NOTE 14 – BUSINESS COMBINATIONS

As part of our ongoing strategy to expand geographically and increase market share in certain markets, we completed two business combinations and one insignificant tuck-in acquisition merged into existing operations during each of the three months ended March 31, 2018 and 2017, respectively, in which we acquired 100% of the ownership interests in each.

The largest of these acquisitions were Custom Overhead Door, LLC dba Custom Door & Gate (collectively, “CDG”) in March 2018 and Trilok Industries, Inc., Alpha Insulation and Waterproofing Inc. and Alpha Insulation and Waterproofing Company (collectively, “Alpha”) in January 2017. The remaining acquisitions were individually insignificant as follows. Net (Loss) Income, as noted below, includes amortization, taxes and interest allocations when appropriate.

For the three months ended March 31, 2018 (in thousands):


									Total		Three months ended March 31, 2018
2018 Acquisitions	Date		Acquisition Type		Cash Paid		Seller Obligations		Purchase Price		Revenue		Net (Loss) Income
CDG		3/19/2018		Asset	$	9,440	$	1,973	$	11,413	$	400	$	(15	)
Other		1/15/2018		Asset		2,065		1,120		3,185		1,271		66

Total					$	11,505	$	3,093	$	14,598	$	1,671	$	51

For the three months ended March 31, 2017 (in thousands):


									Fair Value of		Total		Three months ended March 31, 2017
2017 Acquisitions	Date		Acquisition Type		Cash Paid		Seller Obligations		Common Stock		Purchase Price		Revenue		Net Income
Alpha⁽¹⁾		1/5/2017		Share	$	103,810	$	2,002	$	10,859	$	116,671	$	28,166	$	900
Other		3/20/2017		Asset		3,402		300		—		3,702		518		21

Total					$	107,212	$	2,302	$	10,859	$	120,373	$	28,684	$	921

⁽¹⁾

The cash paid included $21.7 million in contingent consideration to satisfy purchase price adjustments related to cash and net working capital requirements, earnout consideration based on Alpha’s change in EBITDA from 2015 and a customary holdback. These payments were based on fair value of each contingent payment at the time of acquisition and subsequently adjusted during the measurement period. We issued 282,577 shares of our common stock with a fair value of $10.9 million.

Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $0.5 million and $0.6 million for the three months ended March 31, 2018 and 2017, respectively. The goodwill recognized in conjunction with these business combinations represents the excess cost of the acquired entity over the net amount assigned to assets acquired and liabilities assumed. We expect to deduct approximately $6.1 million of goodwill for tax purposes as a result of 2018 acquisitions.

Purchase Price Allocations

The estimated fair values of the assets acquired and liabilities assumed for the acquisitions, as well as total purchase prices and cash paid, approximated the following as of March 31 (in thousands):


	2018									2017
	CDG			Other			Total			Alpha			Other			Total
Estimated fair values:
Cash	$	—		$	—		$	—		$	247		$	—		$	247
Accounts receivable		1,819			—			1,819			29,851			1,087			30,938
Inventories		514			75			589			1,852			746			2,598
Other current assets		13			12			25			4,500			3			4,503
Property and equipment		933			517			1,450			1,528			457			1,985
Intangibles		3,710			1,675			5,385			57,200			1,904			59,104
Goodwill		4,852			931			5,783			38,511			586			39,097
Other non-current assets		36			—			36			383			119			502
Accounts payable and other current liabilities		(464	)		(25	)		(489	)		(17,401	)		(1,200	)		(18,601	)

Fair value of assets acquired and purchase price		11,413			3,185			14,598			116,671			3,702			120,373
Less fair value of common stock issued		—			—			—			10,859			—			10,859
Less seller obligations		1,973			1,120			3,093			2,002			300			2,302

Cash paid	$	9,440		$	2,065		$	11,505		$	103,810		$	3,402		$	107,212

Contingent consideration is included as “seller obligations” in the above table or within “fair value of assets acquired” if subsequently paid during the period presented. These contingent payments consist primarily of amounts based on working capital calculations, earnouts based on performance, and non-compete agreements, all of which are based on fair value at the time of acquisition. When these payments are expected to be made over one year from the acquisition date, the contingent consideration is discounted to net present value using our weighted average cost of capital (WACC).

Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party and internal valuations are finalized, certain tax aspects of the transaction are completed and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the date of acquisition and future adjustments may be made through the end of each measurement period. Goodwill and intangibles per the above table do not agree to the total gross increases of these assets as shown in Note 5, Goodwill and Intangibles, during each of the three months ended March 31, 2018 and 2017 due to minor adjustments to goodwill for the allocation of certain acquisitions still under measurement. In addition, goodwill and intangibles increased during each of the three months ended March 31, 2018 and 2017 due to an immaterial tuck-in acquisition that does not appear in the above table.

The provisional amounts for Alpha originally reported in our Condensed Consolidated Balance Sheets included in our Quarterly Report on Form 10-Q for the period ended March 31, 2017 were adjusted during the measurement period to reflect the review and ongoing analysis of the fair value measurements. As a result of our continued evaluation during the measurement period, during the twelve months ended December 31, 2017, we increased goodwill by approximately $2.1 million, offset by a corresponding net reduction in various working capital accounts.

Estimates of acquired intangible assets related to the acquisitions are as follows for the three months ended March 31 (dollars in thousands):


	2018				2017
Acquired intangibles assets	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)
Customer relationships	$	3,440		8	$	28,401		8
Trademarks and trade names		1,695		15		15,496		15
Non-competition agreements		250		5		1,607		5
Backlog		—		—		13,600		1.5

Pro Forma Information

The unaudited pro forma information for the combined results of the Company has been prepared as if the 2018 acquisitions had taken place on January 1, 2017 and the 2017 acquisitions had taken place on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, 2017 and 2016, respectively, and the unaudited pro forma information does not purport to be indicative of future financial operating results (in thousands, except per share data):


	Unaudited pro forma for the three months ended March 31,
	2018		2017
Net revenue	$	304,790	$	275,530
Net income		6,457		7,436
Basic net income per share		0.20		0.24
Diluted net income per share		0.20		0.23

Unaudited pro forma net income reflects additional intangible asset amortization expense of $67 thousand and $0.7 million for the three months ended March 31, 2018 and 2017, respectively, as well as additional income tax expense of $23 thousand and $0.6 million for the three months ended March 31, 2018 and 2017, respectively, that would have been recorded had the 2018 acquisitions taken place on January 1, 2017 and the 2017 acquisitions taken place on January 1, 2016.