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Business Acquisitions | 12 Months Ended
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Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract] |
Business Acquisitions | Note 3 – Business Acquisitions Combination with TestEquity and Gexpro Services On April 1, 2022, the Mergers were completed via all-stock merger transactions. Pursuant to the Merger Agreements, DSG issued an aggregate of 20.6 million shares of DSG common stock to the former owners of TestEquity and Gexpro Services. On March 20, 2023, an additional 3.4 million shares of DSG common stock were issued. Refer to Note 1 – Nature of Operations and Basis of Presentation for further information regarding the Mergers. The business combination of Lawson, TestEquity and Gexpro Services combines three value added complementary distribution businesses. Lawson is a distributor of specialty products and services to the industrial, commercial, institutional, and governmental MRO marketplace. TestEquity is a distributor of parts and services to the industrial, commercial, institutional and governmental electronics manufacturing and test and measurement market. Gexpro Services is a provider of supply chain solutions, specializing in developing and implementing VMI and kitting programs to high-specification manufacturing customers. Gexpro Services provides critical products and services to customers throughout the lifecycle of highly technical OEM products. Refer to Note 1 – Nature of Operations and Basis of Presentation for more information on the nature of operations for these businesses. The Mergers were accounted for as a reverse merger under the acquisition method of accounting for business combinations, whereby TestEquity and Gexpro Services were identified as the accounting acquirers and were treated as a combined entity for financial reporting purposes, and DSG was identified as the accounting acquiree. Accordingly, under the acquisition method of accounting, the purchase price was allocated to DSG's tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition-date fair values. These estimates were determined through established and generally accepted valuation techniques. Allocation of Consideration Exchanged Under the acquisition method of accounting, the consideration exchanged was calculated as follows:
(in thousands, except share data) |  | April 1, 2022
Number of DSG common shares |  | 18,240,334
DSG common stock closing price per share on March 31, 2022 |  | $ | 19.27 |
Fair value of shares exchanged |  | $ | 351,491 |
Other consideration(1) |  | 1,910 |
Total consideration exchanged |  | $ | 353,401 |
(1) Fair value adjustment of stock-based compensation awards. Due to the publicly traded nature of shares of DSG common stock, the equity issuance of shares of DSG common stock based on this value was considered to be a more reliable measurement of the fair market value of the transaction compared to the equity interests of the accounting acquirer. The allocation of consideration exchanged to the tangible and identifiable intangible assets acquired and liabilities assumed was based on estimated fair values as of the Merger Date. The accounting for the Mergers was complete as of December 31, 2022. Goodwill generated from the Mergers is not deductible for tax purposes. The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed at the Merger Date after applying measurement period adjustments:
(in thousands) |  |  |  |  |  | Final Purchase Price Allocation |  |
Current assets |  |  |  |  |  | $ | 148,308 |  |  |
Property, plant and equipment |  |  |  |  |  | 57,414 |  |  |
Right of use assets |  |  |  |  |  | 18,258 |  |  |
Other intangible assets |  |  |  |  |  | 119,060 |  |  |
Deferred tax liability, net of deferred tax asset |  |  |  |  |  | (19,394) |  |  |
Other assets |  |  |  |  |  | 18,373 |  |  |
Current liabilities |  |  |  |  |  | (71,165) |  |  |
Long-term obligations |  |  |  |  |  | (25,746) |  |  |
Lease and financing obligations |  |  |  |  |  | (28,827) |  |  |
Derivative earnout liability |  |  |  |  |  | (43,900) |  |  |
Goodwill |  |  |  |  |  | 181,020 |  |  |
Total consideration exchanged |  |  |  |  |  | $ | 353,401 |  |  |
