| Acquisitions | 4. Acquisitions Bedrock Acquisition On January 31, 2018, ASG acquired the assets of a slab and tile distributor, Elegant Home Design, LLC (“Bedrock”), for total consideration of $12.5 million with cash consideration of $11.5 million and $1.0 million accrued liability recorded as security for and source of payment of sellers’ obligations that occur within one year subsequent to the acquisition. The outstanding balance remaining of $1.0 million was paid in cash to the sellers in 2019. In addition to the consideration paid for Bedrock, the Company agreed to pay up to an additional $3.0 million to be allocated among three individuals, subject to Bedrock meeting certain financial conditions defined in the purchase agreement and such individuals maintaining continuous employment with the Company through January 31, 2019. These financial conditions were not met and accordingly, no payout will be made to these individuals. As of December 31, 2018, the Company did not record any compensation expense associated with this provision. The Bedrock acquisition was financed with $6.25 million of borrowing from the Company’s term loan described in Note 9 Note 8 ASG acquired Bedrock to further expand its distribution presence in the Midwest, and to gain access to new geographies, supply chains, products, and distribution rights. The goodwill recorded reflects the strategic value of the acquisition beyond the net value of its assets acquired less liability assumed. The goodwill is deductible for tax purposes. The Company incurred approximately $0.1 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations. The Company has performed a valuation of the acquired assets and assumed liabilities of Bedrock. The following table summarizes the allocation of the purchase price as of the transaction’s closing date:
(in thousands)
Amount
Accounts receivable
$
2,543
Inventory
13,425
Other current assets
163
Property and equipment
374
Goodwill
381
Other intangible assets
1,505
Other assets
60
Total assets acquired
18,451
Total liabilities
5,959
Total consideration
$
12,492
From the date of the Bedrock acquisition to December 31, 2018, Bedrock generated revenue of $27.7 million and net income of $1.9 million, which are included in the Company’s consolidated statements of operations. 4. Acquisitions (Continued) Pro Forma Results The following unaudited pro forma information for the years ended December 31, 2018 and 2017 has been prepared to give effect to the acquisition of Bedrock as if the acquisition had occurred on January 1, 2017. The pro forma information takes into account the purchase price allocation. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the Bedrock acquisition occurred on such date, nor does it purport to predict the results of operations for future periods.
Year Ended December 31,
2018
2017
(in thousands)
(unaudited)
Pro Forma:
Total revenue
$
491,984
$
381,231
Net (loss)
$
(2,445
)
$
(10,568
) Pro forma assumptions are as follows:
•
Revenues and costs of sales were based on actual results for the years ended December 31, 2018 and 2017.
•
Selling, general and administrative expenses were based on actual results adjusted by $0.02 million and $0.3 million for the years ended December 31, 2018 and 2017, respectively, for the impact of the amortization expense of the intangible assets acquired with the acquisition.
•
Actual interest expense was adjusted by $0.05 million and $0.7 million for the years ended December 31, 2018 and 2017, respectively, for the imputed interest on the acquired debt issued to fund the acquisition.
