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BUSINESS ACQUISITIONS | 12 Months Ended
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Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract] |
BUSINESS ACQUISITIONS | BUSINESS ACQUISITIONS The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive markets. The Company has completed a number of acquisitions and the purchases of the acquired businesses have resulted in the recognition of goodwill and other intangible assets in the Company’s Consolidated Financial Statements. The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains the information used for the purchase price allocation during due diligence and through other sources. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. The Company from time-to-time engages third-party valuation specialists who review the Company’s critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with certain of its 2021 acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. Each acquisition has been accounted for as a business combination under ASC 805, “Business Combinations.” 2021 Acquisitions On April 30, 2021, the Company completed the acquisition of Carter & Verplanck, LLC (“CVI”), a distributor of products and services exclusively focused on serving the water and wastewater markets. The acquisition of CVI was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $49.7 million in cash and stock. A majority of CVI's sales are project-based work under the percentage-of-completion accounting model. As a result, CVI has been included in the IPS segment. For the year ended December 31, 2021, CVI contributed sales of $17.9 million and net income of $2.5 million. On July 1, 2021, the Company completed the acquisition of Process Machinery, Inc. (“PMI”), a leading distributor of pumps, mechanical seals, tank, filters and related process equipment that focuses on serving the chemical, power, pulp & paper, mining, metals and food processing industries. The Company paid approximately $9.6 million in cash, stock and future consideration (see below). For the year ended December 31, 2021, PMI contributed sales of $5.2 million and net income of $0.7 million. On September 20, 2021, the Company completed the acquisition of Premier Water LLC (“Premier”). Premier is a leading distributor and provider of products and services exclusively focused on serving the water and wastewater treatment markets primarily in North and South Carolina. The Company paid approximately $5.8 million in cash and stock. For the year ended December 31, 2021, Premier contributed sales of $0.5 million and net loss of $162 thousand. 2020 Acquisitions On December 31, 2020, the Company completed the acquisition of Total Equipment Company, Inc. (“TEC”), a distributor of industrial and commercial pumps and air compressors focused on serving multiple end markets including steel, chemicals, water / wastewater, oil & gas and general industrial markets. At closing, the Company paid approximately $64.7 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, including but not limited to working capital adjustments. On December 31, 2020, the Company completed the acquisition of APO Pumps & Compressors (“APO”), a distributor of industrial and commercial pumps and air compressors focused on serving multiple end markets including the water / wastewater, steel, food & beverage, and general industrial markets. The Company paid approximately $53.0 million in cash and stock, following normal transaction adjustments, for example working capital true-ups, customary for a transaction of this size and nature. Approximately, $38.3 millions was paid at closing, and $13.4 million has been accrued as of December 31, 2020 as true-up consideration. On December 31, 2020, the Company completed the acquisition of Pumping Solutions, Inc. (“Pumping Solutions”), a distributor of industrial and commercial pumps and process equipment focused on serving multiple end markets including the water / wastewater, chemical, food & beverage, and general industrial markets. The Company paid approximately $21.0 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, for example working capital true-ups. On December 31, 2020, the Company completed the acquisition of Corporate Equipment Company (“CEC”), a distributor of industrial and commercial pumps and air compressors focused on serving multiple end markets including the water / wastewater, steel, food & beverage, and general industrial markets. The Company paid approximately $3.3 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, including working capital true-ups. On February 1, 2020, the Company completed the acquisition of substantially all of the assets of Turbo Machinery Repair (“Turbo”), a pump and industrial equipment repair, maintenance, machining and labor services company. The Company paid approximately $3.2 million in cash, subject to normal transaction adjustments, customary for a transaction of this size and nature, including working capital true-ups, . On January 1, 2020, the Company completed the acquisition of Pumping Systems, Inc. (“PSI”), a distributor of pumps, systems and related services. The PSI acquisition was funded with a mixture of cash on hand as well as issuing DXP's common stock. The PSI acquisition was funded with a mixture of cash on hand as well as issuing DXP's common stock. The Company paid approximately $13.0 million in cash and stock, subject to normal transaction adjustments, customary for a transaction of this size and nature, including working capital true-ups. The tables below summarize the total consideration transferred to acquire these companies and in aggregate the amount of identified assets acquired and liabilities assumed at the acquisition dates. For the 2021 acquisitions, the Company is in the process of finalizing third-party valuations of certain intangible assets; thus, the provisional measurements of intangible assets, goodwill and deferred income tax liabilities are subject to change. In addition, the company continues to finalize inventory, ROU Assets and Liabilities as well as other assets acquired. Pro Forma Financial Results (unaudited) The following represents the pro forma unaudited revenue and net income as if each of the 2021 acquisitions had been included in the consolidated results of the Company for the full year periods ending December 31, 2021 and 2020, respectively. In addition, the pro forma results also assume that all of the 2020 acquisitions had been consummated as of January 1, 2020. The pro forma information is not necessarily indicative of future results:
