Business Acquisitions

3 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Neenah Merger

On March 28, 2022, SWM and Neenah Inc. ("Neenah") announced that the parties entered into an agreement and plan of merger to combine, in an all-stock merger of equals (the “merger agreement”). Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both companies, Neenah will merge with and into a merger subsidiary directly owned by SWM (the “merger”), with Neenah surviving the merger, such that following the merger, Neenah will become a direct, wholly-owned subsidiary of SWM. Pursuant to the merger agreement, stockholders of Neenah will receive 1.358 shares of SWM common stock for each share of Neenah common stock owned. The merger is expected to close in the second half of 2022, subject to receipt of requisite Neenah and SWM stockholder approval, receipt of requisite regulatory approvals and satisfaction of other customary closing conditions. Upon completion of the merger, Neenah will no longer be a separate publicly traded corporation. SWM will continue to trade on the New York Stock Exchange. See "Note 10—Debt" for further information about debt financing related to the merger.

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 10. 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. 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 disclosed as of June 30, 2021 was revised during the measurement period as new information was received and analyzed resulting in a decrease in Deferred tax liabilities of $14.4 million, an increase in Property, plant and equipment of $7.7 million, an increase in Other liabilities, primarily due to changes in certain tax positions of $8 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 Fair Value as of March 31, 2022		Adjustments		Preliminary Fair Value 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	159.8		7.7		152.1
Identifiable intangible assets	246.2		—		246.2
Other noncurrent assets	23.3		(3.0)		26.3
Total assets	$	589.4	$	3.7	$	585.7

Current debt	$	15.0	$	—	$	15.0
Accounts payable and other current liabilities	85.7		(0.2)		85.9
Deferred income tax liabilities	47.1		(14.4)		61.5
Other noncurrent liabilities	41.1		8.0		33.1
Net assets acquired	$	400.5	$	10.3	$	390.2
Goodwill	252.8		(10.3)		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 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 three months ended March 31, 2022 and March 31, 2021 the Company recognized direct and indirect acquisition-related costs for the Scapa acquisition of $0.0 million and $3.6 million, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the condensed consolidated statements of income.

Pro Forma Financial Information

The 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. The 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. For the three months ended March 31, 2021, pro forma adjustments caused net income to increase by $10.3 million.

The supplemental pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the Scapa acquisitions occurred as of January 1, 2020.


	Three Months Ended
	March 31, 2021
Net sales	$	409.8
Net income	$	31.9