BUSINESS ACQUISITIONS

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

On May 2, 2022, the Company completed the acquisition of Cisco. Cisco is a leading distributor of air compressors and related products and services focused on serving the food and beverage, transportation and general industrial markets in the Northern California and Nevada territories. Total consideration for the transaction was approximately $52.2 million, funded with a mixture of cash on hand of $32 million, DXP stock valued at approximately $4 million and a draw down of approximately $11 million on the ABL and future consideration of $4.5 million. For the six months ended June 30, 2022, Cisco contributed sales of $8.2 million and net income of $1.6 million. Goodwill for the transaction totaled approximately $34.5 million.

On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc., a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest. The acquisition of Drydon was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $7.9 million in cash, stock and future consideration. A majority of Drydon's sales are project-based work under the percentage-of-completion accounting model. As a result, Drydon has been included in the IPS segment. For the six months ended June 30, 2022, Drydon contributed sales of $2.7 million and net income of $0.7 million. Goodwill for the transaction totaled approximately $4.9 million.

On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc., a provider of water and wastewater equipment in the industrial and municipal sectors. The Company paid approximately $1.1 million in cash, stock and future consideration. For the six months ended June 30, 2022, Burlingame contributed sales of $0.9 million and net income of $70 thousand. Goodwill for the transaction totaled approximately $0.6 million.

The following represents the pro forma unaudited revenue and earnings as if Cisco, Drydon and Burlingame had been included in the consolidated results of the Company for the six months ended June 30, 2022 and 2021, respectively:


	Six Months Ended June 30,
	2022		2021
	(in thousands/unaudited)
Revenue	$	703,040	$	555,052
Net income	$	29,286	$	11,302

In aggregate, the acquisition-date fair value of the consideration transferred for the three businesses totaled $61.2 million, which consisted of the following:


Purchase Price Consideration (in millions)	Total Consideration

Cash payments	$	49.3
Fair value of stock issued	4.7
Future consideration	7.2
Total purchase price consideration	$	61.2

The fair value of the 230,699 common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date, adjusted for holding restrictions following consummation.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:


Acquisitions
(In thousands)	Cisco		All Other		Total
Cash	$	4,352	$	517	$	4,869
Accounts receivable	5,173		2,698		7,871
Other receivables	—		56		56
Inventory	3,032		37		3,069
Other current assets	472		—		472
Non-compete agreements	878		229		1,107
Customer relationships	10,730		964		11,694
Property and equipment	1,187		124		1,311
Operating lease ROU asset	2,168		—		2,168
Other assets	—		2		2
Assets acquired	$	27,992	$	4,627	$	32,619
Short-term operating lease liability	(463)		—		(463)
Current liabilities assumed	(5,208)		(1,061)		(6,269)
Long-term operating lease liability	(1,705)		—		(1,705)
Deferred tax liability	(2,897)		—		(2,897)
Net assets acquired	$	17,719	$	3,566	$	21,285
Total Consideration	52,184		9,049		61,233
Goodwill	$	34,465	$	5,483	$	39,948

Of the $12.8 million of acquired intangible assets, $1.1 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coincident with the terms of the agreements. In addition, $11.7 million was assigned to customer relationships, and will be amortized over a period of 8 years. The goodwill total of approximately $39.9 million is attributable primarily to expected synergies and the assembled workforce of each entity and is generally not deductible for tax purposes.

The fair value of accounts receivables acquired is $7.9 million, which approximated book value.

The Company recognized less than $300,000 of acquisition related costs that were expensed in the current period. These costs are included in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income 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.