|  | Fiscal Year Ending December 31, |
|  | 2021 |  | 2020 |
|  | ($ in thousands)
| Revenue |  | $ | 1,121,723 |  |  | $ | 1,164,631 |  |
| Net income |  | $ | 17,542 |  |  | $ | (9,660) |  |
Purchase Price Allocation and Consideration The following tables summarize the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for the 2021 acquisitions, as well as the fair value of the consideration transferred:
| ($ in thousands) | 2021
| Cash | $ | 1,292 |
| Accounts receivable | 6,781 |
| Inventory | — |
| Other current assets | 5,166 |
| Property and equipment | 268 |
| Non-compete agreements | 1,041 |
| Customer relationships | 15,218 |
| Goodwill | 45,749 |
| Other assets | 7 |
| Assets acquired | $ | 75,522 |
| Current liabilities assumed | (10,431) |
| Net assets acquired | $ | 65,091 |
Of the $62.0 million of acquired intangible assets, $1.0 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, consistent with the terms of the agreements. In addition, $15.2 million was assigned to customer relationships, and will be amortized over a period of 8 years. The goodwill total of $45.7 million is attributable primarily to expected synergies and the assembled workforce of each entity. The fair value of accounts receivables acquired is $6.8 million, which approximated book value. In aggregate, the acquisition-date fair value of the consideration transferred for the three businesses acquired in 2021 totaled $65.1 million, which consisted of the following:
| Purchase Price Consideration (in millions) | Total Consideration
| Cash payments | $ | 53.7 |
| Fair value of stock issued | 11.1 |
| Future consideration | 0.3 |
| Total consideration | $ | 65.1 |
The fair value of the approximately 434,000 common shares issued was determined based on the closing market price of the Company’s common shares on the respective acquisition date, adjusted for holding restrictions following consummation. The fair values of the assets acquired and liabilities assumed for the 2020 acquisitions, as well as the fair value of the consideration transferred were as follows:
| Purchase Price Consideration (in thousands) | Total Consideration
| Cash payments | $ | 115,247 |
| Fair value of stock issued (1,480,909 shares) | 29,367 |
| Future consideration * | 13,428 |
| Total consideration | $ | 158,042 |
| Cash | $ | 1 |
| Accounts Receivable | 20,646 |
| Inventory | 7,085 |
| Other Current Assets | 190 |
| Property and equipment | 1,811 |
| Non-compete agreements | 2,332 |
| Customer relationships | 37,465 |
| Goodwill | 105,555 |
| Other assets | 96 |
| Assets acquired | $ | 175,181 |
| Current liabilities assumed | (10,437) |
| Deferred tax liability | (6,702) |
| Net assets acquired | $ | 158,042 |
| *The future consideration was paid in July 2022.
The Company recognized less than $300,000 of acquisition related costs that were expensed in the current period. These costs are included in the consolidated income statement in Selling, General and Administrative costs. The Company also recognized an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination. Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity. As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed, and customer post-closing reviews are concluded, adjustments may be made to the fair value of assets acquired, and in some cases total purchase price, through the end of each measurement period, generally one year following the applicable acquisition date. Various insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the respective dates of acquisition. During twelve months ended December 31, 2021, we recorded measurement-period adjustments that increased goodwill by approximately $1.4 million, primarily for changes in the fair value of current assets. The impact of these adjustments to the consolidated statement of operations were immaterial. Goodwill to be recognized in connection with these acquisitions is attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions. Goodwill related to asset acquisitions is currently deductible for income tax purposes. Goodwill related to stock acquisitions is capitalized to the stock basis of the acquisition for income tax purposes and is deductible upon disposition of the stock. Contingent Consideration The acquisition of PMI included a contingent consideration arrangement that requires additional consideration to be paid based on the achievement of annual gross revenue targets over a two-year period. The range of undiscounted amounts the Company may be required to pay under the contingent consideration agreement is between zero and $2.5 million. The fair value of the contingent consideration recognized on the acquisition date of $0.3 million was estimated by applying the income approach using discounted cash flows. That measure is based on significant Level 3 inputs not observable in the market. The significant assumption includes a discount rate of 7.6%. Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets. The fair value measurement includes earnings forecasts which are a Level 3 measurement as discussed in Note 5 - Fair Value of Financial Assets and Liabilities. The fair value of the contingent consideration is reviewed quarterly over the earn-out period to compare actual earnings before interest, taxes, depreciation and amortization ("EBITDA") achieved to the estimated EBITDA used in our forecasts.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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