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Acquisitions | 3 Months Ended
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Mar. 31, 2021
Acquisitions |
Acquisitions | 5. Acquisitions ​ TAS Energy Inc. Acquisition ​ On April 1, 2020, we consummated a merger through which TAS Energy Inc. (“TAS”) became a wholly owned subsidiary of the Company. TAS is headquartered in Houston, Texas and is a leading engineering, design and construction provider of modular construction systems serving the technology, power and industrial sectors. As a result of the acquisition, TAS is a wholly owned subsidiary of the Company reported in our mechanical services segment. ​ The following summarizes the acquisition date fair value of consideration transferred and the acquisition date fair value of the identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands): ​
​ | ​ | ​
Consideration transferred: | ​ | ​
Cash paid at closing | $ | 105,950
Working capital adjustment | ​ | 40,455
Notes issued to former owners | ​ | 14,000
Estimated fair value of contingent earn-out payments | ​ | 9,100
​ | $ | 169,505
Recognized amounts of identifiable assets acquired and liabilities assumed: | ​ | ​
Cash and cash equivalents | $ | 47,460
Billed and unbilled accounts receivable | ​ | 18,702
Other current assets | ​ | 15,634
Other long-term assets | ​ | 1,556
Property and equipment | ​ | 7,709
Goodwill | ​ | 72,788
Identifiable intangible assets | ​ | 53,400
Lease right-of-use asset | ​ | 19,736
Accounts payable | ​ | (16,453)
Billings in excess of costs and estimated earnings | ​ | (24,196)
Current lease liabilities | ​ | (2,337)
Accrued expenses and other current liabilities | ​ | (4,109)
Long-term lease liabilities | ​ | (17,398)
Other long-term liabilities | ​ | (2,987)
​ | $ | 169,505
​ Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill recognized as a result of the TAS acquisition is not deductible for tax purposes. ​ 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 trade name 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 15% - 23.5%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class. ​ As a result of the TAS acquisition, we acquired $53.2 million of federal net operating loss (“NOL”) carryforwards and $6.5 million of state NOL carryforwards. Our ability to utilize these NOL carryforwards to reduce taxable income in future years is subject to significant limitations under Section 382 of the Internal Revenue Code (the “Code”) due to the ownership change in TAS on April 1, 2020. While we expect to fully utilize the federal NOL carryforwards before they begin to expire in 2031, a full valuation allowance was recorded against virtually all of the state NOL carryforwards. We do not believe it is more-likely-than-not that TAS will have sufficient revenue-generating operations in those states in the future. ​ The acquired intangible assets include the following (dollars in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Valuation Method | ​ | Estimated Useful Life | ​ | ​ | Estimated Fair Value
Backlog | ​ | Excess earnings | ​ | 1 year | ​ | $ | 5,200
Trade Name | ​ | Relief-from-royalty | ​ | 25 years | ​ | ​ | 8,200
Customer Relationships | ​ | Excess earnings | ​ | 10 years | ​ | ​ | 40,000
Total | ​ | ​ | ​ | ​ | ​ | $ | 53,400
​ The contingent earn-out obligation is associated with the achievement of two earnings milestones over a 27-month period, and the range of each estimated milestone payment is $1 million to $8 million. We determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using a 17.7% discount rate, which we believe is appropriate and representative of a market participant assumption. Subsequent to the acquisition date, the contingent earn-out obligation is remeasured at fair value each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings. ​ Other Acquisitions ​ We completed the acquisition of an electrical contractor in North Carolina in the first quarter of 2020 with a total purchase price of $41.6 million. This acquisition is reported in our electrical services segment. In the fourth quarter of 2020, we acquired all outstanding equity interest of Tennessee Electric Company, Inc. dba TEC Industrial Maintenance and Construction (“T E C”) for a total preliminary purchase price of $89.6 million which included $73.0 million in cash, $7.0 million in notes payable to former owners, a $7.6 million contingent earn-out obligation and a $2.0 million working capital adjustment. As a result of the acquisition, T E C is a wholly owned subsidiary of the Company reported in our electrical services segment. In the first quarter of 2021, we completed an acquisition of a mechanical contractor in Utah with a total preliminary purchase price of $19.6 million, which is reported in our mechanical services segment. ​ The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Our consolidated Balance Sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed for the applicable acquisitions pending the completion of the final valuation of intangible assets and accrued liabilities. The acquisitions completed in the current and prior year were not material, individually or in the aggregate. Additional contingent purchase price (“earn-out”) has been or will be paid if certain acquisitions achieve predetermined profitability targets. Such earn-outs, when they are not subject to the continued employment of the sellers, are estimated as of the purchase date and included as part of the consideration paid for the acquisition. If we have an earn-out under which continued employment is a condition to receipt of payment, then the earn-out is recorded as compensation expense over the period earned.

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