•
Income taxes were adjusted to impute the Company’s corporate effective rate during the period on the pro forma income before taxes. NSI Acquisition On March 19, 2018, ASG acquired the assets of NSI, LLC, a Maryland limited liability company (“NSI”), for approximately $0.3 million in cash. The NSI acquisition and related transaction costs were financed by ASG’s line of credit described in Note 8 The Company has performed a valuation of the acquired assets and assumed liabilities of NSI. The goodwill is deductible for tax purposes. The following table summarizes the estimated allocation of the preliminary purchase price as of the transaction’s closing date:
(in thousands)
Amount
Accounts receivable
$
251
Inventory
689
Goodwill
390
Total assets acquired
1,330
Total liabilities
1,040
Total consideration
$
290
From the date of the NSI acquisition to December 31, 2018, revenue and net income generated by NSI was not significant. Pro forma revenues and net income for the years ended December 31, 2018 and 2017, respectively, were not significant. There were no significant direct acquisition costs associated with the NSI acquisition. 4. Acquisitions (Continued) Tuscany Acquisition On August 22, 2018, ASG acquired the assets of The Tuscany Collection, LLC (“Tuscany”), a distributor of natural stone, quartz and tile in Las Vegas, Nevada, for approximately $4.2 million in cash. The Tuscany acquisition and related transaction costs were financed by the Company’s line of credit described in Note 8 The Company incurred approximately $0.1 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations. The Company has performed a valuation of the acquired assets and assumed liabilities of Tuscany. The following table summarizes the estimated allocation of the purchase price as of the transaction’s closing date:
(in thousands)
Amount
Accounts receivable
$
167
Inventory
2,258
Goodwill
1,081
Other intangible assets
2,685
Other current assets
161
Total assets acquired
6,352
Total liabilities
2,200
Total consideration
$
4,152
Total goodwill that is expected to be deductible for tax purposes is $1.1 million. From the date of the Tuscany acquisition to December 31, 2018, revenue and net income generated by Tuscany was not significant. Pro forma revenues and net income for the periods ended December 31, 2018 and 2017, respectively, were not significant. Summit Acquisition On August 31, 2018, RDS acquired the assets of Summit Stoneworks, LLC (“Summit”), which is located in Austin, Texas, and is engaged in builder design services and the fabrication and installation of stone products for commercial and residential applications, for $16 million in cash. The agreement also provides for potential earn-out consideration of up to $3.5 million to the former shareholders of Summit for the achievement of certain 2018 and 2019 financial milestones. The contingent earn-out consideration had an estimated fair value of $1.9 million at the date of acquisition and is included in other long-term liabilities. During the year ended December 31, 2018, no payments were made on the earn-out. The Summit acquisition was financed from the Company’s term loan described in Note 9 The total purchase price consisted of the following:
(in thousands)
Amount
Cash consideration
$
16,000
Fair value of earn-out
1,851
$
17,851
The Company incurred approximately $0.3 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations. The Company has performed a valuation of the acquired assets and assumed liabilities of Summit. 4. Acquisitions (Continued) The acquisition will expand the scale of the RDS segment into Austin and San Antonio, Texas markets. The goodwill recorded reflects the strategic value of the acquisition beyond the net value of its assets acquired less liability assumed. The following table summarizes the allocation of the purchase price as of the transaction’s closing date:
(in thousands)
Amount
Accounts receivable
$
1,249
Inventory
1,059
Property and equipment
1,042
Goodwill
8,304
Other intangible assets
8,280
Other assets
14
Total assets acquired
19,948
Total liabilities
2,097
Total consideration
$
17,851
Total goodwill that is expected to be deductible for tax purposes is $6.4 million. From the date of the Summit acquisition to December 31, 2018, Summit generated revenue of $5.8. million and net income of $0.4 million, which are included in the Company’s consolidated statements of operations. Pro Forma Results The following unaudited pro forma information for the year ended December 31, 2018 and 2017 has been prepared to give effect to the acquisition of Summit as if the acquisition had occurred on January 1, 2017. The pro forma information takes into account the purchase price allocation. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the Summit acquisition occurred on such date, nor does it purport to predict the results of operations for future periods.
Year Ended December 31,
2018
2017
(in thousands)
(unaudited)
Pro Forma:
Total revenue
$
500,785
$
370,645
Net (loss)
$
(3,954
)
$
(12,205
) Pro forma assumptions are as follows:
•
Revenues and costs of sales were based on actual results for the years ended December 31, 2018 and 2017.
•
Selling, general and administrative expenses were based on actual results adjusted by $0.8 million and $1.1 million for the years ended December 31, 2018 and 2017, respectively, for the impact of the amortization expense of the intangible assets acquired with the acquisition.
•
Actual interest expense was adjusted by $0.6 million and $0.9 million for the years ended December 31, 2018 and 2017, respectively, for the imputed interest on the acquired debt issued to fund the acquisition.