The allocation of consideration exchanged to other intangible assets acquired is as follows:
(in thousands) |  | Fair Value |  | Estimated Life (in years)
Customer relationships |  | $ | 76,050 |  |  | 19
Trade names |  | 43,010 |  |  | 8
Total other intangible assets |  | $ | 119,060 |  |  |
Other Acquisitions DSG and its operating companies acquired other businesses during the years ended December 31, 2023 and 2022. The acquisitions were accounted for under ASC 805, the acquisition method of accounting. For each acquisition, the allocation of consideration exchanged to the assets acquired and liabilities assumed was based on estimated acquisition-date fair values. Purchase of HIS Company, Inc. On June 8, 2023, DSG acquired all of the issued and outstanding capital stock of HIS Company, Inc., a Texas corporation ("Hisco" and the "Hisco Transaction"), a distributor of specialty products serving industrial technology applications, pursuant to a Stock Purchase Agreement dated March 30, 2023 (the "Purchase Agreement"). In connection with this transaction, DSG combined the operations of TestEquity and Hisco, further expanding the product and service offerings at TestEquity, as well as all of our operating businesses under DSG. Hisco operates in 38 locations across North America, including its Precision Converting facilities that provide value-added fabrication and its Adhesive Materials Group that provides an array of custom repackaging solutions. Hisco offers customers a broad range of products, including adhesives, chemicals and tapes, as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags. Hisco also offers vendor-managed inventory and Radio Frequency Identification ("RFID") programs with specialized warehousing for chemical management, logistics services and cold storage. The total purchase consideration exchanged for the Hisco Transaction was $267.3 million, net of cash acquired of $12.2 million, with a potential additional earn-out payment subject to Hisco achieving certain performance targets. Refer to Note 8 – Earnout Liabilities for additional information on the earn-out. DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction. For the year ended December 31, 2023, $22.8 million was recorded as compensation expense over the service period for the retention bonuses as a component of Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). DSG funded the Hisco Transaction with borrowings under its 2023 Amended Credit Agreement (as defined below) and proceeds raised from the Rights Offering (as defined below). Refer to Note 9 – Debt for information about the 2023 Amended Credit Agreement and Note 11 – Stockholders' Equity for details on the Rights Offering. The Purchase Agreement allowed certain eligible Hisco employees to invest all or a portion of their respective closing payment in DSG common stock at $22.50 per share, up to an aggregate value of DSG common stock issued to such eligible Hisco employees of $25.0 million. During 2023, the Company issued 144,608 shares of DSG common stock to the eligible Hisco employees and received approximately $3.3 million. During 2023, approximately $0.4 million was recorded as compensation expense for the discount between the prevailing market price of the DSG common stock on the date of purchase and the purchase price of $22.50 per share as a component of Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed, including the allocation to other intangible assets acquired:
|  | Hisco
(in thousands) |  | June 8, 2023 Acquisition Date |  | Measurement Period Adjustments |  | Adjusted Total
Accounts Receivable(1) |  | $ | 66,792 |  |  | $ | (2,269) |  |  | $ | 64,523 |
Inventory |  | 61,300 |  |  | (645) |  |  | 60,655 |
Other current assets |  | 3,858 |  |  | 350 |  |  | 4,208 |
Property, plant and equipment |  | 48,326 |  |  | — |  |  | 48,326 |
Right of use assets |  | 21,102 |  |  | 1,188 |  |  | 22,290 |
Other intangible assets: |  |  |  |  |  |
Customer relationships |  | 41,800 |  |  | (1,800) |  |  | 40,000 |
Trade names |  | 25,600 |  |  | (300) |  |  | 25,300 |
Deferred tax liability, net of deferred tax asset |  | (2,544) |  |  | 81 |  |  | (2,463) |
Other assets |  | 2,495 |  |  | — |  |  | 2,495 |
Accounts payable |  | (16,689) |  |  | — |  |  | (16,689) |
