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Note 2 - Acquisitions
 3 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Business Combination [Text Block]

2)     Acquisitions

 

McStarlite

 

On  February 5, 2025, the Company acquired 100% of the issued and outstanding shares of Basmat Inc., dba McStarlite, a privately held company, for $57.0 million, net of cash acquired. McStarlite is a leading provider of complex sheet metal aerospace components.  It designs and manufactures cold deep draw and bulge-formed aviation components, including segmented and single piece lipskins, nozzles, complex sheet metal assemblies, and tooling to support production hardware. McStarlite's results are reported within the Company's Engineering Technologies segment. 

 

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 McStarlite's technical and applications expertise, which is highly complementary to the Company's existing business.

 

Identifiable intangible assets of $24.5 million consist primarily of $19.7 million for customer relationships to be amortized over 12 years and $4.8 million for indefinite lived tradenames. The goodwill of $16.2 million created by the transaction is not 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.

 

During the three months ended September 30, 2025, the Company made the following changes to the purchase price allocation of McStarlite as mentioned below: 

 

  

Preliminary Allocation as of June 30, 2025

  

Adjustments

  

Preliminary Allocation as of September 30, 2025

 

Total purchase consideration:

            

Cash payments

 $57,549  $-  $57,549 

Less: cash acquired

  (586)  -   (586)

Total

 $56,963  $-  $56,963 
             

Identifiable assets acquired and liabilities assumed:

            

Other acquired assets

 $8,808  $-  $8,808 

Inventories

  6,744   -   6,744 

Customer backlog

  3,970   -   3,970 

Property, plant, and equipment

  8,603   -   8,603 

Identifiable intangible assets

  24,500   -   24,500 

Goodwill

  16,761   (554)  16,207 

Liabilities assumed

  (12,423)  554   (11,869)

Total

 $56,963  $-  $56,963 

 

There were no changes to the purchase price allocations of any other acquisitions during the three months ended September 30, 2025.

 

Amran/Narayan Group

 

On  October 28, 2024 (“Closing Date”), the Company acquired, in separate transactions, 100% of the outstanding membership interest in Amran LLC (“Amran”), a privately-held company based in Houston, Texas, pursuant to a Securities Purchase Agreement (the “Amran Purchase Agreement”) and through its wholly owned subsidiary, Mold-Tech Singapore PTE LTD (“Mold-Tech Singapore”), 90.1% of the capital stock of Narayan Powertech Private Limited (“Narayan”), a privately-held India-based company, pursuant to a Securities Purchase Agreement (the “Narayan Purchase Agreement”) (collectively the “Amran/Narayan Group”). With manufacturing locations in the United States and India, Amran/Narayan Group is a leading manufacturer of low voltage and medium voltage instrument transformers. Its custom product portfolio is specifically designed and developed in partnership with OEMs for their specific equipment related to electrical grid applications. This acquisition continues our portfolio strategy of focusing our higher-margin business segments in faster-growing markets. Amran/Narayan Group results are reported within the Company's Electronics segment.

 

Total consideration for Amran aggregated $179.7 million consisting of $153.7 million in cash consideration and 152,299 shares of Standex common stock, issued out of the Company's treasury shares, with a fair value of $26.0 million. The fair value of Standex common stock issued as part of the consideration for Amran was determined on the basis of the closing market price of our common shares on the Closing Date. The total consideration for the 90.1% interest in Narayan consisted of a cash payment of $261.9 million. The Company entered into a Shareholder Agreement that provides the Company with the right to purchase, and the noncontrolling interest holders with the right to sell, their remaining minority interest at a contractually defined redemption value. As the redemptions are contingently redeemable at the option of the noncontrolling interest shareholders, the Company classifies the redeemable noncontrolling interest in the mezzanine equity section on the consolidated balance sheets, which is presented above the equity section and below liabilities. The repurchase price of the redeemable noncontrolling interests is the greater of the share price paid for similar shares as part of the Amran/Narayan Acquisition or 12 times twelve months' trailing EBITDA. The redeemable noncontrolling interest represents the minority shareholder's interest. Subject to receipt of regulatory approval from the Reserve Bank of India (“RBI”), Mold-Tech Singapore will acquire the remaining 9.9% of the capital stock of Narayan in a second closing for shares of Standex common stock with a fair value of $26.7 million ("Share Swap Provision").

