Acquisitions | 9 Months Ended |
Dec. 31, 2013 |
Acquisitions | ' |
9. Acquisitions |
John Watson & Company Limited (Watson) Summary |
On October 1, 2013, the Company acquired 100% of Watson, based in Glasgow, Scotland. Watson is the leading wet glue spirit label producer in the U.K. The business is ideally located for its key customers and is complementary to MCC’s existing business in Glasgow (formerly Labelgraphics), the leading pressure sensitive spirit and wine label producer in the same region. The results of Watson’s operations were included in the Company’s condensed consolidated financial statements beginning October 1, 2013. |
The purchase price for Watson consisted of the following: |
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Cash from proceeds of borrowings | | $ | 13,136 | | | | | | | | | | | | | | | | | | | | | |
Contingent consideration | | | 8,498 | | | | | | | | | | | | | | | | | | | | | |
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Purchase price, before cash acquired | | | 21,634 | | | | | | | | | | | | | | | | | | | | | |
Net cash acquired | | | (143 | ) | | | | | | | | | | | | | | | | | | | | |
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Total purchase price | | $ | 21,491 | | | | | | | | | | | | | | | | | | | | | |
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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). The purchase price includes a future performance based earn out of approximately 40% of the total purchase price which will be paid out in July 2014, assuming certain financial targets are met. The Company spent $276 in acquisition expenses related to the Watson acquisition, which was recorded in selling, general and administrative expense in the condensed consolidated statements of income. |
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 payment | | | 2,713 | | | | | | | | | | | | | | | | | | | | | |
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Purchase price, before 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 $357 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. |
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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 Watson will be finalized prior to the end of September 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 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. |
Based on fair value estimates, the final purchase prices for Watson, Flexo Print and Labelgraphics have been allocated to individual assets acquired and liabilities assumed as follows: |
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| | Watson | | | Flexo Print | | | Labelgraphics | | | | | | | | | | | | | |
Assets Acquired: | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash acquired | | $ | 143 | | | $ | — | | | $ | — | | | | | | | | | | | | | |
Accounts receivable | | | 4,606 | | | | 8,067 | | | | 3,275 | | | | | | | | | | | | | |
Inventories | | | 1,974 | | | | 2,085 | | | | 1,794 | | | | | | | | | | | | | |
Property, plant and equipment | | | 5,404 | | | | 11,361 | | | | 8,680 | | | | | | | | | | | | | |
Intangible assets | | | 1,255 | | | | 5,367 | | | | 10,319 | | | | | | | | | | | | | |
Goodwill | | | 12,075 | | | | 16,636 | | | | 9,786 | | | | | | | | | | | | | |
Other assets | | | 487 | | | | 6,453 | | | | 2,679 | | | | | | | | | | | | | |
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Total assets acquired | | | 25,944 | | | | 49,969 | | | | 36,533 | | | | | | | | | | | | | |
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Liabilities Assumed: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | | 2,610 | | | | 6,935 | | | | 6,954 | | | | | | | | | | | | | |
Accrued income taxes payable | | | 7 | | | | 409 | | | | 693 | | | | | | | | | | | | | |
Accrued expenses and other liabilities | | | 728 | | | | 5,369 | | | | 375 | | | | | | | | | | | | | |
Net debt assumed | | | — | | | | 2,184 | | | | 712 | | | | | | | | | | | | | |
Deferred tax liabilities | | | 965 | | | | 3,225 | | | | 3,165 | | | | | | | | | | | | | |
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Total liabilities assumed | | | 4,310 | | | | 18,122 | | | | 11,899 | | | | | | | | | | | | | |
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Net assets acquired | | $ | 21,634 | | | $ | 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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| | Watson | | | Flexo Print | | | Labelgraphics | |
| | Fair | | | Useful | | | Fair | | | Useful | | | Fair | | | Useful | |
Value | Lives | Value | Lives | Value | Lives |
Customer relationships | | $ | 1,255 | | | | 9 years | | | $ | 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 | | $ | 1,255 | | | | | | | $ | 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 Watson and Labelgraphics is attributable to access to the UK spirit label market and the acquired workforce. None of the goodwill arising from the Watson, Flexo Print or Labelgraphics acquisitions is deductible for income tax purposes. Below is a roll-forward of the goodwill from acquisition date to December 31, 2013: |
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| | Watson | | | Flexo Print | | | Labelgraphics | | | | | | | | | | | | | |
Balance at acquisition date | | $ | 12,075 | | | $ | 16,636 | | | $ | 9,786 | | | | | | | | | | | | | |
Foreign exchange impact | | | 268 | | | | (399 | ) | | | 325 | | | | | | | | | | | | | |
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Balance at December 31, 2013 | | $ | 12,343 | | | $ | 16,237 | | | $ | 10,111 | | | | | | | | | | | | | |
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The accounts receivable acquired as part of the Watson acquisition had a fair value and a gross contractual value of $4,606 at the acquisition date, all of which are expected to be collected. The accounts receivable acquired as part of the Flexo Print acquisition had a fair value of $8,067 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 $191. 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 included in the condensed consolidated statements of income for the third quarter of fiscal 2014 were $4,787 and $194, respectively. The net revenues and net income of Flexo Print from the acquisition date through December 31, 2013 included in the condensed consolidated statements of income were $8,885 and $223, respectively. |
The net revenues and net income of Watson from the acquisition date through December 31, 2013 included in the condensed consolidated statements of income were $4,927 and $424, respectively. |
Other Acquisition Activity |
On October 1, 2013, the Company acquired Gern & Cie SA (Gern) in Neuchatel, Switzerland for $5,939. Gern is the premier wine label producer in Switzerland, with similar customer profiles and technologies as our existing French operations. The results of Gern’s operations were included in the Company’s condensed consolidated financial statements since the date of acquisition. 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. |