amount by which the purchase price for an acquired business exceeds the net fair value of the assets acquired and liabilities assumed, and a bargain purchase gain results when the amount of the net fair value of the assets acquired and liabilities assumed exceeds the purchase price for an acquired business. The acquisition of the electrical infrastructure solutions business in Canada that occurred during the year ended December 31, 2019 included the recognition of a bargain purchase gain of $3.1 million, which was recorded in “Other income (expense), net” in the accompanying consolidated statements of operations.

The acquisitions completed in 2020, 2019 and 2018 strategically expanded Quanta’s domestic and international underground utility and infrastructure solutions and domestic and international electric power infrastructure solutions and communications service offerings, which Quanta believes contributes to the recognition of the goodwill. Approximately $75.6 million, $82.1 million, and $21.6 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in 2020, 2019 and 2018.

The following table summarizes the estimated fair values of identifiable intangible assets for the acquisitions completed in 2020 as of the acquisition dates and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).


	Estimated		Weighted Average
	Fair Value		Amortization Period in Years
Customer relationships	$	81,154	6.1
Backlog	4,022		1.4
Trade names	7,654		14.4
Non-compete agreements	3,996		5.0
Total intangible assets subject to amortization	$	96,826	6.5

The following unaudited supplemental pro forma results of operations for Quanta, which incorporate the acquisitions completed in 2020 and 2019, have been provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following pro forma financial information because of future events and transactions, as well as other factors (in thousands, except per share amounts).


	Year Ended December 31,
	2020		2019		2018
Revenues	$	11,400,807	$	12,844,508	$	11,894,866
Gross profit	$	1,708,844	$	1,761,317	$	1,635,777
Selling, general and administrative expenses	$	(998,283)	$	(1,027,254)	$	(913,392)
Amortization of intangible assets	$	(86,721)	$	(95,185)	$	(79,454)
Net income	$	459,890	$	434,593	$	332,973
Net income attributable to common stock	$	453,527	$	429,822	$	330,312

Earnings per share:
Basic	$	3.19	$	2.92	$	2.16
Diluted	$	3.11	$	2.89	$	2.14

The pro forma combined results of operations were prepared by adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2020 as if they occurred January 1, 2019, the historical results of the acquisitions completed in 2019 as if they occurred January 1, 2018 and the historical results of the acquisitions completed in 2018 as if they occurred January 1, 2017. These pro forma combined historical results were adjusted for the following: a reduction of interest expense as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest expense as a result of the cash consideration paid; an increase in amortization expense due to the incremental intangible assets recorded; changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies; an increase in the number of outstanding shares of Quanta common stock; and reclassifications to conform the acquired businesses’ presentation to Quanta’s accounting policies. The pro forma combined results of operations do not include any adjustments to eliminate the impact of acquisition-related costs or any cost savings or other synergies that resulted or may result from the acquisitions. As noted above, the pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.

Revenues of $133.5 million and a loss before income taxes of $1.3 million, which included $17.5 million of acquisition-related costs, are included in Quanta’s consolidated results of operations for the year ended December 31, 2020 related to the acquisitions completed in 2020. Revenues of $223.3 million and income before income taxes of $7.5 million, which included $22.1 million of acquisition-related costs, are included in Quanta’s consolidated results of operations for the year ended December 31, 2019 related to the acquisitions completed in 2019. Revenues of $71.1 million and a loss before income taxes of $8.9 million, which included $11.0 million of acquisition-related costs, are included in Quanta’s consolidated results of operations for the year ended December 31, 2018 related to the acquisitions completed in 2018.