4. Acquisitions

Description of Transaction

On May 1, 2014, we closed a transaction to acquire DynaTen Corportation ("DynaTen") which reports as a separate operating location in northern Texas. DynaTen is a regional mechanical contractor based in Fort Worth, Texas which engages in a broad range of mechanical contracting projects, HVAC services and controls, in the Dallas/Fort Worth metroplex and in surrounding areas.

Fair Value

The following summarizes the acquisition date fair value of consideration transferred and identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands):

Cash and cash equivalents	$	387
Receivables		15,516
Costs and estimated earnings in excess of billings		1,481
Other current assets		601
Property and equipment		3,239
Other non-current assets		6
Goodwill		19,379
Identifiable intangible assets		10,900
Accounts payable and other current liabilities		(5,634	)
Billings in excess of costs and estimated earnings		(4,703	)
Capital lease obligations		(711	)

Total purchase price	$	40,461

The total purchase price was $40.5 million, including $40.3 million in cash and a $0.2 million contingent earn-out obligation.

The contingent earn-out obligation is based upon exceeding specified earnings milestones each year during a three-year period and the range of estimated milestone payments is from zero to $2 million (undiscounted). We determined the initial fair value of the contingent earn-out obligation based on a probability-weighted income approach, which represents a Level 3 measurement. The resulting probability-weighted cash flows were discounted using a 3% discount rate, which we believe is appropriate and representative of a market participant assumption. We measure the contingent earn-out obligation at fair value each reporting period and changes in the estimated fair value of the contingent payments are recognized in earnings.

Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. All of the goodwill recognized as a result of this transaction is tax deductible.

The acquired assets include the following (in thousands):

	Valuation Method	Estimated Amortization Life	Estimated Value
Customer relationships	Excess earnings	15 years	$	5,600
Backlog	Excess earnings	2 years	$	1,200
Tradenames	Relief-from-royalty	25 years	$	4,100

Total acquired intangible assets			$	10,900

In estimating the fair value of the acquired intangible assets, we utilized the valuation methodology determined to be the most appropriate for the individual intangible asset. In order to estimate the fair value of the backlog and customer relationships, we utilized an excess earnings methodology, which consisted of the projected cash flows attributable to these assets discounted to present value using a risk-adjusted discount rate that represented the required rate of return. The tradename value was determined based on the relief-from-royalty method, which applies a royalty rate to the revenue stream attributable to this asset and the resulting royalty payment is tax effected and discounted to present value. Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent Level 3 inputs. The primary assumptions used were generally based upon the present value of anticipated cash flows discounted at rates ranging from 12%-16%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

Other Acquisitions

We completed various other acquisitions in 2014 and 2012, which were not material, individually or in the aggregate, and were "tucked-in" with existing operations. The total purchase price for the "tucked-in" acquisitions, including earn-outs, was $15.4 million in 2014 and $14.2 million in 2012. No acquisitions were completed in 2013. One of the "tucked-in" acquisitions was completed in the fourth quarter of 2014. Our consolidated balance sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed for this acquisition pending the completion of the final valuation of intangible assets and purchase price adjustments. The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Additional contingent purchase price ("earn-out") has been or will be paid if certain acquisitions achieve predetermined profitability targets.