Business Combinations

12 Months Ended

Dec. 31, 2020

BUSINESS COMBINATIONS

As part of our ongoing strategy to expand geographically and increase market share in certain markets, we completed nine, six and ten business combinations during the years ended December 31, 2020, 2019 and 2018, respectively, as well as several insignificant tuck-in acquisitions merged into existing operations in 2019 and 2018, in which we acquired 100% of the voting equity interests in each acquired entity. Acquisition-related costs amounted to $2.8 million, $2.1 million and $2.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in Administrative expenses on the Consolidated Statements of Operations and Comprehensive Income. The goodwill to be 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 $21.0 million of goodwill for tax purposes as a result of 2020 acquisitions.

Below is a summary of each significant acquisition by year, including revenue and net income (loss) since date of acquisition, shown for the year of acquisition. The largest of our 2020 acquisitions were Royals Commercial Services, Inc. (“Royals”) in February 2020, certain branches from Energy One America, LLC (“Energy One”) in August 2020, Storm Master Gutters (“Storm Master”) in August 2020, Insulation Contractors/Magellan Insulation (“ICON”) in October 2020, Norkote, Inc. (“Norkote”) in October 2020, and WeatherSeal Insulation Co., LLC (“WeatherSeal”) in November 2020. In each table, “Other” represents acquisitions that were individually immaterial in that year. Net income (loss), as noted below, includes amortization, taxes and interest allocations when appropriate.

For the year ended December 31, 2020 (in thousands):


2020 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
Royals	2/29/2020	Asset	$	7,590	$	2,500	$	10,090	$	11,095	$	1,332
Energy One	8/10/2020	Asset	13,200		1,591		14,791		7,454		(558)
Storm Master	8/31/2020	Asset	13,000		1,336		14,336		8,131		619
ICON	10/13/2020	Asset	16,900		3,598		20,498		4,798		449
Norkote	10/26/2020	Asset	8,725		2,426		11,151		2,702		417
WeatherSeal	11/16/2020	Asset	9,500		922		10,422		766		(23)
Other	Various	Asset	7,531		1,713		9,244		5,548		(344)
Total			$	76,446	$	14,086	$	90,532	$	40,494	$	1,892

For the year ended December 31, 2019 (in thousands):


2019 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
1st State Insulation	3/18/2019	Asset	$	5,125	$	1,355	$	6,480	$	9,828	$	476
Expert Insulation	6/24/2019	Asset	16,165		1,993		18,158		6,484		155
Premier	11/18/2019	Share	25,000		2,765		27,765		2,161		(62)
Other	Various	Asset	5,750		1,430		7,180		3,339		23
Total			$	52,040	$	7,543	$	59,583	$	21,812	$	592

For the year ended December 31, 2018 (in thousands):


2018 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
CDG	3/19/2018	Asset	$	9,440	$	1,973	$	11,413	$	11,466	$	531
AFT	10/31/2018	Asset	19,707		1,510		21,217		3,530		(13)
Other	Various	Shares/Asset	28,593		4,057		32,650		24,329		639
Total			$	57,740	$	7,540	$	65,280	$	39,325	$	1,157

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 (in thousands):


	2020
	Royals		Energy One		Storm Master		ICON		Norkote		WeatherSeal		Other		Total
Estimated fair values:

Accounts receivable	$	2,848	$	3,357	$	2,362	$	4,828	$	1,926	$	865	$	1,419	$	17,605
Inventories	305		838		175		243		444		156		$	600	$	2,761
Other current assets	430		12		—		675		178		14		$	145	$	1,454
Property and equipment	598		2,319		798		380		584		520		$	663	$	5,862
Intangibles	3,930		6,500		8,720		11,830		5,310		5,450		$	4,483	$	46,223
Goodwill	3,015		3,253		3,631		2,870		2,841		3,472		$	2,223	$	21,305
Other non-current assets	58		—		—		145		—		—		$	38	$	241
Accounts payable and other current liabilities	(1,059)		(1,469)		(1,336)		(445)		(86)		(50)		$	(196)	$	(4,641)

