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Note 2 - Acquisitions | 9 Months Ended
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Mar. 31, 2019
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | 2 ) Acquisitions The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company. At the time of the acquisition and March 31, 2019, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors. Agile Magnetics On the last business day of the first quarter of fiscal year 2019, the Company acquired Regional Mfg. Specialists, Inc. (now named Agile Magnetics). The New Hampshire based, privately held company is a provider of high-reliability magnetics to customers in the semiconductor, military, aerospace, healthcare, and general industrial industries. The Company has included the results of Agile in its Electronics segment in the condensed consolidated financial statements. The Company paid $39.2 million in cash for all of the issued and outstanding equity interests of Agile. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values on the closing date. The Company has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible asset based on the preliminary valuation results. Goodwill recorded from this transaction is attributable to expanded capabilities of the combined organization which will allow for improved responsiveness to customer demands via a larger pool of engineering resources and local manufacturing. Intangible assets of $18.2 million are preliminarily recorded, consisting of $14.3 million of customer relationships, $3.8 million for trademarks, and $0.1 million for a non-compete arrangement. The goodwill of $15.6 million preliminarily recorded in connection with the transaction is deductible for income tax purposes. The Company’s assigned fair values are preliminary as of March 31, 2019 until such time as the valuation can be finalized. The components of the fair value of the Agile acquisition, including the preliminary allocation of the purchase price at March 31, 2019, are as follows (in thousands):
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Adjusted Allocation March 31, 2019 |
Fair value of business combination: |  |  |  |  |  |  |  |  |  |  |  |
Cash payments |  | $ | 39,194 |  |  |  | - |  |  |  | 39,194 |
Less, cash acquired |  |  | (1 | ) |  |  | - |  |  |  | (1 | )
Total |  | $ | 39,193 |  |  |  | - |  |  |  | 39,193 |
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Adjusted Allocation March 31, 2019 |
Identifiable assets acquired and liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Other acquired assets |  | $ | 1,928 |  |  |  | (35 | ) |  |  | 1,893 |
Inventories |  |  | 2,506 |  |  |  | 268 |  |  |  | 2,774 |
Customer Backlog |  |  | - |  |  |  | 220 |  |  |  | 220 |
Property, plant, & equipment |  |  | 1,318 |  |  |  | (348 | ) |  |  | 970 |
Identifiable intangible assets |  |  | 13,718 |  |  |  | 4,432 |  |  |  | 18,150 |
Goodwill |  |  | 20,142 |  |  |  | (4,528 | ) |  |  | 15,614 |
Liabilities assumed |  |  | (419 | ) |  |  | (9 | ) |  |  | (428 | )
Total |  | $ | 39,193 |  |  |  | - |  |  |  | 39,193 |
Tenibac-Graphion Inc. During August of fiscal year 2019, the Company acquired Tenibac-Graphion Inc. (“Tenibac”). The Michigan based privately held company is a provider of chemical and laser texturing services for the automotive, medical, packaging, and consumer products markets. The Company has included the results of Tenibac in its Engraving segment in the condensed consolidated financial statements. The Company paid $57.3 million in cash for all of the issued and outstanding equity interests of Tenibac. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. Goodwill recorded from this transaction is attributable to the complimentary services that the combined business can now offer to our customers, through increased responsiveness to customer demands, and providing innovative approaches to solving customer needs by offering a full line of mold and tool services to customers. Intangible assets of $16.9 million are preliminarily recorded, consisting of $11.3 million of customer relationships to be amortized over a period of nine years, $4.2 million for trademarks, and $1.4 million of other intangibles assets. The Company’s assigned fair values are preliminary as of March 31, 2019 until reviewed closing financial statements, including U.S. 338 (h) 10 elections, can be prepared by an independent accountant and agreed to by both parties as required by the stock purchase agreement. The goodwill of $33.8 million created by the transaction is deductible for income tax purposes. The components of the fair value of the Tenibac acquisition, including the preliminary allocation of the purchase price at March 31, 2019, are as follows (in thousands):
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Adjusted Allocation March 31, 2019 |
Fair value of business combination: |  |  |  |  |  |  |  |  |  |  |  |
Cash payments |  | $ | 57,284 |  |  |  | - |  |  |  | 57,284 |
Less cash acquired |  |  | (558 | ) |  |  | - |  |  |  | (558 | )
Total |  | $ | 56,726 |  |  |  | - |  |  |  | 56,726 |
|  | Preliminary Allocation September 30, 2018 |  |  | Adjustments |  |  | Adjusted Allocation March 31, 2019 |
