Business Acquisitions and Investments

6 Months Ended

Jun. 30, 2021

Business Acquisitions and Investments [Abstract]

Note 3. Business Acquisitions and Investments

2021 Business Acquisitions

Acquisition of Capital Stock of Trumpet Holdings, Inc. (“Trombetta”)

In May 2021, we acquired 100% of the capital stock of Trumpet Holdings, Inc., a Delaware corporation, (more commonly known as “Trombetta”), for $111.7 million, subject to certain post-closing adjustments. Trombetta is a leading provider of power switching and power management products to Original Equipment (‘‘OE’’) customers in various markets. The acquired Trombetta business was paid for in cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A., as agent, and has manufacturing facilities in Milwaukee, Wisconsin; Sheboygan Falls, Wisconsin; Tijuana, Mexico, as well as a 70% ownership in a joint venture in Hong Kong, with operations in Shanghai and Wuxi, China (“Trombetta Asia, Ltd.”). The acquisition will be reported as part of our Engine Management Segment, is an excellent fit for our strategy of expansion into the OE heavy duty market.

The preliminary allocation of purchase price to assets acquired and liabilities assumed is based upon estimates of fair values utilizing customary valuation procedures and techniques, as well as other information compiled by management. While we believe these preliminary estimates provide a reasonable basis for estimating the fair value of the assets acquired and liabilities assumed, and do not anticipate that any adjustments to these values will be significant, we will continue to evaluate available information prior to finalization of the amounts, particularly the amounts related to intangible assets, deferred income taxes, noncontrolling interests and the final agreement of post-closing adjustments. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed (in thousands):

Purchase price				$	111,741
Assets acquired and liabilities assumed:
Receivables	$	9,173
Inventory		12,460
Other current assets (1)		5,193
Property, plant and equipment, net		4,939
Operating lease right-of-use assets		3,847
Intangible assets		54,700
Goodwill		49,028
Current liabilities		(4,820	)
Noncurrent operating lease liabilities		(3,065	)
Deferred income taxes		(8,210	)
Subtotal					123,245
Fair value of acquired noncontrolling interest					(11,504	)
Net assets acquired				$	111,741

(1)

The other current assets balance includes $4.6 million of cash acquired.

Intangible assets acquired of $54.7 million consist of customer relationships of $39.4 million that will be amortized on a straight-line basis over the estimated useful life of 20 years; developed technology of $13.4 million that will be amortized on a straight-line basis over the estimated useful life of 15 years; and a trade name of $1.9 million that will be amortized on a straight-line basis over the estimated useful life of 10 years. Goodwill of $49 million was allocated to the Engine Management Segment. The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations. The intangible assets and goodwill are not deductible for tax purposes.

Revenues from the acquired business included in our consolidated statement of operations from the acquisition date through June 30, 2021 were $5.7 million.

Acquisition of Particulate Matter Sensor Business of Stoneridge, Inc.

In March 2021, we agreed to acquire the soot sensor product lines from Stoneridge, Inc. The product lines to be acquired manufacture sensors used in the exhaust and emission systems of diesel engines. The product lines are located in Stoneridge’s facilities in Lexington, Ohio and Tallinn, Estonia. We are not acquiring these facilities, nor any of Stoneridge’s employees, and will be relocating the production lines to our engine management plants in Independence, Kansas and Bialystok, Poland, respectively. The acquisition, to be reported as part of our Engine Management Segment, is an excellent fit for our strategy of expansion into the OE heavy duty market. Customer relationships to be acquired include Volvo, CNHi and Hino.

The product lines located in Stoneridge’s facility in Lexington, Ohio were acquired in March 2021 for $2.1 million, and were paid for in cash funded by borrowings under our revolving credit facility with JPMorgan Chase Bank, N.A. The assets acquired include inventory, machinery & equipment and certain intangible assets. The product lines at Stoneridge’s Tallinn, Estonia facility will be acquired at a future date for approximately $800,000. Tallinn, Estonia assets to be acquired consist solely of machinery & equipment.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed through June 30, 2021, based on their fair values (in thousands):

Purchase Price			$	2,138
Assets acquired and liabilities assumed:
Inventory	$	1,032
Machinery and equipment, net		351
Intangible assets		755
Net assets acquired			$	2,138

Intangible assets acquired of approximately $0.8 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 10 years.

Revenues from the acquired business included in our consolidated statement of operations from the acquisition date through June 30, 2021 were $3.8 million.