Business Acquisitions

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Scapa

On April 15, 2021, SWM completed its previously announced acquisition of Scapa Group plc (“Scapa”), a UK- based innovation, design, and manufacturing solutions provider for healthcare and industrial markets for aggregate cash consideration of $630.6 million, net of $22.7 million of Cash and cash equivalents acquired and including $568.9 million for the purchase of all Scapa ordinary shares, $75.9 million for the repayment of Scapa debt and $8.5 million for the repayment of acquisition costs incurred by Scapa. The acquisition adds to SWM’s portfolio of precision engineered performance materials, expands the Company’s innovation, design, and formulation capabilities, and brings a variety of new coating and converting technologies to SWM. Scapa, part of the AMS segment operates globally with manufacturing and sales operations in the Americas, Asia and Europe.

The purchase price was funded with borrowings under the amended Credit Agreement, as defined and discussed in Note 14. Debt.

The acquisition was accounted for as a business combination with the assets acquired and liabilities assumed measured at their fair values as of the acquisition date, primarily using Level 3 inputs.

The acquisition consideration allocation below is preliminary, pending completion of the fair value analyses of acquired assets and liabilities, including deferred taxes and the valuations of certain intangibles and personal property. The excess of the acquisition consideration over the estimated fair values of the acquired assets and assumed liabilities is assigned to goodwill. The goodwill, which is assigned to the AMS reportable segment, is primarily attributable to expected revenue synergies and is not expected to be deductible for tax purposes. The estimated purchase price allocation as of April 15, 2021, was revised during the third and fourth quarter as new information was received and analyzed resulting in a decrease in Deferred tax liabilities of $15.8 million, an increase in Property, plant and equipment of $8.1 million, an increase in Other liabilities, primarily due to changes in certain tax positions of $7.2 million, a $3.0 million decrease in Other assets, and other insignificant changes, as presented in the table below. As additional information related to income taxes becomes available, we may further revise the preliminary acquisition consideration allocation during the remainder of the measurement period, which will not exceed twelve months from the closing of the acquisition. Such revisions or changes may be material.

The consideration paid for Scapa, and the preliminary estimated fair values of the assets acquired, and liabilities assumed as of the April 15, 2021, acquisition date were as follows ($ in millions):


	Preliminary Allocation as of December 31, 2021		Adjustments		Preliminary Allocation as of April 15, 2021
Cash and cash equivalents	$	22.7	$	—	$	22.7
Accounts receivable	67.7		—		67.7
Inventory	60.0		(0.9)		60.9
Other current assets	9.7		(0.1)		9.8
Property, plant and equipment	160.2		8.1		152.1
Identifiable intangible assets	246.2		—		246.2
Other assets	23.3		(3.0)		26.3
Total assets	$	589.8	$	4.1	$	585.7

Current debt	$	15.0	$	—	$	15.0
Accounts payable and other current liabilities	85.8		(0.1)		85.9
Deferred income tax liabilities	45.7		(15.8)		61.5
Other liabilities	40.4		7.3		33.1
Net assets acquired	$	402.9	$	12.7	$	390.2
Goodwill	250.4		(12.7)		263.1
Total consideration	$	653.3	$	—	$	653.3

The fair value of receivables acquired approximates the gross contractual value. The contractual amount not expected to be collected is immaterial.

Acquired inventory was comprised of finished goods and raw materials. The fair value of finished goods was based on net realizable value adjusted for the costs of selling and a reasonable profit margin on selling effort. The fair value of raw materials was determined to approximate book value.

Property, plant and equipment is comprised of land, buildings and leasehold improvements, machinery and equipment, furniture and fixtures, computer equipment, and construction in progress. The preliminary estimated fair value was determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

Acquired intangible assets include customer relationships, tradenames and developed technologies. Intangible assets were valued using the multi-period excess earnings and relief-from-royalty methods, both forms of the income approach which considers a forecast of future cash flows generated from the use of each asset. The following table shows the preliminary fair values assigned to identifiable intangible assets ($ in millions):


	Fair Value		Weighted-Average Amortization Period (Years)
Amortizable intangible assets:
Customer relationships	$	205.4	15
Tradenames and other	7.7		10
Developed technology	33.1		7
Total amortizable intangible assets	$	246.2

The preliminary estimate of deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets

acquired, liabilities assumed and the respective tax basis.

