Acquisitions | 6 Months Ended |
Sep. 30, 2013 |
Acquisitions | ' |
9. Acquisitions |
Flexo Print S.A. De C.V. (Flexo Print) Summary |
On August 1, 2013, the Company acquired 100% of Flexo Print, based in Guadalajara, Mexico. Flexo Print is a leading producer of home & personal care, food & beverage, wine & spirit and pharmaceutical labels in Latin America. The acquisition provides Multi-Color with significant growth opportunities in Mexico through our many common customers, technologies and suppliers. The results of Flexo Print’s operations were included in the Company’s condensed consolidated financial statements beginning August 1, 2013. |
The purchase price for Flexo Print consisted of the following: |
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Cash from proceeds of borrowings | | $ | 29,134 | | | | | | | | | | | | | |
Deferred payments | | | 2,713 | | | | | | | | | | | | | |
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Purchase price, before net debt assumed | | | 31,847 | | | | | | | | | | | | | |
Net debt assumed | | | 2,184 | | | | | | | | | | | | | |
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Total purchase price | | $ | 34,031 | | | | | | | | | | | | | |
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The cash portion of the purchase price was funded through borrowings under the Credit Facility (see Note 4 for details of the Credit Facility). Assumed net debt includes $2,884 of bank debt less $140 due from the sellers and $560 of cash acquired. Upon closing, $3,058 of the purchase price was deposited into an escrow account, and an additional $1,956 of the purchase price was retained by MCC and is deferred until the third anniversary of the closing date, at which time it should be deposited into the escrow account. These combined escrow amounts are to be released to the seller on the fifth anniversary of the closing date in accordance with the purchase agreement. An additional $757 of the purchase price was retained by MCC at closing and is to be paid to the seller on the 3rd anniversary of the closing date in accordance with the purchase agreement. The combined escrow and retention amounts are to fund certain potential indemnification obligations of the seller with respect to the transaction. The Company spent $337 in acquisition expenses related to the Flexo Print acquisition, which was recorded in selling, general and administrative expense in the condensed consolidated statements of income. |
Labelgraphics (Holdings) Ltd. (Labelgraphics) Summary |
On April 2, 2012, the Company acquired 100% of Labelgraphics, a wine & spirit label specialist located in Glasgow, Scotland. The acquisition expanded MCC’s global presence in the wine & spirit label market, particularly in the United Kingdom. The results of Labelgraphics’ operations were included in the Company’s condensed consolidated financial statements beginning April 2, 2012. |
The purchase price for Labelgraphics consisted of the following: |
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Cash from proceeds of borrowings | | $ | 16,024 | | | | | | | | | | | | | |
Deferred payment | | | 5,149 | | | | | | | | | | | | | |
Contingent consideration | | | 3,461 | | | | | | | | | | | | | |
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Purchase price, before debt assumed | | | 24,634 | | | | | | | | | | | | | |
Net debt assumed | | | 712 | | | | | | | | | | | | | |
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Total purchase price | | $ | 25,346 | | | | | | | | | | | | | |
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The cash portion of the purchase price was funded through borrowings under the Credit Facility (see Note 4 for details of the Credit Facility). Assumed net debt includes $757 of bank debt and capital leases less $45 of cash acquired. The purchase price includes a future performance based earn out of approximately 15% of the above total which will be paid out in July 2014 assuming certain financial targets are met. The Company spent $394 in acquisition expenses related to the Labelgraphics acquisition, which was recorded in selling, general and administrative expense in the condensed consolidated statements of income. |
Purchase Price Allocation and Other Items |
The determination of the final purchase price and its allocation to specific assets acquired and liabilities assumed for Flexo Print will be finalized prior to the end of July 2014 once independent fair value appraisals of assets and liabilities and valuation of tax liabilities are finalized. The determination of the final purchase price and its allocation to specific assets acquired and liabilities assumed for Labelgraphics was finalized during the fourth quarter of fiscal year 2013 once independent fair value appraisals of assets and liabilities and valuation of tax liabilities were finalized. There were no material changes to the preliminary purchase price or related allocation for Labelgraphics. |
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Based on fair value estimates, the final purchase prices for Flexo Print and Labelgraphics have been allocated to individual assets acquired and liabilities assumed as follows: |
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| | Flexo Print | | | Labelgraphics | | | | | | | | | |
Assets Acquired: | | | | | | | | | | | | | | | | |
Accounts receivable | | | 8,050 | | | | 3,275 | | | | | | | | | |
Inventories | | | 2,096 | | | | 1,794 | | | | | | | | | |
Property, plant and equipment | | | 11,314 | | | | 8,680 | | | | | | | | | |
