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Business Acquisitions | 9 Months Ended
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Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
Business Acquisitions | Business Acquisitions Neenah On March 28, 2022, the Company entered into an Agreement and Plan of Merger to combine with Neenah, Inc. ("Neenah"), a specialty materials company incorporated in Delaware, in an all-stock merger of equals (the "Merger Agreement"), to create a global leader in specialty materials, accelerate growth and innovation, as well as achieve cost synergies. The Merger was approved by the shareholders of both the Company and Neenah on June 29, 2022 and was consummated on July 6, 2022. Under the terms of the Merger Agreement, which was unanimously approved by the board of directors of both companies, Neenah merged into a directly owned subsidiary of the Company, with Neenah surviving the Merger as a direct, wholly-owned subsidiary of Mativ. Pursuant to the Merger Agreement, each share of Neenah's common stock outstanding was exchanged for 1.358 shares of common stock in the Company. As such, the Company issued approximately 22.8 million shares of its common stock to Neenah's shareholders under the terms of the Merger Agreement. Based on the Company's closing stock price on July 5, 2022, the total value of shares issued to Neenah's shareholders was approximately $534.1 million. The total consideration transferred to merge with Neenah was $1,056.3 million, which included the equity portion consideration of $534.1 million, repayment of Neenah debt of $504.9 million, repayment of acquisition costs incurred by Neenah of $13.5 million and the fair value of unvested stock awards allocated to the pre-merger period of $3.8 million. The Company used the proceeds of the borrowings under the amended Credit Agreement, as defined and discussed in Note 10. Debt, to repay existing indebtedness of Neenah and to pay other costs and expenses in connection with the Merger. The transaction was accounted for as a business combination with the Company being treated as the accounting acquirer in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. Under this method of accounting, the total consideration has been allocated to Neenah's assets acquired and liabilities assumed based upon fair values at the Merger date. The assets acquired and liabilities assumed were measured at fair value as of the Merger date primarily using Level 3 inputs. The excess of the total consideration over the net assets acquired was recorded as goodwill and has been allocated to the ATM segment. The goodwill recorded is not expected to be deductible for tax purposes as it is primarily attributable to expected revenue synergies. The initial purchase price allocation below is preliminary and may be revised during the remainder of the measurement period, not to exceed one year, as new information is received and analyzed. Any potential adjustments could be material in relation to the preliminary values below. The estimated fair values of the assets acquired and liabilities assumed as of the Merger date were as follows (in millions):
| Preliminary Fair Value
Cash and cash equivalents | $ | 55.9 |
Accounts receivable | 206.6 |
Inventory | 191.8 |
Assets held for sale | 10.7 |
Other current assets | 16.8 |
Property, plant and equipment | 453.6 |
Identifiable intangible assets | 219.0 |
Other non-current assets | 41.8 |
Total assets | $ | 1,196.2 |
Current debt | $ | 1.9 |
Accounts payable and other current liabilities | 207.9 |
Long-term debt | 22.8 |
Deferred income tax liabilities | 67.7 |
Other non-current liabilities | 82.0 |
Net assets acquired | $ | 813.9 |
Goodwill | 242.4 |
Total consideration | $ | 1,056.3 |
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, work in progress and raw materials. The fair value of finished goods was based on net realizable value adjusted for the costs of selling and manufacturing and a reasonable profit margin on selling effort and manufacturing costs. The fair value of work in progress 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 primarily 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 sets forth the components of identifiable intangible assets (in millions) and their estimated useful lives (in years):
| Fair Value |  | Weighted-Average Amortization Period (Years)
Amortizable intangible assets: |  |  |
Customer relationships | $ | 182.0 |  |  | 14.3
Tradenames and other | 14.7 |  |  | 20
Developed technology | 22.3 |  |  | 7
Total amortizable intangible assets | $ | 219.0 |  |  |