Lease liabilities |  | (22,372) |  |  | 293 |  |  | (22,079) |
Accrued expenses and other liabilities |  | (8,961) |  |  | (289) |  |  | (9,250) |
Goodwill |  | 49,718 |  |  | 232 |  |  | 49,950 |
Total purchase consideration exchanged, net of cash acquired |  | $ | 270,425 |  |  | $ | (3,159) |  |  | $ | 267,266 |
Cash consideration |  | $ | 252,007 |  |  | $ | — |  |  | $ | 252,007 |
Deferred consideration(2) |  | 12,418 |  |  | 2,741 |  |  | 15,159 |
Contingent consideration |  | 6,000 |  |  | (5,900) |  |  | 100 |
Total purchase consideration exchanged, net of cash acquired |  | $ | 270,425 |  |  | $ | (3,159) |  |  | $ | 267,266 |
(1) Accounts receivable had an estimated fair value of $64.5 million and a gross contractual value of $66.8 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected. (2) The Company paid $7.8 million of the Hisco deferred consideration during 2023. Certain estimated values for the Hisco Transaction, including the valuation of intangibles, property, plant and equipment, contingent consideration, and income taxes (including deferred taxes and associated valuation allowances), are not yet finalized, and the preliminary purchase price allocation is subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation will be completed within the one-year measurement period following the acquisition date, and any adjustments will be recorded in the period in which the adjustments are determined. Following the initial fair value measurement, the Company updated the purchase price allocation for Hisco primarily related to the ongoing review of the opening balance sheets and contractual working capital adjustments and revised certain assumptions used in estimating the fair value of the contingent consideration. The adjustments to these balances resulted in a $0.2 million increase to goodwill and a $3.2 million decrease to the total purchase consideration, net of cash acquired. The customer relationships and trade names intangibles assets have estimated useful lives of 12 years and 8 years, respectively. As a result of the Hisco Transaction, the Company recorded tax deductible goodwill of $41.4 million in 2023 that may result in a tax benefit in future periods and is primarily attributable to the benefits we expect to derive from expected synergies including expanded product and service offerings and cross-selling opportunities. Purchases of Other Companies in 2022 During the year ended December 31, 2022, TestEquity acquired Interworld Highway, LLC, National Test Equipment, and Instrumex, and Gexpro Services acquired Resolux ApS ("Resolux") and Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc. ("Frontier"). The consideration exchanged for these acquired businesses included various combinations of cash and sellers' notes. The accounting for each acquisition was completed within the one-year measurement periods following the respective acquisition dates and any adjustments were recorded in the period in which the adjustments were determined. The purchase consideration for each business acquired and the allocation of the consideration exchanged to the estimated fair values of assets acquired and liabilities assumed is summarized below:
(in thousands) |  | Interworld Highway, LLC |  | Resolux |  | Frontier |  | National Test Equipment |  | Instrumex |  |  |  |
Acquisition date |  | April 29, 2022 |  | January 3, 2022 |  | March 31, 2022 |  | June 1, 2022 |  | December 1, 2022 |  | Total |  |
Current assets |  | $ | 15,018 |  |  | $ | 10,210 |  |  | $ | 2,881 |  |  | $ | 2,187 |  |  | $ | 3,495 |  |  | $ | 33,791 |  |  |
Property, plant and equipment |  | 313 |  |  | 459 |  |  | 1,189 |  |  | 642 |  |  | 30 |  |  | 2,633 |  |  |
Right of use assets |  | — |  |  | 1,125 |  |  | 9,313 |  |  | — |  |  | — |  |  | 10,438 |  |  |
Other intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  | 6,369 |  |  | 11,400 |  |  | 9,300 |  |  | 2,100 |  |  | 800 |  |  | 29,969 |  |  |
Trade names |  | 4,600 |  |  | 6,100 |  |  | 3,000 |  |  | — |  |  | — |  |  | 13,700 |  |  |
Other assets |  | 10 |  |  | 86 |  |  | — |  |  | — |  |  | 14 |  |  | 110 |  |  |
Accounts payable |  | (8,856) |  |  | (3,058) |  |  | (778) |  |  | (196) |  |  | (1,305) |  |  | (14,193) |  |  |