Intangible assets | | | 5,367 | | | | 10,319 | | | | | | | | | |
Goodwill | | | 16,493 | | | | 9,786 | | | | | | | | | |
Other assets | | | 6,476 | | | | 2,679 | | | | | | | | | |
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Total assets acquired | | | 49,796 | | | | 36,533 | | | | | | | | | |
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Liabilities Assumed: | | | | | | | | | | | | | | | | |
Accounts payable | | | 6,967 | | | | 6,954 | | | | | | | | | |
Accrued income taxes payable | | | 409 | | | | 693 | | | | | | | | | |
Accrued expenses and other liabilities | | | 5,172 | | | | 375 | | | | | | | | | |
Net debt assumed | | | 2,184 | | | | 712 | | | | | | | | | |
Deferred tax liabilities | | | 3,217 | | | | 3,165 | | | | | | | | | |
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Total liabilities assumed | | | 17,949 | | | | 11,899 | | | | | | | | | |
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Net assets acquired | | $ | 31,847 | | | $ | 24,634 | | | | | | | | | |
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The estimated fair value of identifiable intangible assets and their estimated useful lives are as follows: |
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| | Flexo Print | | | Labelgraphics | |
| | Fair | | | Useful | | | Fair | | | Useful | |
Value | Lives | Value | Lives |
Customer relationships | | $ | 5,367 | | | | 17 years | | | $ | 9,775 | | | | 20 years | |
Trademarks | | | — | | | | — | | | | 320 | | | | 2 years | |
Non-compete agreements | | | — | | | | — | | | | 224 | | | | 5 years | |
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Total identifiable intangible assets | | $ | 5,367 | | | | | | | $ | 10,319 | | | | | |
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Identifiable intangible assets are amortized over their estimated useful lives based on a number of assumptions including the estimated period of economic benefit and utilization. |
The goodwill for Flexo Print is attributable to access to the Mexican label market and workforce of the acquired business. The goodwill for Labelgraphics is attributable to access to the UK spirit label market and the acquired workforce. None of the goodwill arising from the Flexo Print or Labelgraphics acquisitions is deductible for income tax purposes. Below is a roll-forward of the acquisition goodwill from acquisition date to September 30, 2013: |
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| | Flexo Print | | | Labelgraphics | | | | | | | | | |
Balance at acquisition date | | $ | 16,493 | | | $ | 9,786 | | | | | | | | | |
Foreign exchange impact | | | (458 | ) | | | 98 | | | | | | | | | |
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Balance at September 30, 2013 | | $ | 16,035 | | | $ | 9,884 | | | | | | | | | |
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The accounts receivable acquired as part of the Flexo Print acquisition had a fair value of $8,050 at the acquisition date. The gross contractual value of the receivables prior to any adjustments was 8,258 and the estimated contractual cash flows that are not expected to be collected are $208. The accounts receivable acquired as part of the Labelgraphics acquisition had a fair value of $3,275 at the acquisition date. The gross contractual value of the receivables prior to any adjustments was $3,403 and the estimated contractual cash flows that are not expected to be collected are $128. |
The net revenues and net income of Flexo Print from the acquisition date through September 30, 2013 included in the condensed consolidated statements of income were $4,098 and $29, respectively. |
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Other Acquisition Activity |
On April 2, 2013, the Company completed acquisitions in Australia and France for $7,495. In Adelaide, Australia, MCC acquired Labelmakers Wine Division. In the Champagne region of France, MCC acquired Imprimerie Champenoise, which increases our ability to support local champagne producers in the region. The results of operations of these acquired businesses have been included in the condensed consolidated financial statements since the date of acquisition and have been determined to be individually and collectively immaterial for further disclosure. |
On October 3, 2011, the Company acquired York Label Group (York), including its joint venture in Santiago, Chile, for $329,204 plus net debt assumed of $9,870. York, which was headquartered in Omaha, Nebraska, is a leader in the home & personal care, food & beverage and wine & spirit label markets with manufacturing facilities in the U.S., Canada and Chile. |
As part of the purchase price, the Company issued 2,664 shares of its common stock, valued at $46,684, to York with a restriction on sale or transfer within two years of the closing date. All shares are restricted from sale until the one year anniversary of the closing date of the transaction and 50% of the shares are restricted from sale from the one year anniversary date to the two year anniversary date of the closing of the transaction. |
Of the purchase price, $21,309 was to be paid on April 1, 2012 and of this amount, $2,500 was required to be deposited into an escrow account to satisfy DLJ South American Partners, L.P. (“DLJ”)‘s indemnification obligations with respect to the transaction. On April 1, 2012, the Company paid DLJ $11,880 and deposited $2,500 into escrow in accordance with the Purchase Agreement. The balance due DLJ ($6,929) is subject to dispute as further described in Note 15 and was placed into a separate escrow account controlled by the Company. |