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Note 3 - Business Combinations and Dispositions | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] |
3. | Business combinations and dispositions
DeltaTek Oil Tools Limited On February 8, 2023 (“DeltaTek Closing Date”), DeltaTek Oil Tools Limited, a limited liability company registered in the United Kingdom, and its subsidiary (“DeltaTek”), was acquired (“the DeltaTek Acquisition”) by our wholly owned subsidiary Exploration and Production Services (Holdings) Limited, a limited liability company registered in the United Kingdom (“EPSH”). DeltaTek has developed a number of innovative technologies and solutions and their range of low-risk open water cementing solutions increases clients’ operational efficiency, delivers rig time and cost savings, and improves the quality of cementing operations of clients. The fair value of consideration for the DeltaTek Acquisition was $18.4 million, including final cash consideration paid of $9.9 million and contingent consideration which is estimated to be $8.5 million. The contingent consideration arrangement requires the Company to pay the former owners of DeltaTek a percentage of future revenues generated specifically from the acquired technology over a period of seven years. The fair value of the contingent consideration arrangement of $8.5 million was estimated by applying the income approach and is reflected in “Other liabilities” on the unaudited condensed consolidated balance sheets. That measure is based on significant inputs that are not observable in the market, referred to as Level 3 inputs in accordance with ASC 820. To the extent our estimates and assumptions changed during the measurement period and such changes are based on facts and circumstances that existed as of the DeltaTek Closing Date, an adjustment to the contingent consideration liability was recorded with an offsetting adjustment to goodwill. To the extent our estimates and assumptions change based on facts and circumstances subsequent to the measurement period, an adjustment to the contingent consideration liability would be recorded with an offsetting adjustment to earnings during the applicable period. The DeltaTek Acquisition is accounted for as a business combination and Expro has been identified as the acquirer for accounting purposes. As a result, the Company has, in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for DeltaTek’s assets acquired and liabilities assumed. Applying the acquisition method of accounting includes recording the identifiable assets acquired and liabilities assumed at their fair values and recording goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed. The following table sets forth the allocation of the DeltaTek Acquisition consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the DeltaTek Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):
|  | Initial allocation of the consideration |  |  | Measurement period adjustments |  |  | Final allocation of the consideration |
Cash and cash equivalents |  | $ | 1,464 |  |  | $ | - |  |  | $ | 1,464 |
Accounts receivables, net |  |  | 723 |  |  |  | - |  |  |  | 723 |
Inventories |  |  | 183 |  |  |  | - |  |  |  | 183 |
Property, plant and equipment |  |  | 642 |  |  |  | - |  |  |  | 642 |
Goodwill |  |  | 7,157 |  |  |  | 994 |  |  |  | 8,151 |
Intangible assets |  |  | 11,063 |  |  |  | 2 |  |  |  | 11,065 |
Other assets |  |  | 27 |  |  |  | - |  |  |  | 27 |
Total assets |  |  | 21,259 |  |  |  | 996 |  |  |  | 22,255 |
Accounts payable and accrued liabilities |  |  | 245 |  |  |  | 2 |  |  |  | 247 |
Deferred tax liabilities |  |  | 2,700 |  |  |  | 66 |  |  |  | 2,766 |
Other liabilities |  |  | 831 |  |  |  | (16 | ) |  |  | 815 |
Total Liabilities |  |  | 3,776 |  |  |  | 52 |  |  |  | 3,828 |
Fair value of net assets acquired |  | $ | 17,483 |  |  | $ | 944 |  |  | $ | 18,427 |
The preliminary valuation of the assets acquired and liabilities assumed, including other liabilities, in the DeltaTek Acquisition initially resulted in a goodwill of $7.2 million. During the third quarter of 2023, the Company finalized the valuation and recorded measurement period adjustments to its preliminary estimates due to additional information received primarily related to a customary purchase price adjustment. The measurement period adjustments resulted in an increase in goodwill of $1.0 million, for final total goodwill associated with the DeltaTek Acquisition of $8.2 million. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized. The intangible assets will be amortized on a straight-line basis over an estimated 5 to 15 years life. We expect annual amortization to be approximately $1.0 million associated with these intangible assets. An associated deferred tax liability has been recorded in regards to these intangible assets. Refer to Note 14 “Intangible assets, net” for additional information regarding the various acquired intangible assets. The goodwill related to the DeltaTek Acquisition consists largely of the synergies and economies of scale expected from the technology providing more efficient services and expected future developments resulting from the assembled workforce. The goodwill is not subject to amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present. Goodwill recorded in the DeltaTek Acquisition is not expected to be deductible for tax purposes. PRT Offshore On October 2, 2023 (the “PRT Closing Date”), Professional Rental Tools, LLC (“PRT” or “PRT Offshore”), was acquired (the “PRT Acquisition”) from PRT Partners, LLC by our wholly owned subsidiary, EPSH. The acquisition will enable Expro to expand its portfolio of cost-effective, technology-enabled services and solutions within the subsea well access sector in the North and Latin America region and is expected to accelerate the growth of PRT Offshore’s surface equipment offering in the Europe and Sub-Saharan Africa and Asia Pacific regions. The fair value of consideration for the PRT Acquisition was $90.8 million, including cash consideration of $21.6 million, net of cash received, equity consideration of $40.9 million, and contingent consideration of $13.2 million. As of December 31, 2023 we had accrued $1.5 million of the cash consideration related to standard holdback provisions. During the second quarter of 2024, we paid $0.6 million for the settlement of the true-up for working capital adjustments and the remaining amount will be settled during the fourth quarter of 2024. The contingent consideration arrangement required the Company to pay the former owners of PRT additional consideration based on PRT’s financial performance during the four quarters following closing. The fair value of the contingent consideration arrangement of $13.2 million was estimated by applying the income approach and was reflected in “Other current liabilities” on the unaudited condensed consolidated balance sheets. That measure was based on significant inputs that are not observable in the market, referred to as Level 3 inputs in accordance with ASC 820. To the extent our estimates and assumptions changed during the measurement period and such changes were based on facts and circumstances that existed as of the PRT Closing Date, an adjustment to the contingent consideration liability was recorded with an offsetting adjustment to goodwill. To the extent our estimates and assumptions changed based on facts and circumstances subsequent to the PRT Closing Date or after the measurement period, an adjustment to the contingent consideration liability was recorded with an offsetting adjustment to earnings during the applicable period. The PRT Acquisition is accounted for as a business combination and Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for PRT’s assets acquired and liabilities assumed. The following table sets forth the allocation of the PRT Acquisition consideration exchanged to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed as of the PRT Closing Date, with the recording of goodwill for the excess of the consideration transferred over the net aggregate fair value of the identifiable assets acquired and liabilities assumed (in thousands):
|  | Initial allocation of the consideration |  |  | Measurement period adjustments |  |  | Final allocation of the consideration |
Cash and cash equivalents |  | $ | 15,086 |  |  | $ | - |  |  | $ | 15,086 |
Accounts receivables, net |  |  | 15,195 |  |  |  | - |  |  |  | 15,195 |
Other current assets |  |  | 986 |  |  |  | - |  |  |  | 986 |
Property, plant and equipment |  |  | 52,278 |  |  |  | (619 | ) |  |  | 51,659 |
Goodwill |  |  | 18,556 |  |  |  | 917 |  |  |  | 19,473 |
Intangible assets |  |  | 33,940 |  |  |  | (86 | ) |  |  | 33,854 |
Operating lease right-of-use assets |  |  | 1,242 |  |  |  | - |  |  |  | 1,242 |
Total assets |  |  | 137,283 |  |  |  | 212 |  |  |  | 137,495 |
Accounts payable and accrued liabilities |  |  | 8,621 |  |  |  | - |  |  |  | 8,621 |
Operating lease liabilities |  |  | 505 |  |  |  | - |  |  |  | 505 |
Other current liabilities |  |  | 1,811 |  |  |  | 406 |  |  |  | 2,217 |
Non-current operating lease liabilities |  |  | 678 |  |  |  | - |  |  |  | 678 |
Long-term borrowings |  |  | 34,701 |  |  |  | - |  |  |  | 34,701 |
Total liabilities |  |  | 46,316 |  |  |  | 406 |  |  |  | 46,722 |
Fair value of net assets acquired |  | $ | 90,967 |  |  | $ | (194 | ) |  | $ | 90,773 |
