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Acquisition and Disposition | 9 Months Ended
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Sep. 29, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
Acquisition and Disposition | 4. Acquisition and Disposition Acquisition On May 31, 2024, the Company indirectly acquired 100% of the equity interests in Motion Recruitment Partners, LLC ("MRP") by way of a merger with MRP Merger Sub, Inc. ("Merger Sub"), a newly-formed, wholly owned subsidiary of the Company, with and into MRP Topco ("Topco"), the indirect parent company of MRP and Littlejohn Fund V, L.P. ("Littlejohn"), with Topco surviving the merger (the "Merger"). MRP is a parent company to a group of leading global talent solutions providers and the acquisition is expected to strengthen the scale and capabilities of Kelly's solutions portfolio. Under terms of the merger agreement, the $425.0 million purchase price was adjusted for estimated cash held by MRP at the closing date and estimated working capital adjustments, resulting in the Company paying cash of $440.0 million. The acquisition was funded with cash on hand and available credit facilities (see Debt footnote). Total consideration included $3.4 million of contingent consideration related to an earnout payment with a maximum potential cash payment of $60.0 million in the event certain financial metrics are met per the terms of the agreement. The earnout payment is based on a multiple of gross profit in excess of an agreed-upon amount during the earnout period, defined as the 12 months ending March 31, 2025, and any necessary payment is due to the seller in the second quarter of 2025. The initial fair value of the earnout was established using a Monte Carlo simulation model and is reassessed on a quarterly basis (see Fair Value Measurements footnote). In the third quarter of 2024, the Company recorded a payable in accounts payable and accrued liabilities in the consolidated balance sheet for a post-close net working capital adjustment of $1.4 million which will be paid in the fourth quarter of 2024. The merger agreement contains representations and warranties and covenants customary for a transaction of this nature. The total consideration is as follows (in millions of dollars):
Cash consideration paid | $ | 425.0 |
Estimated cash acquired | 13.6 |
Estimated net working capital adjustment | 1.4 |
Total cash consideration | 440.0 |
Additional consideration payable | 3.4 |
Net working capital adjustment | 1.4 |
Total consideration | $ | 444.8 |
The purchase price allocation for this acquisition is preliminary and could change. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):
Cash and equivalents | $ | 12.6 |
Trade accounts receivable | 89.1 |
Prepaid expenses and other current assets | 8.5 |
Net property and equipment | 3.1 |
Operating lease right-of-use assets | 11.9 |
Goodwill | 222.9 |
Intangibles, net | 145.9 |
Other assets, noncurrent | 10.6 |
Accounts payable and accrued liabilities, current | (12.1) |
Operating lease liabilities, current | (4.0) |
Accrued payroll and related taxes, current | (15.9) |
Income and other taxes, current | (0.5) |
Operating lease liabilities, noncurrent | (9.0) |
Other long-term liabilities | (18.3) |
Total consideration, including working capital adjustments | $ | 444.8 |
The fair value of the acquired receivables represents the contractual value net of the allowance for potentially uncollectible accounts. Included in the assets purchased in the MRP acquisition was $145.9 million of intangible assets, made up of $88.1 million in customer relationships, $56.5 million associated with MRP's trade names, and $1.3 million for non-compete agreements. The customer relationships are amortized over 15 years with no residual value, the trade names are amortized over 10-15 years with no residual value, and the non-compete agreements are amortized over four years with no residual value. Goodwill generated from the acquisition was primarily attributable to expanding market potential and the expected revenue and operational synergies and was assigned to the SET operating segment (see Goodwill footnote). None of the goodwill generated from the acquisition is expected to be deductible for tax purposes. MRP's results of operations are included in the SET segment. For the third quarter-end 2024, our consolidated revenues and net earnings include $124.6 million and $2.3 million from MRP, respectively. For September year-to-date 2024, our consolidated revenues and net earnings include $164.6 million and $3.9 million from MRP, respectively. Pro Forma Information The following unaudited pro forma information presents a summary of the operating results as if the MRP acquisition had been completed as of January 2, 2023 (in millions of dollars):
| Third Quarter |  | September Year to Date
| 2024 |  | 2023 |  | 2024 |  | 2023
Pro forma revenues | $ | 1,038.1 |  |  | $ | 1,254.0 |  |  | $ | 3,361.1 |  |  | $ | 4,023.9 |
Pro forma net earnings | $ | 1.9 |  |  | $ | 6.8 |  |  | $ | 25.1 |  |  | $ | 19.2 |
The pro forma results for the periods above include adjustments to amortization expense for the intangible assets, reversal of MRP's interest expense on credit facilities that were settled upon completion of the acquisition, interest expense and associated amortization of debt issuance costs for financing the acquisition, reclassification of transaction expenses to the appropriate period, and applicable taxes. The unaudited pro forma information presented has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisition occurred on the assumed date, nor is it necessarily an indication of future operating results. Disposition of EMEA Staffing Operations On January 2, 2024, the Company completed the sale of its EMEA staffing operations ("disposal group"), which was included in the Company's International operating segment, to Gi Group Holdings S.P.A. ("Gi"). Upon closing, the Company received cash proceeds of $110.6 million, or $77.1 million net of cash disposed, which is included in investing activities in the consolidated statements of cash flows. The Company expects to receive additional net cash proceeds to reflect the cash-free, debt-free transaction basis, as well as working capital and other adjustments. The Company does not expect to receive any proceeds from the contingent consideration opportunity associated with the transaction. In the first quarter of 2024, the Company recorded a euro-denominated receivable from Gi of $26.9 million representing the adjustments that were determinable and expected to be received. In the second quarter of 2024, the Company recorded negative working capital and other adjustments of $10.1 million, which reduced the net receivable from Gi to $16.8 million. As of the third quarter-end 2024, the net receivable is $17.6 million, with the change of $0.8 million from the second quarter reflecting the foreign currency remeasurement. The Company is actively reconciling the receivable in accordance with the purchase agreement and expects it to be settled upon completion of this process. The receivable is included in prepaid expenses and other current assets in the consolidated balance sheet and included in the gain on the transaction. The total gain on the transaction through third quarter-end 2024 is $1.6 million, which is recorded in the gain on sale of EMEA staffing operations in the consolidated statements of earnings. The disposal group did not meet the requirements to be classified as discontinued operations as the sale did not have a material effect on the Company's operations and did not represent a strategic shift in the Company's strategy. Our consolidated earnings from operations for the third quarter 2023 and September year-to-date 2023 included earnings of $0.8 million and a loss of $1.1 million, respectively, from the EMEA staffing operations. The major classes of divested assets and liabilities were as follows (in millions of dollars):
Assets divested |  |
Cash and equivalents |  | $ | 33.5 |
Trade accounts receivable, net |  | 202.8 |
Prepaid expenses and other current assets |  | 29.0 |
Property and equipment, net |  | 4.2 |
Operating lease right-of-use assets |  | 14.2 |
Deferred taxes |  | 4.1 |
Other assets |  | 5.4 |
Assets divested |  | 293.2 |
Liabilities divested |  |
Accounts payable and accrued liabilities |  | (24.5) |
Operating lease liabilities, current |  | (5.7) |
Accrued payroll and related taxes |  | (91.6) |
Income and other taxes |  | (32.9) |
Operating lease liabilities, noncurrent |  | (8.9) |
Accrued retirement benefits |  | (1.7) |
Other long-term liabilities |  | (4.6) |
Liabilities divested |  | (169.9) |
Disposal group, net |  | $ | 123.3 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/205-20/tableOfContent + Details
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