XML 23 R9.htm IDEA: XBRL DOCUMENT

Note 2 - Acquisitions

12 Months Ended

Jun. 30, 2022

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 June 30, 2022, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

During the fourth quarter of fiscal year 2022, the Company paid $3.1 million in cash for acquired assets and liabilities of a manufacturer of magnetic components. The results are reported within the Company's Electronics segment. The transaction resulted in $2.5 million of goodwill that is deductible for income tax purposes.

Sensor Solutions

During the third quarter of fiscal year 2022, the Company acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand the Company's presence in these markets. Sensor Solutions operates one light manufacturing facility in Colorado. Sensor Solutions' results are reported within the Company's Electronics segment.

The Company paid $9.9 million in cash for all the issued and outstanding equity interests of Sensor Solutions. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Sensor Solutions' technical and applications expertise in sectors such as electric vehicles, industrial automation and medical end markets, which is highly complementary to the Company's existing business.

Identifiable intangible assets of $2.8 million consist primarily of $0.8 million for indefinite lived tradenames, and $2.0 million of customer relationships to be amortized over 10 years. The goodwill of $6.0 million created by the transaction is deductible for income tax purposes. 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 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.

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

			*Preliminary Allocation*								*Preliminary Allocation*
		*March 31, 2022*				*Adjustments*				*June 30, 2022*
Fair value of business combination:
Cash payments		$	10,016				-			$	10,016
Less, cash acquired			(114	)			-				(114	)
Total		$	9,902			$	-			$	9,902


Identifiable assets acquired and liabilities assumed:
Other acquired assets		$	490			$	(2	)		$	488
Inventories			531				(2	)			529
Property, plant, and equipment			232				188				420
Identifiable intangible assets			2,800				(20	)			2,780
Goodwill			6,001				(161	)			5,840
Liabilities assumed			(152	)			(3	)			(155	)
Total		$	9,902			$	-			$	9,902

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 purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. 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.

Identifiable 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. 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.

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

		Final Allocation
Fair value of business combination:
Cash payments		$	29,613
Less, cash acquired			(2,207	)
Fair value of contingent consideration			3,000
Total		$	30,406


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

Acquisition Related Expenses

Acquisition related expenses include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation arrangements 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 defines as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.

For the fiscal year ended June 30, 2020, the Company recorded deferred compensation costs of $1.2 million 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 the liability was considered settled.

The components of acquisition related expenses are as follows (in thousands):

		*June 30,*				*June 30,*				*June 30,*
		*2022*				*2021*				*2020*
Deferred compensation arrangements		$	-			$	-			$	1,170
Acquisition related expenses			1,618				931				589
Total		$	1,618			$	931			$	1,759