The preliminary valuation of the assets acquired and liabilities assumed, including other liabilities, in the PRT Acquisition initially resulted in a goodwill of $18.6 million. During 2024, the Company finalized the valuation and recorded measurement period adjustments to its preliminary estimates due to additional information received primarily related to a customary purchase price adjustment. The measurement period adjustments resulted in an increase in goodwill of $0.9 million, for final total goodwill associated with the PRT Acquisition of $19.5 million. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized. The cost approach was used to determine the fair value of property, plant and equipment. The intangible assets will be amortized on a straight-line basis over an estimated 5 to 15 years life. We expect annual amortization to be approximately $3.3 million associated with these intangible assets. An associated deferred tax liability has been recorded for these intangible assets. Refer to Note 14 “Intangible assets, net” for additional information regarding the various acquired intangible assets. The goodwill related to the PRT Acquisition consists largely of the synergies and economies of scale expected from the acquired customer relationships and contracts. The goodwill is not subject to amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present. Coretrax On May 15, 2024 (“Coretrax Closing Date”), CTL UK Holdco Limited, a company incorporated and registered in England and Wales (“Coretrax”), was acquired (the “Coretrax Acquisition”), by our wholly owned subsidiary, Expro Holdings UK 3 Limited with an effective date of May 1, 2024. The acquisition will enable Expro to expand its portfolio of cost-effective, technology-enabled Well Construction and Well Intervention & Integrity solutions. We estimated the fair value of consideration for the Coretrax Acquisition to be $186.7 million, including cash consideration of $31.3 million, net of cash received, equity consideration of $142.8 million, and contingent consideration of $3.3 million, subject to a true-up for customary working capital adjustments. The contingent consideration arrangement required the Company to pay the former owners of Coretrax additional consideration based on Expro’s stock price and foreign exchange rate movement during a period of up to 150 days following the Coretrax Closing Date. The fair value of the contingent consideration arrangement of $3.3 million was estimated based on a Monte Carlo valuation model which used the historic performance of Expro’s stock price and the GBP to USD exchange rate and was reflected in “Other current liabilities” on the unaudited condensed consolidated balance sheet. That measure was based on significant inputs that are not observable in the market, referred to as Level 3 inputs in accordance with ASC 820. To the extent our estimates and assumptions changed during the measurement period and such changes were based on facts and circumstances that existed as of the Coretrax Closing Date, an adjustment to the contingent consideration liability was recorded with an offsetting adjustment to goodwill. To the extent our estimates and assumptions changed based on facts and circumstances subsequent to the Coretrax Closing Date or after the measurement period, an adjustment to the contingent consideration liability was recorded with an offsetting adjustment to earnings during the applicable period. In July 2024, the Company entered into a Deed of Amendment to the Stock Purchase Agreement with the sellers party thereto (the “Sellers”), pursuant to which, among other things, (i) all obligations relating to the true up payments and completion statement under the Stock Purchase Agreement were released and (ii) the escrow agent was instructed to (A) sell a sufficient number of escrow shares on behalf of the Sellers to generate proceeds of $8.0 million, (B) transfer such proceeds to the Company and (C) transfer the remaining escrow shares to the Sellers. Based on the final calculation of the contingent consideration arrangement, the Company recognized $7.5 million as the settlement of the contingent consideration arrangement and the remaining $0.5 million was a reduction to the consideration transferred related to customary working capital adjustments. The Coretrax Acquisition is accounted for as a business combination and Expro has been identified as the acquirer for accounting purposes. As a result, the Company has in accordance with ASC 805, Business Combinations, applied the acquisition method of accounting to account for Coretrax’s assets acquired and liabilities assumed.
