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Note 2 - Acquisitions

9 Months Ended

Mar. 31, 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 March 31, 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 has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible assets based on the preliminary 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 are preliminarily recorded, consisting primarily of $3.6 million for indefinite lived trademarks, and $6.8 million of customer relationships to be amortized over 12 years. The Company’s assigned fair values are preliminary as of March 31, 2021 until such time as the valuation can be finalized. The goodwill of $14.0 million created by the transaction is deductible for income tax purposes.

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.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. 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.

Please refer to Note 4 Fair Value Measurements for further information about the valuation of the $3.0 million contingent consideration liability.

The components of the fair value of the Renco Electronics acquisition, including the preliminary allocation of the purchase price at March 31, 2021, are as follows (in thousands):

	*Preliminary Allocation September 30, 2020*			*Adjustments*			*Adjusted Preliminary Allocation March 31, 2021*
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

	*Preliminary Allocation September 30, 2020*			*Adjustments*			*Adjusted Preliminary Allocation March 31, 2021*
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

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.

Contingent consideration payable to the seller of Horizon Scientific is based on continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The Company was contractually obligated to pay contingent consideration payments in connection with the Horizon Scientific acquisition based on the criteria of continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The seller of Horizon remained employed on the second and third anniversaries of the closing date and payments were made to the seller in the second quarters of fiscal year 2019 and 2020. This obligation is considered settled as of June 30, 2020.

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,*
	*2021*		*2020*		*2021*		*2020*
Contingent consideration arrangements	$	-	$	-	$	-	$	1,170
Other acquisition-related costs		255		120		850		480
Total	$	255	$	120	$	850	$	1,650