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Note 5 - Business Acquisitions | 6 Months Ended
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Sep. 27, 2025
Notes to Financial Statements |
Business Combination [Text Block] | NOTE 5 – BUSINESS ACQUISITIONS Essco: Effective August 5, 2025, the Company acquired 100% of the membership units of Essco Calibration Laboratory, LLC (“Essco”), a privately-held calibration services corporation located in the Boston Metro area that is ISO 17025 certified. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the Company’s geographic reach and the depth and breadth of the Company’s service capabilities. The Essco goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets related to the Essco acquisition have been allocated to the Service segment. Intangible assets related to the Essco acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful lives of up to 15 years and are deductible for tax purposes. Amortization of goodwill related to the Essco acquisition is deductible for income tax purposes. The Essco Customer Base & Contracts intangible asset was calculated using the MPEEM (Multi-Period Excess Earnings Method) under the Income approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $34.0 million and was assigned a useful life of 15 years. The Essco Trademarks and Tradenames intangible asset was calculated using the Relief-From-Royalty Method, which is a variant of the income approach and the market approach, and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $2.7 million and was assigned a useful life of seven years. The weighted average useful life of acquired intangible assets acquired is 15 years. The total purchase price for Essco was approximately $85.6 million consisting of $82.8 million in cash paid at closing and $2.8 million in accrued liabilities related to certain post-closing adjustments, payments and indemnification claims, if any. As of September 27, 2025, $2.8 million remains unpaid and is reflected in current liabilities in the Condensed Consolidated Balance Sheets. The purchase was primarily financed by a draw on the Credit Agreement. See Note 2 - Long-Term Debt for more details. The Company has preliminarily estimate fair values for the assets purchased and liabilities assumed as of the date of the acquisition. The amounts reported are considered preliminary as the Company is completing the valuations required to allocate the purchase price. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, of Essco's assets and liabilities acquired on August 5, 2025 (in thousands):
Goodwill |  | $ | 41,364 |
Intangible Assets – Customer Base & Contracts |  |  | 34,000 |
Intangible Assets – Trademarks and Tradenames |  |  | 2,700 |
|  |  |  | 78,064 |
Plus: | Cash and Cash equivalents |  |  | 272 |
| Accounts Receivable, Net |  |  | 2,928 |
| Property and Equipment, net |  |  | 4,679 |
| Right To Use Assets |  |  | 4,049 |
| Prepaid Expenses and Other Current Assets |  |  | 189 |
| Other Assets |  |  | 16 |
Less: | Current Liabilities |  |  | (735 | )
| Lease Liabilities |  |  | (3,865 | )
Total Purchase Price |  | $ | 85,597 |
Since the acquisition, Essco has contributed revenue of $3.5 million and operating income of less than $0.1 million, which includes the negative impact of amortization of the acquired intangible assets. Martin: Effective December 10, 2024, the Company acquired Martin Calibration, Inc, a privately-held Minnesota calibration services company ("Martin"). Martin is ISO 17025 certified. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities. The Martin goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets relating to the Martin acquisition have been allocated to the Service segment. Intangible assets related to the Martin acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 14 years and are deductible for tax purposes. Amortization of goodwill related to the Martin acquisition is deductible for income tax purposes. The Martin customer base intangible was calculated using the MPEEM (Multi-Period Excess Earnings Method) approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $32.0 million and was assigned a useful life of 14 years. The Martin Tradenames and Trademarks was calculated using the relief from royalty approach, which is a variant of the income approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $3.2 million and was assigned a useful life of eleven years. The weighted average useful life of acquired intangible assets acquired is 14 years. The total purchase price for Martin was approximately $81.8 million consisting of $71.9 million in cash and the issuance of common stock valued at $9.9 million, including $2.0 million placed in escrow for certain post-closing adjustments and indemnification claims, if any. As of September 27, 2025, $0.8 million remains unpaid and is reflected in current liabilities in the Condensed Consolidated Balance Sheets. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, of Martin's assets and liabilities acquired on December 10, 2024 (in thousands):
Goodwill |  | $ | 38,871 |
Intangible Assets – Customer Base & Contracts |  |  | 32,000 |
Intangible Assets – Trademarks and Tradenames |  |  | 3,200 |
|  |  |  | 74,071 |
Plus: | Cash and Cash equivalents |  |  | 296 |
| Accounts Receivable, Net |  |  | 4,652 |
| Property and Equipment, net |  |  | 3,412 |
| Right To Use Assets |  |  | 5,811 |
| Prepaid Expenses and Other Current Assets |  |  | 475 |
Less: | Current Liabilities |  |  | (1,098 | )
| Lease Liabilities |  |  | (5,813 | )
Total Purchase Price |  | $ | 81,806 |
