Acquisitions

6 Months Ended

Jun. 30, 2021

3. Acquisitions

Acquisition of Franken

On April 1, 2021, we completed the acquisition of Franken, for a purchase price of €2.4 million (US$2.8 million, based on April 1, 2021 exchange rates), net of cash acquired of $1.1 million. Franken is a provider of visual communication products, including boards, markers, planning tools, as well as creative and training products. Franken is a German company that is included in the Company’s EMEA reporting segment.

Pro forma financial information is not presented due to immateriality.

Acquisition of PowerA

Effective December 17, 2020, we completed the acquisition of PowerA, a leading provider of third-party video gaming console accessories primarily in North America. The results of PowerA are included in all three of the Company's reporting units effective December 17, 2020.

The purchase price was $321.8 million, net of a working capital adjustment received of $18.2 million, plus an additional earnout of up to $55.0 million in cash. The earnout is contingent upon PowerA achieving one- and two- year sales and profit growth objectives. The fair value of the contingent earnout liability was $29.8 million as of June 30, 2021. The PowerA Acquisition and related expenses were funded by cash on hand, as well as borrowings from our revolving credit facility.

For accounting purposes, the Company was the acquiring enterprise. The PowerA Acquisition is being accounted for as a purchase business combination and PowerA's results are included in the Company’s consolidated financial statements as of December 31, 2020. The additional net sales from PowerA during the three and six months ended June 30, 2021 were $50.7 million and $113.4 million, respectively.

The following table presents the preliminary allocation of the consideration given to the fair values of the assets acquired and liabilities assumed at the date of the PowerA Acquisition:


(in millions)	At December 17, 2020
Calculation of Goodwill:
Purchase price, net of working capital adjustment	$	321.8



Fair value of contingent consideration	$	18.2

Plus fair value of liabilities assumed:
Accrued liabilities	9.2

Fair value of liabilities assumed	$	9.2

Less fair value of assets acquired:


Inventory	28.7
Property and equipment	0.2
Identifiable intangibles	239.7
Other assets	13.2
Fair value of assets acquired	$	281.8

Goodwill	$	67.4

We are continuing our review of the fair value estimate of assets acquired and liabilities assumed, during the measurement period, which will conclude as soon as we receive the information we are seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not available. This measurement period will not exceed one year from the acquisition date. The excess of the purchase price over the fair value of net assets acquired is allocated to goodwill. The preliminary goodwill of $67.4 million is primarily attributable to synergies expected to be realized from leveraging our geographic footprint and from the existence of an assembled workforce.

Our fair value estimate of assets acquired and liabilities assumed is pending the completion of several elements, including the final determination of the purchase price, the final determination of the fair value of the assets acquired and liabilities assumed, and the final review by our management. The primary areas that are not yet finalized relate to intangible assets and contingent consideration. In particular, the determination of the preliminary fair value of the customer relationships and vendor relationships intangible assets required us to make significant estimates and assumptions regarding (1) future revenue growth rates, (2) future cost of sales and operating expenses, (3) attrition rate, (4) future cash flows without vendor relationships, and (5) discount rates. The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is reflected in these consolidated financial statements. Accordingly, there could be material adjustments to our consolidated financial statements, including changes in our amortization expense related to the valuation of intangible assets and their respective useful lives, among other adjustments.

During the year ended December 31, 2020, transaction costs related to the PowerA Acquisition were $3.7 million, and for the six months ended June 30, 2021, they were $0.1 million. These costs were reported as SG&A expenses in the Company's Consolidated Statements of Income.

Unaudited Pro Forma Consolidated Results

The unaudited pro forma information presented below is not intended to represent, nor do we believe it is indicative of, the consolidated results of operations of the Company that would have been reported had the PowerA Acquisition been completed on January 1, 2019. Furthermore, the unaudited pro forma information does not give effect to the anticipated synergies or other anticipated benefits of the PowerA Acquisition.

Had the PowerA Acquisition occurred on January 1, 2019, unaudited pro forma consolidated results of the Company for the three and six months ended June 30, 2021 and 2020 would have been as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Net sales	$	517.8	$	409.5	$	928.3	$	824.1
Net income	48.6		8.7		28.2		16.7
Net income per diluted common share	$	0.51	$	0.09	$	0.29	$	0.17

The pro forma amounts are based on the Company's historical results and the historical results for the acquired PowerA business. The pro forma results of operations have been adjusted to include amortization of finite-lived intangibles, and other charges related to the PowerA Acquisition accounting.