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Note 2 - Acquisitions

12 Months Ended

Jun. 30, 2021

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 June 30, 2021, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

Renco Electronics

During the first quarter of fiscal year 2021, the Company acquired Renco Electronics, a designer and manufacturer of customized standard magnetics components and products including transformers, inductors, chokes and coils for power and RF applications. Renco’s end markets and customer base in areas such as consumer and industrial applications are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross selling opportunities between the two companies. Renco operates one manufacturing facility in Florida and is supported by contract manufacturers in Asia. Renco’s results are reported within our Electronics segment.

The Company paid $27.4 million in cash for all of the issued and outstanding equity interests of Renco Electronics. 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 commenced a formal valuation of the acquired assets and liabilities and have updated the preliminary intangible assets based on the final valuation results. Goodwill recorded from this transaction is attributable to Renco’s significant engineering and technical expertise in end markets supported by strong engineer-to-engineer relationships. In addition, Renco’s end markets and customer base in areas such as consumer and industrial are highly complementary to the Company’s existing business.

Intangible assets of $10.4 million consist primarily of $3.6 million for indefinite lived tradenames, and $6.8 million of customer relationships to be amortized over 12 years. The goodwill of $14.0 million created by the transaction is deductible for income tax purposes. Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon the finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

In connection with the acquisition, the Company entered into two lease arrangements and recorded right-of-use assets and short-term and long-term liabilities at inception. The Company signed a new lease agreement with a related party, an entity in which the Renco Electronics President is a shareholder, on July 15, 2020. The lease is for three years and is subject to renewal, at the Company’s option under similar terms and conditions. The Company recorded a fair value adjustment of $0.1 million in connection with this lease, which is included in other acquired assets in the table below.

The Company recorded right of use assets of $3.3 million, current lease liabilities of $1.8 million and non-current lease liabilities of $1.5 million, related to two operating leases in connection with the acquisition of Renco. Renco does not have material financing leases.

The components of the fair value of the Renco Electronics acquisition, including the final allocation of the purchase price at June 30, 2021, are as follows (in thousands):


	*Preliminary Allocation September 30, 2020*			*Adjustments*			*Final Allocation*
Fair value of business combination:
Cash payments	$	29,530		$	83		$	29,613
Less, cash acquired		(2,132	)		(75	)		(2,207	)
Fair value of contingent consideration		3,000			-			3,000
Total	$	30,398		$	8		$	30,406


Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	4,762		$	(240	)	$	4,522
Inventories		5,446			-			5,446
Property, plant, & equipment		-			410			410
Identifiable intangible assets		10,400			-			10,400
Goodwill		14,153			(162	)		13,991
Debt assumed		(712	)		-			(712	)
Liabilities assumed		(3,651	)		-			(3,651	)
Total	$	30,398		$	8		$	30,406

GS Engineering

During the fourth quarter of fiscal year 2019, the Company acquired Ohio-based Genius Solutions Engineering Company (d/b/a GS Engineering). The privately held company is a provider of specialized “soft surface” skin texturized tooling. GS Engineering primarily serves the automotive end market and its' operating results are included in the Company’s Engraving segment.

The Company paid $30.5 million in cash for all of the issued and outstanding equity interests of GS Engineering. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the fair values on the closing date. Goodwill from the transaction is attributable to the combined organization utilizing the GS technology across its global production footprint to enable customers worldwide to benefit from a combined offering for harmonized designs across a variety of surfaces and materials.

Intangible assets of $9.1 million are recorded, consisting of $5.6 million for developed technology to be amortized over a period of 15 years, $0.9 million for indefinite lived trademarks, and $2.6 million of customer relationships to be amortized over 12 years. The goodwill of $15.5 million created by the transaction is deductible for income tax purposes.

The components of the fair value of the GS Engineering acquisition, including the final allocation of the purchase price at June 30, 2020, are as follows (in thousands):

	*Preliminary Allocation*
	*June 30, 2019*			*Adjustments*			*Final Allocation*
Fair value of business combination:
Cash payments	$	30,002			780		$	30,782
Less, cash acquired		(622	)		(158	)		(780	)
Fair value of contingent consideration		500			-			500
Total	$	29,880		$	622		$	30,502


Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	2,197		$	(679	)	$	1,518
Inventories		228			168			396
Customer Backlog		180			(180	)		-
Property, plant, and equipment		1,391			3,179			4,570
Identifiable intangible assets		8,910			200			9,110
Goodwill		17,976			(2,518	)		15,458
Liabilities assumed		(1,002	)		452			(550	)
Total	$	29,880		$	622		$	30,502

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 included the results of Agile in its Electronics segment in the consolidated financial statements.

The Company paid $39.2 million in cash for all of the issued and outstanding equity interests of Agile. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the fair values on the closing date. 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 $17.4 million are recorded, consisting of $13.5 million of customer relationships to be amortized over a period of 13 years, $3.8 million for indefinite lived trademarks, and $0.1 million for a non-compete arrangement to be amortized over 5 years. The goodwill of $16.4 million recorded in connection with the transaction is deductible for income tax purposes.

The components of the fair value of the Agile acquisition, including the final allocation of the purchase price are as follows (in thousands):

	*Preliminary Allocation September 30, 2019*			*Adjustments*		*Final Allocation*
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, 2019*			*Adjustments*			*Final Allocation*
Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	1,928		$	(35	)	$	1,893
Inventories		2,506			268		$	2,774
Customer Backlog		-			200		$	200
Property, plant, & equipment		1,318			(348	)	$	970
Identifiable intangible assets		13,718			3,632		$	17,350
Goodwill		20,142			(3,708	)	$	16,434
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 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 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 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 recorded, consisting of $11.3 million of customer relationships to be amortized over a period of 15 years, $4.2 million for indefinite lived trademarks, and $1.4 million of other intangibles assets to be amortized over 5 years. The Company’s assigned fair values are final as of June 30, 2019. The goodwill of $34.4 million created by the transaction is deductible for income tax purposes.

The components of the fair value of the Tenibac acquisition, including the final allocation of the purchase price are as follows (in thousands):

	*Preliminary Allocation September 30, 2019*			*Adjustments*		*Final Allocation*

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, 2019*			*Adjustments*			*Final Allocation*
Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	5,023		$	(1,253	)	$	3,770
Inventories		324			-			324
Customer backlog		1,000			(800	)		200
Property, plant, & equipment		2,490			(19	)		2,471
Identifiable intangible assets		15,960			900			16,860
Goodwill		32,949			1,411			34,360
Liabilities assumed		(1,020	)		(239	)		(1,259	)
Total	$	56,726		$	-		$	56,726

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 the Company 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 $2.8 million on the second anniversary and $5.6 million on the third anniversary of the closing date of the purchase. For the fiscal years ended June 30, 2020 and 2019, the Company recorded deferred compensation costs of $1.2 million and $2.8 million, respectively, related to estimated deferred compensation earned by the Horizon Scientific seller to date. The payments were contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date. The final payment due to the seller was made during the second quarter of fiscal year 2020, and this liability is considered settled.

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):

	*June 30,*		*June 30,*		*June 30,*
	*2021*		*2020*		*2019*
Deferred compensation arrangements	$	-	$	1,170	$	2,810
Acquisition-related costs		931		589		265
Total	$	931	$	1,759	$	3,075