•
Income taxes were adjusted to impute the Company’s corporate effective rate during the period on the pro forma income before taxes. 4. Acquisitions (Continued) TAC Acquisition On December 31, 2018, RDS purchased 100% of the issued and outstanding equity interests of T.A.C. Ceramic Tile Co. (“TAC”), which is located in Manassas, Virginia, and specializes in design center selections and installation of all types of interior flooring surfaces, including tile, hardwood and carpet, for cash consideration of $41.2 million. The agreement also provides for potential earn-out consideration to the former shareholders of TAC for the achievement of certain 2019 financial milestones. The contingent earn-out consideration had an estimated fair value of $2.3 million at the date of acquisition and is included in other long-term liabilities. The TAC acquisition was financed from the Company’s term loan described in Note 9 The total purchase price consisted of the following:
(in thousands)
Amount
Cash consideration
$
41,210
Fair value of earn-out
2,265
$
43,475
The Company incurred approximately $0.7 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations. Additionally, $0.4 million of deferred issuance costs incurred were capitalized. The Company has performed a preliminary valuation of the acquired assets and assumed liabilities of TAC. Using the total consideration for the TAC acquisition, the Company has estimated the allocations to such assets and liabilities. Management believes the acquisition expands the scale of the RDS segment while advancing the Company’s objective to diversify across geography, channel and product line, including the Mid-Atlantic region. The acquisition will also assist in introducing a range of additional products to customers, including countertops and cabinets. These factors are the basis for the excess purchase price paid over the value of the assets acquired and liabilities assumed, resulting in goodwill. The following table summarizes the estimated allocation of the preliminary purchase price as of the transaction’s closing date:
(in thousands)
Amount
Cash
$
1,217
Accounts receivable
6,966
Inventory
4,343
Other current assets
87
Property and equipment
1,492
Goodwill
17,794
Other intangible assets
19,865
Other assets
4,873
Total assets acquired
56,637
Current liabilities
1,895
Deferred income taxes
6,400
Other long-term liabilities
4,867
Total liabilities
13,162
Total consideration
$
43,475
4. Acquisitions (Continued) Included in other long-term liabilities is an estimated uncertain tax position of $4.4 million, as well as $0.5 million of interest and penalties, which is offset by a corresponding indemnification receivable recorded in other assets, as all tax liabilities pre-acquisition are indemnified by the former owners. As TAC was acquired on December 31, 2018, no revenue or net income generated by TAC was included in the Company’s consolidated statements of operations. Pro Forma Results The following unaudited pro forma information for the years ended December 31, 2018 and 2017 has been prepared to give effect to the acquisition of TAC as if the acquisition had occurred on January 1, 2017. The pro forma information takes into account the preliminary purchase price allocation. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the TAC acquisition occurred on such date, nor does it purport to predict the results of operations for future periods.
Year Ended December 31,
2018
2017
(in thousands)
(unaudited)
Pro Forma:
Total revenue
$
562,219
$
413,584
Net (loss)
$
(2,793
)
$
(12,308
) Pro forma assumptions are as follows:
•
Revenues and costs of sales were based on actual results for the years ended December 31, 2018 and 2017
•
Selling, general and administrative expenses were based on actual results adjusted by $1.8 million and $1.8 million for the years ended December 31, 2018 and 2017, respectively, for the impact of the amortization expense of the intangible assets acquired with the acquisition. Selling, general and administrative expenses were also adjusted by $4.4 million and $3.7 million for the years ended December 31, 2018 and 2017, respectively, for the impact of significant nonrecurring charges.
•
Actual interest expense was adjusted by $0.6 million and $0.7 million for the years ended December 31, 2018 and 2017, respectively, for the imputed interest on the acquired debt issued to fund the acquisition.