The preliminary estimate of deferred tax effects resulting from the Merger 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 and nine months ended September 30, 2022, the Company recognized direct and indirect costs related to the Merger of $32.7 million and $46.3 million, respectively, predominantly related to severance and termination costs resulting from the change in control, legal and other professional fees. Direct and indirect merger-related costs were expensed as incurred and are primarily included in the General expense in the unaudited Condensed Consolidated Statements of Income/(Loss). Net sales and Net loss from Neenah included in the Company's unaudited Condensed Consolidated Statements of Income/(Loss) from the Merger date are as follows (in millions):
| July 6, 2022 - September 30, 2022
Net sales | $ | 289.8 |
Net loss | $ | (5.8) |
Pro Forma Financial Information The supplemental pro forma financial information presents the combined results of operations for the periods presented, as if the Merger had occurred on January 1, 2021. The supplemental pro forma financial information includes the following adjustments related to the Merger: amortization of intangible assets and fair value adjustments to inventory, interest expense for the additional indebtedness incurred to complete the Merger, acquisition and severance costs, and applicable tax adjustments based on statutory rates in the jurisdictions where the adjustments occurred. The supplemental pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the Merger occurred as of January 1, 2021 (in millions):
| Three Months Ended
| September 30, 2022 |  | September 30, 2021
Net sales | $ | 683.7 |  |  | $ | 651.4 |
Net income | $ | 27.2 |  |  | $ | 7.4 |
| Nine Months Ended
| September 30, 2022 |  | September 30, 2021
Net sales | $ | 2,108.4 |  |  | $ | 1,813.8 |
Net income (loss) | $ | 56.5 |  |  | $ | (62.9) |
In 2022, the Company incurred $62.8 million of direct and indirect acquisition and integration costs. These expenses are included in General expense on the unaudited Condensed Consolidated Statements of Income/(Loss) and are reflected in pro forma net income for the three and nine months ended September 30, 2021. Scapa On April 15, 2021, we completed the 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 our portfolio of precision engineered performance materials, expands our innovation, design, and formulation capabilities, and brings a variety of new coating and converting technologies to the Company. Scapa is part of the ATM segment and 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 excess of the acquisition consideration over the estimated fair values of the acquired assets and assumed liabilities is assigned to goodwill. The goodwill is assigned to the ATM reporting segment and is primarily attributable to expected revenue synergies. It 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 $12.3 million, an increase in Property, plant and equipment of $7.7 million, an increase in Other non-current liabilities, primarily due to changes in certain tax positions of $7.0 million, a $3.0 million decrease in Other non-current assets, and other insignificant changes, as presented in the table below. The consideration paid for Scapa, and the fair values of the assets acquired and liabilities assumed as of the April 15, 2021 acquisition date were as follows (in millions):
| Final Fair Value |  | Adjustments |  | Preliminary Fair Value
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 non-current 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 | 83.9 |  |  | (2.0) |  |  | 85.9 |
Deferred income tax liabilities | 49.2 |  |  | (12.3) |  |  | 61.5 |
Other non-current liabilities | 40.1 |  |  | 7.0 |  |  | 33.1 |
Net assets acquired | $ | 401.2 |  |  | $ | 11.0 |  |  | $ | 390.2 |
Goodwill | 252.1 |  |  | (11.0) |  |  | 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 not material. 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 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 are 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 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 deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired, liabilities assumed and the respective tax basis. During the three and nine months ended September 30, 2022, the Company did not incur any direct and indirect acquisition-related costs for the Scapa acquisition. During the three and nine months ended September 30, 2021, the Company recognized zero and $8.7 million of direct and indirect acquisition-related costs, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in General expense in the unaudited Condensed Consolidated Statements of Income/(Loss). 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 transaction, acquisition and severance costs, and applicable tax adjustments based on statutory rates in the jurisdictions where the adjustments occurred. The supplemental pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the Scapa acquisition occurred as of January 1, 2020 (in millions):
|  |  | Nine Months Ended
|  |  | September 30, 2021
Net sales |  |  | $ | 1,180.2 |
Net income |  |  | $ | 47.9 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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