Other long-term liabilities	(35)		(19)		(14)		(28)		(46)		(5)		$	(131)	$	(278)
Fair value of assets acquired and purchase price	10,090		14,791		14,336		20,498		11,151		10,422		9,244		90,532
Less seller obligations	2,500		1,591		1,336		3,598		2,426		922		1,713		14,086
Cash paid	$	7,590	$	13,200	$	13,000	$	16,900	$	8,725	$	9,500	$	7,531	$	76,446


	2019
	1st State		Expert		Premier		Other		Total
Estimated fair values:
Cash	—		—		$	334	—		$	334
Accounts receivable	—		1,796		2,929		479		5,204
Inventories	291		723		1,242		410		2,666
Other current assets	—		—		—		3		3
Property and equipment	989		235		876		887		2,987
Intangibles	3,382		6,740		14,300		3,619		28,041
Goodwill	1,857		8,545		10,151		1,765		22,318
Other non-current assets	—		161		329		41		531
Accounts payable and other current liabilities	(39)		(42)		(2,396)		(24)		(2,501)

Fair value of assets acquired and purchase price	6,480		18,158		27,765		7,180		59,583
Less seller obligations	1,355		1,993		2,765		1,430		7,543
Cash paid	$	5,125	$	16,165	$	25,000	$	5,750	$	52,040


	2018
	CDG		AFT	Other		Total
Estimated fair values:
Accounts receivable	$	1,731	—	$	4,104	$	5,835
Inventories	514		565	1,136		2,215
Other current assets	28		—	918		946
Property and equipment	933		2,882	2,169		5,984
Intangibles	3,711		13,470	18,904		36,085
Goodwill	4,898		4,415	7,766		17,079
Other non-current assets	36		13	82		131
Accounts payable and other current liabilities	(438)		(128)	(2,429)		(2,995)
Fair value of assets acquired and purchase price	11,413		21,217	32,650		65,280

Less seller obligations	1,973		1,510	4,057		7,540
Cash paid	$9,440		$19,707	$28,593		$57,740

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 earnouts based on performance that are recorded at fair value at the time of acquisition, and/or non-compete agreements and amounts based on working capital calculations. When these payments are expected to be made over one year from the acquisition date, the contingent consideration is discounted to net present value of future payments based on a weighted average of various future forecast scenarios.

Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party or internal valuations are finalized, certain tax aspects of the transaction are completed, contingent consideration is settled, 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 7, Goodwill and Intangibles, during the years ended December 31, 2020, 2019 and 2018 due to minor adjustments to goodwill for the allocation of certain acquisitions still under measurement as well as other immaterial intangible assets added during the ordinary course of business. In addition, goodwill and intangibles increased during the years ended December 31, 2019 and 2018 due to various small acquisitions merged into existing operations that do not appear in the above tables.

Estimates of acquired intangible assets related to the acquisitions are as follows (dollars in thousands):


	2020			2019			2018
Acquired intangibles assets	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs)	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs)	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs)
Customer relationships	$	28,307	8	$	20,659	8	$	27,149	8
Trademarks and trade names	9,834		15	5,286		15	6,075		15
Non-competition agreements	3,315		5	2,096		5	2,401		5
Backlog	4,767		1.5	—		—	460		2

Pro Forma Information (unaudited)

The unaudited pro forma information has been prepared as if the 2020 acquisitions had taken place on January 1, 2019, the 2019 acquisitions had taken place on January 1, 2018 and the 2018 acquisitions had taken place on January 1, 2017. 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, 2019, 2018 and 2017 and the unaudited pro forma information does not purport to be indicative of future financial operating results (in thousands, except for per share data).


	December 31,
	2020		2019		2018
Net revenue	$	1,722,030	$	1,660,326	$	1,436,713
Net income	99,243		76,474		61,148
Basic net income per share	3.36		2.57		1.97
Diluted net income per share	3.34		2.56		1.96

Unaudited pro forma net income reflects additional intangible asset amortization expense of $5.4 million, $10.2 million and $6.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, as well as additional income tax expense of $0.7 million, $3.0 million and $2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.