Identifiable assets acquired and liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Other acquired assets |  | $ | 5,023 |  |  |  | (1,245 | ) |  |  | 3,778 |
Inventories |  |  | 324 |  |  |  | - |  |  |  | 324 |
Customer backlog |  |  | 1,000 |  |  |  | (800 | ) |  |  | 200 |
Property, plant, & equipment |  |  | 2,490 |  |  |  | 510 |  |  |  | 3,000 |
Identifiable intangible assets |  |  | 15,960 |  |  |  | 944 |  |  |  | 16,904 |
Goodwill |  |  | 32,949 |  |  |  | 830 |  |  |  | 33,779 |
Liabilities assumed |  |  | (1,020 | ) |  |  | (239 | ) |  |  | (1,259 | )
Total |  | $ | 56,726 |  |  |  | - |  |  |  | 56,726 |
Piazza Rosa Group During the first quarter of fiscal year 2018, the Company acquired the Piazza Rosa Group. The Italy-based privately held company is a leading provider of mold and tool treatment and finishing services for the automotive and consumer products markets. We have included the results of the Piazza Rosa Group in our Engraving segment. The Company paid $10.1 million in cash for all of the issued and outstanding equity interests of the Piazza Rosa Group and also paid $2.8 million subsequent to closing in order to satisfy assumed debt of the entity at the time of acquisition. The Company has estimated that total cash consideration will be adjusted by $2.6 million based upon achievement of certain revenue metrics over the three years following acquisition. The Company made the first payment of $0.9 million during the first quarter of 2019 based on achievement of the revenue metrics during the first year. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. Goodwill recorded from this transaction is attributable to potential revenue increases from the combined competencies with Standex Engraving’s worldwide presence and Piazza Rosa Group’s texturizing capabilities. The combined companies create a global tool finishing service leader and open additional opportunities in the broader surface engineering market. Intangible assets of $4.1 million were preliminarily recorded, consisting of $2.3 million of customer relationships to be amortized over a period of eight years, $1.6 million for trademarks, and $0.2 million of other intangibles assets. The Company finalized its purchase accounting for this acquisition in the first quarter of fiscal year 2019 and reduced the identifiable intangible asset estimate by $0.6 million at that time. The goodwill of $7.1 million created by the transaction is not deductible for income tax purposes. The components of the fair value of the Piazza Rosa Group acquisition, including the final allocation of the purchase price are as follows (in thousands):
|  | Preliminary Allocation September 30, 2017 |  |  | Adjustments |  |  | Final Allocation |
Fair value of business combination: |  |  |  |  |  |  |  |  |  |  |  |
Total cash consideration |  | $ | 10,056 |  |  | $ | - |  |  | $ | 10,056 |
Fair value of contingent consideration |  |  | - |  |  |  | 2,617 |  |  |  | 2,617 |
Total |  | $ | 10,056 |  |  | $ | 2,617 |  |  | $ | 12,673 |
|  | Preliminary Allocation September 30, 2017 |  |  | Adjustments |  |  | Final Allocation |
Identifiable assets acquired and liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Other acquired assets |  | $ | 2,678 |  |  | $ | 1,664 |  |  | $ | 4,342 |
Inventories |  |  | 637 |  |  |  | (2 | ) |  |  | 635 |
Property, plant, and equipment |  |  | 5,005 |  |  |  | 558 |  |  |  | 5,563 |
Identifiable intangible assets |  |  | 4,087 |  |  |  | (615 | ) |  |  | 3,472 |
Goodwill |  |  | 6,218 |  |  |  | 858 |  |  |  | 7,076 |
Liabilities assumed |  |  | (7,387 | ) |  |  | - |  |  |  | (7,387 | )
Deferred taxes |  |  | (1,182 | ) |  |  | 154 |  |  |  | (1,028 | )
Total |  | $ | 10,056 |  |  | $ | 2,617 |  |  | $ | 12,673 |
Acquisition-Related Costs Acquisition-related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation and (ii) acquisition-related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do not include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets. Deferred compensation costs relate to payments due to the Horizon Scientific seller of $3.0 million on the second anniversary and $5.6 million on the third anniversary of the closing date of the purchase. For the three and nine months ended March 31, 2019 we recorded deferred compensation costs of $0.7 million and $2.1 million respectively related to estimated deferred compensation earned by the Horizon Scientific seller to date which are nearly equal to the amounts recorded during the same periods in fiscal year 2018. The payments are contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date. Acquisition related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions. The components of acquisition-related costs are as follows (in thousands):
|  | Three Months Ended |  |  | Nine Months Ended |
|  | March 31, |  |  | March 31, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Deferred compensation arrangements |  | $ | 703 |  |  | $ | 702 |  |  | $ | 2,107 |  |  | $ | 2,108 |
Other acquisition-related costs |  |  | 102 |  |  |  | 552 |  |  |  | 245 |  |  |  | 854 |
Total |  | $ | 805 |  |  | $ | 1,254 |  |  | $ | 2,352 |  |  | $ | 2,962 |

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