 

Additionally, on  October 28, 2024, as contemplated by the Narayan Purchase Agreement, the Company, Mold-Tech Singapore and the owners of the remaining 9.9% ownership interest in Narayan, which was not acquired by the Company, entered into a Shareholders’ Agreement. The Shareholders’ Agreement provides the noncontrolling interest holders with certain put rights upon the expiration of the Share Swap Provision. The noncontrolling interest holders will have the right (but not an obligation) to transfer up to their remaining interest in Narayan for a period of three years ("Put Option Period") to Mold-Tech Singapore. Subsequent to the expiration of the Put Option Period, Mold-Tech Singapore will have the right (but not an obligation) to acquire the remaining interest in Narayan for an additional three year consecutive period.

 

The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed and noncontrolling interest based on a valuation of their fair values on the Closing Date. Goodwill recorded from this transaction is attributable to Amran/Narayan Group’s technical and applications expertise, which is highly complementary to the Company's existing business.

 

Identifiable intangible assets of $136.0 million consist primarily of $28.7 million for indefinite lived tradenames and $107.3 million of customer relationships to be amortized over 12 years. Goodwill of $298.4 was recognized. Only the portion related to the Amran (U.S.) acquisition is deductible for U.S. income tax purposes; the portion related to the Narayan (India) acquisition is not deductible. 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 fair value of the noncontrolling interest in Narayan was determined based on the consideration expected to be transferred by the Company for its controlling ownership interest based on the Standex share price at the Closing Date.

 

The following table summarizes the allocation of the aggregate total consideration for the Amran/Narayan Group to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interest assumed (in thousands):

 

 

  

Final Allocation as of September 30, 2025

 

Fair value of business combination:

    

Total cash consideration

 $415,604 

Less: cash acquired

  (7,114)

Stock consideration

  25,953 

Total

 $434,443 
     
     

Identifiable assets acquired and liabilities assumed:

    

Other acquired assets

 $11,799 

Accounts receivable

  25,863 

Inventories

  13,677 

Customer backlog

  10,100 

Property, plant, and equipment

  2,816 

Identifiable intangible assets

  136,000 

Goodwill

  298,383 

Deferred tax liabilities, net

  (19,990)

Other liabilities assumed

  (17,471)

Total identifiable assets acquired and liabilities assumed

  461,177 
     

Redeemable noncontrolling interest (see Note 18)

  (26,734)
     

Total identifiable assets, liabilities and redeemable noncontrolling interest

 $434,443 

 

The following table reflects the unaudited pro forma operating results of the Company for the period ended  September 30, 2024, which give effect to the acquisition of the Amran/Narayan Group as if it had occurred effective  July 1, 2023. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective as of the date indicated, nor are they intended to be indicative of results that  may occur in the future. The pro forma information does not include the effects of any synergies related to the Amran/Narayan Group acquisition, transactions between the entities prior to acquisition, or the pre-acquisition impact of other businesses acquired by the Company during this period as they were not material to the Company’s historical results of operations. Pro forma earnings during the periods presented were adjusted to include the following adjustments:

 

(in thousands)

 

Three Months Ended September 30, 2024

 

Net sales

 $197,686 

Net income

  26,458 

 

 ●Amortization of inventory step-up to fair value assuming inventory turns within a two-month period;
 ●Amortization of definite-lived intangible assets recognized at fair value that exceed one year as if acquired  July 1, 2023;
 ●Non-recurring acquisition-related costs have been excluded from net income;
 ●Interest expense (including amortization of loan discount) on the Term Loan Credit Agreement entered into in connection with the acquisition as if the loan was obtained  July 1, 2023. The interest rate assumed for purposes of the pro forma financial information was 7.7% on average as the rate in agreement is a variable rate plus certain margins; and
 ●Income tax expense (benefit) was adjusted related to the above pro forma adjustments using an estimated tax rate of 22.6%.

 

With respect to each of the McStarlite and Amran/Narayan Group acquisitions, the estimated fair values of the indefinite lived tradenames were determined based on an income approach using the relief from royalty method, which assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of the tradenames assets. The cash flow projections the Company uses to estimate the fair value of the tradenames intangible assets involve several assumptions, including projected revenue growth, an estimated royalty rate, after-tax royalty savings expected from ownership of the tradenames, and a discount rate used to derive the estimated fair value of the tradenames.  The estimated fair value of the customer relationships intangible assets were determined based on the income approach using the multi-period excess earnings method, which measures the economic benefit indirectly by calculating the income attributable to an asset after appropriate returns are paid to complementary assets used in conjunction with the subject asset to produce the earnings associated with the subject asset, commonly referred to as contributory asset charges.  The fair value determination of the customer relationships intangible asset required us to make significant estimates and assumptions related to future cash flows and the selection of an appropriate discount rate to apply to future cash flows.

 

Acquisition Related Costs

 

Acquisition related costs 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 integration and 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.

 

Acquisition related costs for the three months ended September 30, 2025 and 2024 were $0.4 million and $1.8 million, respectively.