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Tealstone Acquisition | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Tealstone Acquisition |
2. | Tealstone Acquisition
General On April 3, 2017, the Company consummated the acquisition (the “Tealstone Acquisition”) of 100% of the outstanding stock of Tealstone Residential Concrete, Inc. and Tealstone Commercial, Inc. (collectively, “Tealstone”) from the stockholders thereof (the “Sellers”) for consideration consisting of $55,000,000 in cash, 1,882,058 shares of the Company’s common stock (the “Placement Shares”), and $5,000,000 of promissory notes issued to the Sellers. In addition, the Company will make $2,426,000 and $7,500,000 of deferred cash payments on the second and third anniversaries of the closing date, respectively, and up to an aggregate of $15,000,000 in earn-out payments may be made on the first, second, third and fourth anniversaries of the closing date to continuing Tealstone management or their affiliates if specified financial performance levels are achieved. Tealstone focuses on concrete construction of residential foundations, parking structures, elevated slabs and other concrete work for leading homebuilders, multi-family developers and general contractors in both residential and commercial markets. This acquisition enables expansion into adjacent markets and diversification of revenue streams and customer base with higher margin work. The acquisition-date fair value of the consideration transferred totaled $83.5 million, net of cash acquired,which consisted of the following (amounts in thousands):
Cash, net of cash acquired | $ | 54,861 |
Common stock (1,882,058 shares) | 17,061 |
Promissory notes | 4,436 |
Deferred payments | 7,153 |
Total | $ | 83,511 |
The fair value of the 1,882,058 common shares issued was determined based on the average market price of the Company’s common shares on the acquisition date. The promissory notes and deferred payments have been discounted using a 12% fair value discount rate. The earn-out arrangement requires the Company to pay up to an aggregate of $15,000,000 in earn-out payments on the first, second, third and fourth anniversaries of the closing date to continuing Tealstone management or their affiliates if specified financial performance levels are achieved. The Company’s analysis indicates that the compensation is tied to the continuing employment of certain key employees and executives of Tealstone and will be treated as additional compensation and not as additional contingent consideration. Purchase Price Allocation The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values at the acquisition closing date, which were based, in part, upon outside appraisals for certain assets, primarily specifically-identified intangible assets. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired totaling $30.4 million, was recorded as goodwill. The following table summarizes our purchase price allocation at the acquisition closing date (in thousands):
Accounts receivable | 19,876 |
Costs and estimated earnings in excess of billings on uncompleted contracts | 2,944 |
Inventory | 1,218 |
Other current assets | 54 |
Property, plant and equipment | 565 |
Other assets, net | 1 |
Identifiable intangible assets | 46,617 |
Goodwill | 30,411 |
Accounts payable | (16,781 | )
Billings in excess of costs and estimated earnings on uncompleted contracts | (303 | )
Accrued expenses | (823 | )
State income tax payable | (268 | )
Total Consideration | $ | 83,511 |
Supplemental Pro Forma Information The following unaudited pro forma combined financial information (“the pro forma financial information”) gives effect to the acquisition of Tealstone by Sterling, accounted for as a business combination using the purchase method of accounting. To give effect to the Tealstone Acquisition for pro forma financial information purposes, Tealstone’s commercial historical results were brought to within one month of Sterling’s results for the twelve months ended December 31, 2017 and 2016. The pro forma financial information reflects the Tealstone Acquisition and related events as if they occurred at the beginning of the period, and gives effect to pro forma events that are: directly attributable to the acquisition, factually supportable, and expected to have a continuing impact on the combined results of Sterling and Tealstone following the acquisition. The pro forma financial information includes adjustments to: (1) exclude transaction costs that were included in Sterling’s and Tealstone’s historical results and are expected to be non-recurring; (2) include additional intangibles amortization and net interest expense associated with the Tealstone Acquisition; and (3) include the pro forma results of Tealstone for the twelve months ended December 31, 2017 and 2016. This pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the dates indicated. Further, the pro forma financial information does not purport to project the future operating results of the combined company following the Tealstone Acquisition. The unaudited pro forma consists of the following (amounts in thousands):
|  | Twelve Months Ended December 31,
|  | 2017 |  | 2016
Pro forma revenue |  | $ | 999,467 |  |  | $ | 868,324 |
Pro forma net income attributable to Sterling |  | $ | 12,401 |  |  | $ | 2,156 |
From the acquisition closing date of April 3, 2017, through December 31, 2017, revenue and income from operations associated with the Tealstone Acquisition totaled approximately $136.9 million and $16.5 million, respectively.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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