| Acquisitions | Acquisitions 2024 Acquisitions In October 2023, we acquired Clearpath Robotics, Inc., including its industrial division OTTO Motors (Clearpath), a company that specializes in autonomous robotics for industrial applications, headquartered in Ontario, Canada. We recorded assets acquired and liabilities assumed in connection with this acquisition based on their estimated fair values as of the acquisition date of October 2, 2023. The preliminary aggregate purchase price allocation is as follows (in millions): Purchase Price Allocation Receivables $ 8.1 Inventory 22.0 Goodwill 289.0 Intangible assets 313.4 All other assets 10.2 Total assets acquired 642.7 Less: Deferred tax liability (21.9) Less: Liabilities assumed (12.3) Net assets acquired $ 608.5 Purchase Consideration Cash consideration, net of cash acquired $ 565.5 Contingent consideration 43.0 Total purchase consideration, net of cash acquired $ 608.5 Intangible assets identified include $269.9 million of technology, $41.6 million of trademarks, and $1.9 million of customer relationships. We assigned the full amount of goodwill and all other assets acquired to our Intelligent Devices segment. The goodwill recorded represents intangible assets that do not qualify for separate recognition. This goodwill arises because the purchase price for Clearpath reflects a number of factors including the future earnings and cash flow potential for the business and resulting synergies from the business portfolio and industry expertise. We do not expect the goodwill to be deductible for tax purposes. The intangible assets were valued using an income approach, specifically the relief from royalty method and multi-period excess earnings method. The relief from royalty method calculates value based on hypothetical payments that would be saved by owning an asset rather than licensing it. The multi-period excess earnings method is the isolation of cash flows from a single intangible asset and measures fair value by discounting them to present value. These values are considered level 3 measurements under the U.S. GAAP fair value hierarchy. Refer to Note 9 for further information regarding levels in the fair value hierarchy. The key assumption requiring the use of judgement in the valuation of the technology asset was the obsolescence factor, where we estimated a phase out over 12 years; other assumptions included forecasted revenue growth rates and margin and the discount rate. The key assumption requiring the use of judgement in the valuation of the trademarks asset was the weighted average royalty rate of 2.05 percent; other assumptions included forecasted revenue growth rates and the discount rate. The purchase price included up to $50 million in contingent consideration that can be earned by sellers if Clearpath achieves revenue targets that it had established prior to the acquisition in two performance periods ending February 29, 2024, and February 28, 2025. We developed various risk-based scenarios and a probability outcome model to measure the fair value of the contingent consideration, which is considered a level 3 measurement under the U.S. GAAP fair value hierarchy. We determined the fair value to be $43 million as of the acquisition date and as of December 31, 2023. We updated the fair value measures during the second quarter to reflect actual contingent consideration earned during the first performance period and we updated the probability outcome model for the second performance period. The following table presents the fair value of the contingent consideration in the Consolidated Balance Sheet (in millions): Period ended February 29, 2024 Period ended February 28, 2025 Total Contingent consideration as of December 31, 2023 $ 17.5 $ 25.5 $ 43.0 Adjustment for earnout achieved for first performance period (7.7) — (7.7) Adjustment to fair value — 0.7 0.7 Contingent consideration as of March 31, 2024 $ 9.8 $ 26.2 $ 36.0 The consideration for the amount earned for the first performance period will be paid during the third quarter of 2024 and is included in Other current liabilities at March 31, 2024. The contingent consideration for the second performance period is included in Other liabilities at March 31, 2024. Any amount earned for the second performance period will be paid during the third quarter of 2025. The $7.0 million net reduction in the fair value of total contingent consideration is reported in Other income (expense) in the Consolidated Statement of Operations for the three and six months ended March 31, 2024. In November 2023, we acquired Verve Industrial Protection (Verve), a cybersecurity software and services company that focuses specifically on industrial environments. We recorded assets acquired and liabilities assumed in connection with this acquisition based on their estimated fair values as of the acquisition date of November 1, 2023. The preliminary aggregate purchase price allocation is as follows (in millions): Purchase Price Allocation Receivables $ 8.0 Goodwill 132.8 Intangible assets 47.2 All other assets 1.4 Total assets acquired 189.4 Less: Liabilities assumed (6.2) Net assets acquired $ 183.2 Purchase Consideration Total purchase consideration, net of cash acquired $ 183.2 We assigned the full amount of goodwill to our Lifecycle Services segment. We expect the goodwill to be deductible for tax purposes. The goodwill recorded represents intangible assets that do not qualify for separate recognition. The allocations of the purchase prices to identifiable assets above are based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The measurement period for the valuation of net assets acquired ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but not to exceed 12 months following the acquisition date. Adjustments in purchase price allocations may require a change in the amounts allocated to net assets acquired during the periods in which the adjustments are determined. Pro forma consolidated sales for the three and six months ended March 31, 2024, were $2.1 billion and $4.2 billion, respectively, and the impact on earnings was not material. Pro forma consolidated sales for the three and six months ended March 31, 2023, were $2.3 billion and $4.3 billion, respectively, and the impact on earnings was not material. The preceding pro forma consolidated financial results of operations are as if the preceding 2024 acquisitions occurred on October 1, 2022. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the transaction occurred as of that time. Total sales from all of the above 2024 acquisitions in the three and six months ended March 31, 2024, were $29.6 million and $46.8 million, respectively. Total acquisition-related costs and earnings from all of the above 2024 acquisitions in the three and six months ended March 31, 2024, were not material. 2023 Acquisitions In October 2022, we acquired CUBIC, a company that specializes in modular systems for the construction of electrical panels, headquartered in Bronderslev, Denmark. We assigned the full amount of goodwill related to this acquisition to our Intelligent Devices segment. In February 2023, we acquired Knowledge Lens, a services and solutions provider headquartered in Bengaluru, India. We assigned the full amount of goodwill related to this acquisition to our Lifecycle Services segment. We recorded assets acquired and liabilities assumed in connection with these acquisitions based on their estimated fair values as of the acquisition dates of October 31, 2022, and February 28, 2023, respectively. The aggregate purchase price allocation is as follows (in millions): Purchase Price Allocation Receivables $ 23.8 Inventories 17.7 Property 27.5 Goodwill 111.3 Other intangible assets 54.1 All other assets 21.0 Total assets acquired 255.4 Less: Liabilities assumed (12.6) Less: Deferred income taxes (56.6) Net assets acquired, excluding cash $ 186.2 Purchase Consideration Total purchase consideration, net of cash acquired $ 186.2 Pro forma consolidated sales for the three and six months ended March 31, 2023, were $2.3 billion and $4.3 billion, respectively, and the impact on earnings was not material. The preceding pro forma consolidated financial results of operations are as if the preceding 2023 acquisitions occurred on October 1, 2022. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the transaction occurred as of that time. Total sales from all of the above 2023 acquisitions in the three and six months ended March 31, 2024, were $29.7 million and $56.5 million, respectively. Total sales from all of the above 2023 acquisitions in the three and six months ended March 31, 2023, were $21.9 million and $35.6 million, respectively. Total acquisition-related costs from all of the above 2023 acquisitions in the three and six months ended March 31, 2023, were not material. |