•
Income taxes were adjusted to impute the Company’s corporate effective rate during the period on the pro forma income before taxes. Pental Acquisition On February 28, 2017, ASG executed an agreement to purchase 100% of the equity interests of Aquarius Seller, Inc., a company incorporated in the state of Washington. Aquarius Seller, Inc. held 100% of the equity interests of Pental Granite and Marble, LLC (“Pental”), a Washington limited liability company engaged in the selling of granite, marble and related products. Total consideration for the purchase of Aquarius Seller, Inc. was $88.6 million in cash, and 7,134,701.65 Class E2 Units of ASG with an estimated fair value of $10.0 million. Total capitalization changes due to the acquisition resulted in the issuance of 21,736,168 Class E-1 Units, 7,156,104 Class E-2 Units and 568,435 Class C Units of G&M. Also on February 28, 2017, ASG entered into a financing agreement with a third-party lender to borrow amounts up to $105.0 million to be used for purposes of refinancing ASG’s existing debt, funding a portion of the purchase price for the acquisition of Aquarius Seller, Inc. and funding other amounts defined in the financing agreement. In conjunction with the acquisition of Aquarius Seller, Inc., availability under ASG’s line of credit was increased to $40.0 million. 4. Acquisitions (Continued) The total purchase price consisted of the following:
(in thousands)
Amount
Cash Consideration
$
88,638
Rollover Equity
10,000
$
98,638
The acquisition was accounted for under the acquisition method of accounting and the assets acquired and liabilities assumed, including identifiable intangible assets, were recorded based on their respective preliminary estimated fair values as of the acquisition date. The excess of purchase price consideration over the estimated net fair value of assets acquired has been allocated to goodwill. Any change in the estimated fair value of the assets acquired, liabilities assumed and rollover equity subsequent to the closing date, including changes from events after the closing date, will be recognized in earnings in the period the estimated fair value changes. ASG incurred approximately $3.4 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations. Management believes the acquisition creates a stronger combined entity primarily due to the increased geographic markets the combined entity will service and the broadening of the company’s product offering. These two factors are the basis for the excess purchase price paid over the value of the assets acquired and liabilities assumed, resulting in goodwill. The following is a summary of the purchase price allocation for the Company’s acquisition of Pental:
(in thousands)
Amount
Cash
$
637
Accounts receivable
5,389
Inventory
30,694
Property and equipment
2,306
Intangible assets subject to amortization
43,800
Goodwill
25,388
Other assets
412
Total assets acquired
$
108,626
Total liabilities
9,988
Total consideration
$
98,638
From the date of the Pental acquisition to December 31, 2017, Pental generated net revenue of $84.7 million and a net income of $16.2 million, which are included in the consolidated statements of operations. Pro Forma Results The following unaudited pro forma information for the period ended December 31, 2017 and 2016, has been prepared to give effect to the acquisition of Pental as if the acquisition had occurred on January 1, 2016. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for future periods.
Year Ended December 31,
2017
2016
(in thousands)
(unaudited)
Pro Forma:
Total revenue
$
367,013
$
331,513
Net (loss) income
$
(11,263
)
$
11,562
4. Acquisitions (Continued) Pro forma assumptions are as follows:
•
Revenues and costs of sales were based on actual results adjusted for intercompany eliminations for the years ended December 31, 2017 and 2016.
•
General and administrative expenses were based on actual results adjusted by $0.7 million and $4.3 million for the years ended December 31, 2017 and 2016, respectively, for the impact of the amortization expense of the intangible assets acquired with the acquisition.
•
Actual interest expense was adjusted by $1.2 million and $7.2 million for the year ended December 31, 2017 and 2016, respectively, for the imputed interest on the acquired debt issued to fund the acquisition.
•
Income taxes were adjusted to impute the Company’s corporate rate on the pro forma income before taxes. Cosmic Acquisition On October 2, 2017, ASG executed an asset purchase agreement with Cosmic Stone & Tile Distributors, Inc. (“Cosmic”), a New Jersey corporation. Cosmic was established in 1993 and is a slab and tile distributor serving the Tri-State area and most Mid-Atlantic States. The total purchase price was $2.0 million in cash and a $0.2 accrued liability recorded as security for and source of payment of sellers obligations as defined in the purchase agreement that occur within one year subsequent to the acquisition. The outstanding balance remaining of $0.2 million was paid in cash to the sellers in October 2018. The purchase price was allocated as $2.0 million in inventory and $0.2 in property and equipment. From the date of the Cosmic acquisition to December 31, 2017, net revenue and net income generated by Cosmic was not significant. Pro forma revenue and net income for the periods ended December 31, 2017 and December 31, 2016 were not significant. Management believes the Cosmic acquisition created a stronger combined entity through expansion into the Tri-State and Mid-Atlantic regions. Greencraft Acquisition On December 29, 2017, RDS executed an agreement to purchase 100% of the equity interests of Greencraft Holdings, LLC (“Greencraft”), an Arizona limited liability company, which provides full-service as a general 4. Acquisitions (Continued) The total purchase price consisted of the following:
(in thousands)
Amount
Cash Consideration
$
27,218
Fair Value of Earn Out
5,794
$
33,012
The acquisition was accounted for under the acquisition method of accounting and the assets acquired and liabilities assumed, including identifiable intangible assets, were recorded based on their respective preliminary estimated fair values as of the acquisition date. The excess of purchase price consideration over the estimated net fair value of assets acquired has been allocated to goodwill. Any change in the estimated fair value of the assets acquired and liabilities assumed subsequent to the closing date, including changes from events after the closing date, will be recognized in earnings in the period the estimated fair value changes. RDS incurred approximately $0.4 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations. Management believes the Greencraft acquisition created a stronger combined entity due to Greencraft’s presence and reputation in Arizona as well as its expertise with cabinets installation and renovation-based construction services. These two factors are the basis for the excess purchase price paid over the value of the assets acquired and liabilities assumed, resulting in goodwill. The following is a summary of the purchase price allocation for the Company’s acquisition of Greencraft:
(in thousands)
Amount
Cash
$
191
Accounts receivable
2,606
Inventory
1,259
Property and equipment
676
Intangible assets subject to amortization
18,285
Goodwill
10,702
Other assets
433
Total assets acquired
$
34,152
Total liabilities
1,140
Total consideration
$
33,012
During the two days from the date of acquisition to December 31, 2017, Greencraft did not generate any net revenue or net income. Pro Forma Results The following unaudited pro forma information for the period ended December 31, 2017 and 2016 has been prepared to give effect to the acquisition of Greencraft as if the acquisition had occurred on January 1, 2016. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for future periods.
Year Ended December 31,
2017
2016
(in thousands)
(unaudited)
Pro Forma:
Total revenue
$
386,873
$
255,510
Net (loss) income
$
(9,861
)
$
5,885
4. Acquisitions (Continued) Pro forma assumptions are as follows:
•
Revenues and costs of sales were based on actual results for the year ended December 31, 2017 and 2016, respectively.
•
General and administrative expenses were based on actual results adjusted by $1.9 million for both years ended December 31, 2017 and 2016, respectively, for the impact of the amortization expense of the intangible assets acquired with the acquisition.
•
Actual interest expense was adjusted by $1.4 million for both years ended December 31, 2017 and 2016, respectively, for the imputed interest on the acquired debt issued to fund the acquisition.
•
Income taxes were adjusted to impute the Company’s corporate rate on the pro forma income before taxes. Modul Acquisition On July 21, 2016, ASG acquired the assets and liabilities from Bermuda Import-Export, Inc., d/b/a Modul Marble & Granite (“Modul”), a corporation formed in the state of California, for approximately $11.3 million in cash. The Modul acquisition and related transactions costs were funded through the contribution of $12.5 million by existing members in exchange for 21,027,212 Class A member units and 101,106 Class D member units. ASG incurred approximately $0.5 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations. ASG recorded the Modul acquisition using the acquisition method of accounting and accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The results of the acquired operations are included in the Company’s consolidated results of operations beginning with the date of acquisition. The goodwill of approximately $4.0 million arising from the Modul acquisition represents the excess of the purchase price over the aggregate fair value of the net identifiable assets acquired and liabilities assumed, including identifiable intangible assets. Management believes the acquisition of Modul strengthens its presence in the southern California market due to geographic expansion and the reputation for unique, high quality product Modul is known for. These factors are the basis for the excess purchase price paid over the value of the assets acquired and liabilities assumed, resulting in goodwill. The total purchase price consisted of the following:
(in thousands)
Amount
Cash consideration
$
11,340
Customer deposits
330
Total consideration
$
11,670
4. Acquisitions (Continued) The following is a summary of the purchase price allocation for the Company’s acquisition of Modul:
(in thousands)
Amount
Accounts receivable
$
579
Inventory
4,007
Deposits
40
Goodwill
3,959
Other intangible assets
5,080
Total assets acquired
13,665
Accounts payable
1,201
Customer deposits
793
Total liabilities assumed
1,995
Total consideration
$
11,670
Pro Forma Results The following unaudited pro forma information for the year ended December 31, 2016 has been prepared to give effect to the acquisition of Modul as if the acquisition had occurred on January 1, 2016. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for future periods.
(in thousands)
Year Ended December 31, 2016 (unaudited)
Pro Forma:
Total revenue
$
242,081
Net income
$
8,229
The Company’s pro forma assumptions are as follows: Revenues and operating costs were based on actual results for the year ended December 31, 2016. |