|  | Initial allocation of the consideration |  |  | Measurement period adjustments |  |  | Allocation of the consideration as of September 30, 2024 |
Cash and cash equivalents |  | $ | 9,315 |  |  | $ | - |  |  | $ | 9,315 |
Accounts receivables, net |  |  | 31,414 |  |  |  | - |  |  |  | 31,414 |
Inventories |  |  | 16,933 |  |  |  | - |  |  |  | 16,933 |
Other current assets |  |  | 3,170 |  |  |  | - |  |  |  | 3,170 |
Property, plant and equipment |  |  | 28,685 |  |  |  | - |  |  |  | 28,685 |
Goodwill |  |  | 95,773 |  |  |  | (491 | ) |  |  | 95,282 |
Intangible assets |  |  | 101,650 |  |  |  | - |  |  |  | 101,650 |
Operating lease right-of-use assets |  |  | 2,581 |  |  |  | - |  |  |  | 2,581 |
Total assets |  |  | 289,521 |  |  |  | (491 | ) |  |  | 289,030 |
Accounts payable and accrued liabilities |  |  | 25,529 |  |  |  | - |  |  |  | 25,529 |
Operating lease liabilities |  |  | 825 |  |  |  | - |  |  |  | 825 |
Current tax liabilities |  |  | 1,300 |  |  |  | - |  |  |  | 1,300 |
Other current liabilities |  |  | 11,098 |  |  |  | - |  |  |  | 11,098 |
Non-current tax liabilities |  |  | 8,096 |  |  |  | - |  |  |  | 8,096 |
Deferred tax liabilities |  |  | 25,616 |  |  |  | - |  |  |  | 25,616 |
Non-current operating lease liabilities |  |  | 1,756 |  |  |  | - |  |  |  | 1,756 |
Long-term borrowings |  |  | 28,147 |  |  |  | - |  |  |  | 28,147 |
Total liabilities |  |  | 102,367 |  |  |  | - |  |  |  | 102,367 |
Fair value of net assets acquired |  | $ | 187,154 |  |  | $ | (491 | ) |  | $ | 186,663 |
Due to the recency of the Coretrax Acquisition, these amounts, including the estimated fair values, are based on preliminary calculations and subject to change as our fair value estimates and assumptions are finalized during the measurement period. The final fair value determination could result in material adjustments to the values presented in the preliminary purchase price allocation table above. The fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either using the relief-from royalty method or the multi-period excess earnings method, which are discounted to approximate their current value. The estimated useful lives are based on management’s historical experience and expectations as to the duration of time that benefits from these assets are expected to be realized. The cost approach was used to determine the fair value of property, plant and equipment. The intangible assets will be amortized on a straight-line basis over an estimated 1 to 15 years life. We expect annual amortization to be approximately $8.9 million associated with these intangible assets. An associated deferred tax liability has been recorded for these intangible assets. Refer to Note 14 “Intangible assets, net” for additional information regarding the various acquired intangible assets. The goodwill related to the Coretrax Acquisition consists largely of the synergies and economies of scale expected from the acquired technology and customer relationships and contracts. The goodwill is not subject to amortization but will be evaluated at least annually for impairment or more frequently if impairment indicators are present. Revenue and earnings of the acquirees The results of operations for the Coretrax Acquisition since the Coretrax Closing Date have been included in our unaudited condensed consolidated financial statements for the three months and nine months ended September 30, 2024. The amount of revenue of Coretrax included in the accompanying unaudited condensed consolidated statements of operations was approximately $33.1 million and $54.2 million for the three and nine months, respectively, ended September 30, 2024. Supplemental pro forma financial information The Company has determined the estimated unaudited pro forma financial information to be immaterial for the three months and nine months ended September 30, 2024 and 2023, assuming the DeltaTek Acquisition, PRT Acquisition and Coretrax Acquisition had been completed as of January 1, 2023. This is not necessarily indicative of the results that would have occurred had the DeltaTek Acquisition, PRT Acquisition and Coretrax Acquisition been completed on the respective dates indicated or of future operating results.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/205-20/tableOfContent + Details
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