During the twelve months ended December 31, 2021, the Company recognized direct and indirect acquisition-related costs for the Scapa acquisition of $8.7 million. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the consolidated statements of income.

The amounts of Net sales and Income from Scapa included in the Company's consolidated income statement from the acquisition date are as follows ($ in millions):


	April 15, 2021 - December 31, 2021
Net sales	$	305.6
Net income	$	0.6

Tekra

On March 13, 2020, the Company completed the acquisition of 100% of the equity interest in Tekra, LLC and Trient, LLC, “Tekra,” pursuant to the definitive agreement signed as of February 20, 2020. Tekra is a converter of high-performance films and substrates which enhances the Company’s films capabilities. Tekra, part of the AMS segment, operates two manufacturing facilities located in Wisconsin.

The consideration transferred to acquire Tekra was $169.3 million, net of $1.6 million cash and cash equivalents acquired, subject to working capital adjustments that were finalized in 2020. The purchase price was funded with borrowings from our Revolving Credit Facility (See Note 14. Debt).

The acquisition was accounted for as a business combination with the assets acquired and liabilities assumed measured at their fair values as of the acquisition date, primarily using Level 3 inputs.

The consideration paid for Tekra and the final fair values of the assets acquired, and liabilities assumed as of the March 13, 2020 acquisition date are as follows ($ in millions):


	Fair Value as of March 13, 2020
Cash and cash equivalents	$	1.6
Accounts receivable	8.6
Inventory	14.2
Other current assets	0.2
Property, plant and equipment	7.3
Identifiable intangible assets	81.8
Other noncurrent assets	3.7
Total assets	$	117.4

Accounts payable	$	3.0
Other current liabilities	2.0
Other noncurrent liabilities	2.7
Net assets acquired	$	109.7
Goodwill	61.2
Total consideration	$	170.9

The fair value of receivables acquired approximates the gross contractual value. The contractual amount not expected to be collected is immaterial.

Acquired intangible assets include customer relationships, tradenames, and unpatented developed technologies. Intangible assets were valued using the multi-period excess earnings and relief-from-royalty methods, both forms of the income approach which considers a forecast of future cash flows generated from the use of each asset. The following table shows the final fair values assigned to identifiable intangible assets ($ in millions):


	Fair Value as of March 13, 2020		Weighted-Average Amortization Period (Years)
Amortizable intangible assets:
Customer relationships	$	63.0	15
Tradenames and other	10.8		15
Developed technology	8.0		10
Total amortizable intangible assets	$	81.8

During the twelve months ended December 31, 2020, the Company recognized $1.1 million in direct and indirect acquisition-related costs for the Tekra acquisition, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the consolidated statements of income.

The amounts of Net sales and Net income of Tekra included in the Company's consolidated income statement from the acquisition date are as follows ($ in millions):


	March 13, 2020 - December 31, 2020
Net sales	$	77.3
Net income	$	1.9

Pro Forma Financial Information (unaudited)

The unaudited supplemental pro forma financial information presents the combined results of operations for the periods presented, as if the Scapa acquisition had occurred on January 1, 2020, and the Tekra acquisition had occurred on January 1, 2019, and therefore both included in the pro forma results for periods presented. The unaudited supplemental pro forma financial information includes the following adjustments related to the Scapa acquisition: amortization of intangible assets and fair value adjustments to inventory, interest expense for the additional indebtedness incurred to complete the acquisition, transaction and severance costs, and applicable tax adjustments based on statutory rates in the jurisdictions where the adjustments occurred. The unaudited supplemental pro forma financial information does not include Tekra net income for the period from January 1 - March 13, 2020, as preparation of this information was deemed impractical due to changes in the ownership structure of the acquired entities prior to the acquisition. For the year ended December 31, 2021, pro forma adjustments caused net income to increase by $10.3 million. For the year ended December 31, 2020 pro forma adjustments led to a $43.8 million decrease in net income.

The unaudited supplemental pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the Scapa and Tekra acquisitions occurred as of January 1, 2020, and January 1, 2019, respectively, nor is it necessarily indicative of the of the future results of the combined company.


	Year Ended
	December 31, 2021		December 31, 2020
Net sales	$	1,570.6	$	1,456.8
Net income (loss)(1)	$	101.2	$	(20.8)

(1) Unaudited supplemental pro forma financial information includes the impact of restructuring and the impairment of goodwill and intangible assets totaling $71.1 million on Scapa net income for the twelve months ended December 31, 2020.