Business Combinations and Asset Acquisitions

9 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Restructuring, Impairment, and Other Activities Disclosure

2. Acquisitions & Disposals

Acquisitions

On April 7, 2021, the Company completed its acquisition of Dorner Mfg. Corp. ("Dorner") for $481,012,000. Dorner, headquartered in Hartland, WI, is a leading automation solutions company providing unique, patented technologies in the design, application, manufacturing and integration of high-precision conveying systems. The acquisition of Dorner accelerates the Company’s shift to intelligent motion and serves as a platform to expand capabilities in advanced, higher technology automation solutions. Dorner is a leading supplier to the life sciences, food processing, and consumer packaged goods markets as well as the faster growing industrial automation and e-commerce sectors.

The results of Dorner included in the Company’s consolidated financial statements from the date of acquisition are Net sales and Income from operations of $31,064,000 and $4,157,000, respectively, in the three months ended December 31, 2021 and Net sales and Income from operations of $98,781,000 and $8,481,000, respectively, in the nine months ended December 31, 2021. Dorner's Income from operations in the nine months ended December 31, 2021 includes $218,000 in integration related severance costs, which have been included in General and administrative expenses. Dorner's Income from operations in the nine months ended December 31, 2021 includes acquisition related inventory amortization of $2,981,000, which has been included in Cost of products sold.

In addition, the Company incurred acquisition integration and deal expenses in the amount of $53,000 and $8,739,000 in the three and nine months ended December 31, 2021, respectively, which are included in General and administrative expenses. The Company also incurred $970,000 in costs related to a transaction bonus that was paid 45 days after the acquisition date to key personnel of which $521,000 has been recorded as part of Cost of products sold, $350,000 has been recorded as part of Selling expenses, $74,000 has been recorded as part of General and administrative expenses, and $25,000 has been recorded as part of Research and development expenses in the nine months ended December 31, 2021.

To finance the Dorner acquisition, on April 7, 2021 the Company entered into a $750,000,000 credit facility ("First Lien Facilities") with JPMorgan Chase Bank, N.A. ("JPMorgan Chase Bank"), PNC Capital Markets LLC, and Wells Fargo Securities LLC. The First Lien Facilities consist of a Revolving Facility (the “New Revolving Credit Facility”) in an aggregate amount of $100,000,000 and a $650,000,000 First Lien Term Facility ("Bridge Facility"). Proceeds from the Bridge Facility were used, among other things, to finance the purchase price for the Dorner acquisition, pay related fees, expenses and

transaction costs, and refinance the Company's borrowings under its prior Term Loan and Revolver. See Note 9, Debt, for further details on the Company's new debt agreement and subsequent equity offering.

The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed as of the date of acquisition. The excess consideration of $289,923,000 has been preliminarily recorded as goodwill as of December 31, 2021. During the three months ended December 31, 2021, the Company refined its estimate of the amount of the purchase price allocated to customer relationships resulting in a decrease in the balance by $3,000,000 with an offsetting increase to goodwill, which is the primary reason for the increase in goodwill from amounts reported as of September 30, 2021. The identifiable intangible assets acquired include customer relationships of $137,000,000, technology of $45,000,000, and trade names of $8,000,000. The weighted average life of the acquired identifiable intangible assets subject to amortization was estimated at 15 years at the time of acquisition. Approximately $8,000,000 of goodwill arising as a result of the acquisition is deductible for tax purposes. The allocation of the purchase price to the assets acquired and liabilities assumed of Dorner is not complete as of December 31, 2021 as the Company is continuing to gather information regarding Dorner's contingent liabilities and intangible assets.

The preliminary assignment of purchase consideration to the assets acquired and liabilities assumed is as follows (in thousands):


Cash	$	8,058
Working Capital	24,229
Property, plant, and equipment, net	26,104
Intangible assets	190,000
Other assets	658
Other liabilities	(3,734)
Finance lease liabilities	(14,582)
Deferred and other taxes, net	(39,644)
Goodwill	289,923
Total	$	481,012

See Note 4 for assumptions used in determining the fair values of the intangible assets acquired.

The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of Dorner had occurred as of April 1, 2020. The pro forma information includes certain adjustments, including depreciation and amortization expense, interest expense, and certain other adjustments, together with related income tax effects. The pro forma amounts may not be indicative of the results that actually would have been achieved had the acquisition of Dorner occurred as of April 1, 2020 and are not necessarily indicative of future results of the combined companies (in thousands):


	Three months ended				Nine months ended
	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Net sales	$	216,088	$	194,218	$	653,187	$	541,498
Net income (loss)	7,776		6,437		39,997		(29,061)

On December 1, 2021, the Company completed its acquisition of Garvey Corporation ("Garvey") for $67,731,000 including $907,000 in cash acquired, subject to an adjustment for working capital, cash and indebtedness and a $2,000,000 contingent payment that only becomes payable if (a) the EBITDA target set forth in the Purchase Agreement for the twelve-month period commencing on the month immediately following closing is achieved and (b) a specific current executive of Garvey remains employed with Garvey until at least March 31, 2023. The Company financed the acquisition by borrowing $75,000,000 utilizing the Accordion feature under its existing Term Loan B, discussed in Note 9. Garvey is a leading accumulation systems solutions company providing unique, patented systems for the automation of production processes whose products complement those of Dorner.

The results of Garvey are included in the Company’s consolidated financial statements from the date of acquisition. Garvey's Income from operations in the three months ended December 31, 2021 includes acquisition related amortization of backlog in the amount of $450,000, which has been included as an offset to Net sales, and inventory amortization of $515,000, which has been included in Cost of products sold.

In addition, the Company incurred acquisition integration and deal expenses in the amount of $317,000 in the three months ended December 31, 2021, which are included in General and administrative expenses.

Lastly, purchase accounting allocations are not complete at this time. The Company has preliminarily recorded: $21,040,000 in intangible assets related to backlog, trademarks and trade names, patents, engineered drawings, customer relationships; $41,829,000 in goodwill; and the remaining $4,862,000 recorded in net assets. See Note 4 for assumptions used in determining the fair values of the intangible assets acquired.

Further, pro forma financial information presenting the combined results of operations as if the Garvey acquisition had occurred as of April 1, 2020 has not been disclosed because it is not deemed a material acquisition.

Disposals

During the nine months ended December 31, 2021, the Company sold its former manufacturing facility in Lisbon, Ohio for $461,000. This resulted in a gain of $375,000 which is included in Cost of products sold on the Condensed Consolidated Statements of Operations.

During fiscal 2021, the Company sold one of its owned manufacturing facilities in China as a result of its plan to consolidate two of its Hangzhou, China manufacturing facilities into one and reorganize its Asia Pacific operations. During the nine months ended December 31, 2020, the Company received cash in the amount of 45 million RMB (approximately $6,363,000) from the buyer to purchase the facility which resulted in a gain of $2,638,000, of which $2,189,000 is included in Cost of products sold and $449,000 is included in General and administrative expenses on the Condensed Consolidated Statements of Operations during the nine months ended December 31, 2020.