Current portion of long-term debt |  | — |  |  | — |  |  | — |  |  | (2,073) |  |  | — |  |  | (2,073) |  |  |
Accrued expenses and other liabilities |  | — |  |  | (4,747) |  |  | (1,462) |  |  | (1,171) |  |  | (626) |  |  | (8,006) |  |  |
Lease liabilities |  | — |  |  | (1,125) |  |  | (9,313) |  |  | — |  |  | — |  |  | (10,438) |  |  |
Long-term debt |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,105) |  |  | (2,105) |  |  |
Goodwill |  | 37,236 |  |  | 10,305 |  |  | 11,544 |  |  | 5,703 |  |  | 1,989 |  |  | 66,777 |  |  |
Total purchase consideration exchanged, net of cash acquired |  | $ | 54,690 |  |  | $ | 30,755 |  |  | $ | 25,674 |  |  | $ | 7,192 |  |  | $ | 2,292 |  |  | $ | 120,603 |  |  |
Cash consideration |  | $ | 54,690 |  |  | $ | 30,755 |  |  | $ | 25,674 |  |  | $ | 6,023 |  |  | $ | 1,818 |  |  | $ | 118,960 |  |  |
Seller's notes |  | — |  |  | — |  |  | — |  |  | 1,169 |  |  | — |  |  | 1,169 |  |  |
Deferred consideration |  | — |  |  | — |  |  | — |  |  | — |  |  | 474 |  |  | 474 |  |  |
Total purchase consideration exchanged, net of cash acquired |  | $ | 54,690 |  |  | $ | 30,755 |  |  | $ | 25,674 |  |  | $ | 7,192 |  |  | $ | 2,292 |  |  | $ | 120,603 |  |  |
The consideration for the Frontier acquisition includes a potential earn-out payment of up to $3.0 million based upon the achievement of certain milestones and relative thresholds during the earn out measurement period which ends on December 31, 2024. Refer to Note 8 – Earnout Liabilities for additional information on the earn-out. During 2023, the Company completed the purchase price allocation for Instrumex with adjustments to accrued expenses and other liabilities and long-term debt based on the final fair value measurements. The adjustments to these balances resulted in a $0.9 million increase to goodwill and a $1.6 million decrease to the total purchase consideration, net of cash acquired. As a result of acquisitions completed in 2022, the Company recorded tax deductible goodwill of $53.6 million in 2022 that may result in a tax benefit in future periods. Unaudited Pro Forma Information The following table presents estimated unaudited pro forma consolidated financial information for DSG as if the Mergers and other acquisitions disclosed above occurred on January 1, 2022 for the acquisition completed during 2023 and January 1, 2021 for the acquisitions completed during 2022. The unaudited pro forma information reflects adjustments including amortization on acquired intangible assets, interest expense, and the related tax effects. This information is presented for informational purposes only and is not necessarily indicative of future results or the results that would have occurred had the Mergers and other acquisitions been completed on the date indicated.
| Year Ended December 31,
(in thousands) | 2023 |  | 2022
Revenue | $ | 1,752,465 |  |  | $ | 1,753,939 |
Net income | (37,114) |  |  | (6,264) |
Actual Results of Business Acquisitions The following table presents actual results attributable to our business combinations that were included in the consolidated financial statements for the years ended December 31, 2023 and 2022. The 2023 and 2022 results only reflect the results attributable to the acquisitions completed in those respective years. The results of DSG's legacy Lawson business are included only subsequent to the April 1, 2022 Merger Date, and the results for other acquisitions are only included subsequent to their respective acquisition dates provided above.
| Year Ended December 31, 2023 |  | Year Ended December 31, 2022
(in thousands) | Lawson |  | Other Acquisitions |  | Total |  | Lawson |  | Other Acquisitions |  | Total
Revenue | $ | — |  |  | $ | 229,358 |  |  | $ | 229,358 |  |  | $ | 373,738 |  |  | $ | 151,217 |  |  | $ | 524,955 |
Net Income | $ | — |  |  | $ | (14,478) |  |  | $ | (14,478) |  |  | $ | 15,283 |  |  | $ | 8,670 |  |  | $ | 23,953 |
The Company incurred transaction and integration costs related to the Mergers and other completed and contemplated acquisitions of $11.6 million for the year ended December 31, 2023 and $15.4 million for the year ended December 31, 2022, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

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