XML 29 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Business Combinations
 12 Months Ended
Sep. 30, 2016
Business Combinations [Abstract]  
Business Combinations
Business Combinations

In accordance with Accounting Standards Codification 805, "Business Combinations" ("ASC 805") the Company records acquisitions under the purchase method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon the respective fair values. The company utilizes estimates and in some instances, may retain the services of an independent third-party valuation firm to assist in determining the fair values of assets acquired, liabilities assumed, and contingent consideration granted. Such estimates and valuations require the Company to make significant assumptions. These assumption may include projections of future events and operating performance.

Acquisition of Danya International, LLC

On May 3, 2016, the Company acquired 100% of the equity interests of Dayna International, LLC for a purchase price of $38.75 million. The acquisition was financed through a combination of:

•
borrowings of $30.0 million under the Company’s senior credit facility,
•
cash on hand of approximately $3.75 million,
•
670,242 restricted shares of DLH common stock, valued at $2.5 million based on the 20 day volume-weighted average price (VWAP) of DLH stock, or $3.73 per share, and
•
$2.5 million pursuant to a subordinated loan arrangement with the Company’s largest stockholder. The subordinated loan was paid off on September 30, 2016 with proceeds from an equity Rights Offering that closed on September 29, 2016.

After giving effect to the issuance of the shares of common stock issued to Seller at closing, Seller beneficially owns approximately 6.5% of the Company’s outstanding shares.

The acquisition of Danya International is consistent with the Company’s growth strategy, which calls for the development of new customers and service offerings both organically and through mergers and acquisitions.
 
The preliminary base purchase price for Danya was $38.75 million, with adjustments as necessary based on an estimated working capital excess compared to the threshold prescribed in the acquisition agreement.

The estimated allocation of the purchase price is shown below, based on our assessment of the acquisition date balance sheet of Danya on May 3, 2016. The Company is in the process of completing a third-party valuation of the acquired intangible assets. Once the valuation is complete, we will make any adjustments as needed.

Consideration paid for Danya acquisition included:

(Amounts in thousands)
 
 
Cash
 
$
36,470

Common stock, fair value
 
2,500

Total Consideration
 
$
38,970



(Amounts in thousands)
 
 
Net assets acquired
 
 
Cash and cash equivalents
 
$
4,009

Accounts receivable
 
5,712

Other current assets
 
444

Total current assets
 
10,165

Accounts payable and accrued expenses
 
(5,013
)
Payroll liabilities
 
(1,432
)
Net working capital surplus
 
3,720

Property and equipment, net
 
403

Intangible assets:
 
 
Customer relationships
 
7,247

Covenant not to compete
 
1,369

Other long term assets
 
81

Net identifiable assets acquired
 
12,820

Goodwill
 
26,150

Net assets acquired
 
$
38,970



During the twelve months ended September 30, 2016, Danya contributed approximately $16.7 million of revenue and $3.0 million income from operations.
 
The following table presents certain results for the twelve months ended September 30, 2016 and 2015 as though the acquisition of Danya had occurred on October 1, 2014. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of our results if the acquisition had taken place on that date. The pro forma results presented below include amortization charges for acquired intangible assets and adjustments to interest expense incurred and exclude related acquisition expenses. The diluted earnings per share calculation takes into account as though the acquisition took place on October 1, 2014. The pro forma results also include the recognition of tax benefits from release of the valuation allowance of $1.8 million and $6.8 million for the twelve months ended September 30, 2016 and 2015, respectively. See Note 13 for further discussion.

 
 
(in thousands)
 
 
Twelve Months Ended
 
 
September 30,
Pro forma results
 
2016
 
2015
Revenue
 
$
119,245

 
$
114,510

Net income
 
$
5,322

 
$
9,498

 
 
 
 
 
Weighted shares outstanding - basic
 
11,347

 
10,954

Weighted shares outstanding - diluted
 
12,601

 
11,420

 
 
 
 
 
Basic earnings per share
 
$0.47
 
$0.87
Diluted earnings per share
 
$0.42
 
$0.83