During the first six months of fiscal year 2026, Martin has contributed revenue of $15.2 million and operating income of $0.5 million, which includes the negative impact of amortization of the acquired intangible assets. Becnel: Effective April 15, 2024, the Company acquired Becnel Rental Tools, LLC, a privately-held Louisiana limited liability company (“Becnel”), pursuant to an Agreement and Plan of Merger (the “Becnel agreement”), by and among the Company, Becnel and the other parties thereto. Becnel is an ISO 9001:2015 certified provider of rental tools and services primarily utilized in the decommissioning and maintenance of oil wells. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service and rental capabilities. The Becnel goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets relating to the Becnel acquisition have been allocated to both the Service and Distribution segment. Intangible assets related to the Becnel acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to eleven years and are deductible for tax purposes. Amortization of goodwill related to the Becnel acquisition is deductible for income tax purposes. The Becnel customer base intangible was calculated using the MPEEM approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $7.2 million and was assigned a useful life of 10 years. The Becnel tradenames and Trademarks was calculated using the relief from royalty approach, which is a variant of the income approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $0.8 million and was assigned a useful life of eleven years. The weighted average useful life of acquired intangible assets acquired is 10 years. The total purchase price for Becnel was approximately $49.8 million consisting of up to $17.5 million in cash and the issuance of common stock valued at $32.3 million. Pursuant to the Becnel agreement, the Company held back approximately $2.5 million of the purchase price for certain potential post-closing adjustments. This includes $0.5 million withheld for ordinary post-closing adjustments and $2.0 million withheld that is subject to revenue target achievement. Pursuant to the Becnel agreement, the purchase price is subject to reduction by $2.0 million if certain revenue targets are not met through April 15, 2026. As of April 15, 2024, the estimated fair value of this contingent consideration, classified as Level 3 in the fair value hierarchy, was approximately $1.5 million. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) discount rate of 11.00%, 2) risk-free interest rate of 5.00%, 3) asset volatility of 30.00%, and 4) forecasted revenue. 50% of this contingent consideration is payable in cash and 50% of this contingent consideration is payable in 9,283 shares of Transcat common stock. The cash portion of the contingent consideration is classified as a liability and is recorded in other liabilities in the Condensed Consolidated Balance Sheets. The stock portion of the contingent consideration is classified as equity and is recorded in shareholders equity in the Condensed Consolidated Balance Sheets. The contingent consideration payout will either be $0 or $2.0 million depending on the revenue target achievement. This cash portion of the contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the cash portion of the contingent consideration changes, any charges or income will be included in the Company’s Condensed Consolidated Statements of Income. After reviewing the fiscal year 2026 forecast, the Company revalued the contingent consideration payout during the fourth quarter of fiscal year 2025. As of September 27, 2025 and March 29, 2025, the estimated fair value of the contingent consideration, classified as Level 3 in the fair value hierarchy, remains zero. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) discount rate of 14.50%, 2) risk-free interest rate of 4.01%, 3) asset volatility of 30.00%, and 4) forecasted revenue. Due to the uncertainty with utilizing these significant unobservable inputs for this Level 3 fair value measurement, materially higher or lower fair value measurements may be recognized at subsequent remeasurement periods. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, of Becnel's assets and liabilities acquired on April 15, 2024 (in thousands):
Goodwill |  | $ | 32,811 |
Intangible Assets – Customer Base & Contracts |  |  | 7,200 |
Intangible Assets – Trademarks and Tradenames |  |  | 840 |
|  |  |  | 40,851 |
Plus: | Cash and Cash equivalents |  |  | 214 |
| Accounts Receivable, Net |  |  | 3,041 |
| Property and Equipment, net |  |  | 5,848 |
| Prepaid Expenses and Other Current Assets |  |  | 79 |
Less: | Current Liabilities |  |  | (210 | )
Total Purchase Price |  | $ | 49,823 |
During the first six months of fiscal year 2026, Becnel has contributed revenue of $7.6 million and operating income of $1.6 million, which includes the negative impact of amortization of the acquired intangible assets. The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of Essco had occurred at the beginning of fiscal year 2025. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
|  | (Unaudited) |  |  | (Unaudited) |
|  | Second Quarter Ended |  |  | Six Months Ended |
(in thousands except per share information) |  | September 27, 2025 |  |  | September 28, 2024 |  |  | September 27, 2025 |  |  | September 28, 2024 |
Total Revenue |  | $ | 82,438 |  |  | $ | 73,263 |  |  | $ | 166,770 |  |  | $ | 145,681 |
Net Income |  | $ | 1,435 |  |  | $ | 3,075 |  |  | $ | 5,062 |  |  | $ | 7,675 |
Basic Earnings Per Share |  | $ | 0.15 |  |  | $ | 0.34 |  |  | $ | 0.54 |  |  | $ | 0.84 |
Diluted Earnings Per Share |  | $ | 0.15 |  |  | $ | 0.33 |  |  | $ | 0.54 |  |  | $ | 0.83 |
Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition and at subsequent remeasurement periods, as applicable. As of September 27, 2025, no contingent consideration and $5.3 million of other holdback amounts were unpaid and are reflected in current liabilities on the Condensed Consolidated Balance Sheets. During the first six months of fiscal year 2026, $1.9 million of holdback obligations were paid related to Martin and Becnel. During the first six months of fiscal year 2025, $0.5 million was paid to settle the earn-out obligation due to Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management)(“NEXA”) for calendar 2023. This amount was paid in 4,320 shares of Transcat common stock. During the first six months of fiscal years 2026 and 2025, acquisition costs were $0.5 million in each period and were recorded as incurred as general and administrative expenses in the Condensed Consolidated Statements of Income.

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