| Acquisitions | 9. Acquisitions
Super Enterprise Holdings Berhad (Super Label)
Summary
On August 11, 2015, the Company acquired 90% of the shares of
Super Label based in Kuala Lumpur, Malaysia, which is publicly
listed on the Malaysian stock exchange. As of
September 30, 2015, the Company owned 94.57% of Super Label.
The Company plans to delist Super Label and compulsorily acquire
the remaining shares by December 31, 2015. Super Label has
operations in Malaysia, Indonesia, the Philippines, Thailand and
China and produces home & personal care, food &
beverage and specialty consumer products labels. This
acquisition expands our presence in China and gives us access to
new label markets in Southeast Asia.
The acquisition includes a 80% controlling interest in the label
operations in Indonesia and a 60% controlling interest in certain
legal entities in Malaysia and China. The results of Super
Label’s operations were included in the Company’s
condensed consolidated financial statements beginning on
August 11, 2015.
The purchase price for Super Label consisted of the following:
Cash from proceeds of borrowings $ 37,622
Net cash acquired (6,262 )
Total purchase price $ 31,360
The cash portion of the purchase price was funded through
borrowings under our Credit Agreement (see Note 4). Net cash
acquired includes $8,436 of cash acquired less $2,174 of bank debt
assumed. The Company spent $1,321 in acquisition expenses related
to the Super Label acquisition. These expenses were recorded in
selling, general and administrative expenses in the condensed
consolidated statements of income, $390 in the second quarter of
fiscal 2016 and $931 in the first quarter of fiscal 2016.
Barat Group (Barat) Summary
On May 4, 2015, the Company acquired 100% of Barat based in
Bordeaux, France. Barat operates four manufacturing facilities in
Bordeaux and Burgundy, France, and the acquisition gives
Multi-Color access to the label market in the Bordeaux wine region
and expands our presence in Burgundy. The acquisition includes a
30% minority interest in Gironde Imprimerie Publicité, which
is being accounted for under the cost method based upon
Multi-Color’s inability to exercise significant influence
over the business. The results of Barat’s operations were
included in the Company’s condensed consolidated financial
statements beginning on May 4, 2015.
The purchase price for Barat consisted of the following:
Cash from proceeds of borrowings $ 47,813
Deferred payment 2,160
Purchase price, before cash acquired 49,973
Net cash acquired (746 )
Total purchase price $ 49,227
The cash portion of the purchase price was funded through
borrowings under our Credit Agreement (see Note 4). The purchase
price included $2,160 due to the seller, which was paid during the
three months ended September 30, 2015. Net cash acquired
includes $4,444 of cash acquired less $3,698 of bank debt assumed
related to capital leases. The Company spent $1,488 in acquisition
expenses related to the Barat acquisition. These expenses were
recorded in selling, general and administrative expenses in the
condensed consolidated statements of income: $65 in the second
quarter of fiscal 2016, $751 in the first quarter of fiscal 2016,
$467 in the fourth quarter of fiscal 2015 and $205 in the third
quarter of fiscal 2015.
In conjunction with the acquisition of Barat, the Company recorded
an indemnification asset of $1,115, which represents the
seller’s obligation under the purchase agreement to indemnify
Multi-Color for the outcome of potential contingent liabilities
relating to uncertain tax positions.
Purchase Price Allocation and Other Items
The determination of the final purchase price allocation to
specific assets acquired and liabilities assumed is incomplete for
Super Label and Barat. The purchase price allocations may change in
future periods as the fair value estimates of assets and
liabilities (including, but not limited to, accounts receivable,
inventory, property, plant and equipment, intangibles, debt and
noncontrolling interests) and the valuation of the related tax
assets and liabilities are completed.
Based on fair value estimates, the purchase prices for Super Label
and Barat have been allocated to individual assets acquired and
liabilities assumed as follows:
Super Label Barat
Assets Acquired
Net cash acquired $ 6,262 $ 746
Accounts receivable 8,306 8,601
Inventories 4,571 2,863
Property, plant and equipment 17,434 6,752
Intangible assets
— 19,957
Goodwill 6,081 25,429
Other assets 813 3,098
Total assets acquired 43,467 67,446
Liabilities Assumed:
Accounts payable 4,614 3,182
Accrued income taxes payable 1,034
—
Accrued expenses and other liabilities 2,343 7,346
Deferred tax liabilities 698 6,945
Total liabilities assumed 8,689 17,473
Net assets acquired 34,778 49,973
Noncontrolling interests 2,844
—
Net assets acquired attributable to Multi-Color Corporation $ 37,622 $ 49,973
The estimated fair value of identifiable intangible assets acquired
and their estimated useful lives are as follows:
Barat
Fair Useful
Customer relationships $ 18,954 20 years
Non-compete agreements 780 2 years
Trademarks 223 1 year
Total identifiable intangible assets $ 19,957
Identifiable intangible assets are amortized over their useful
lives based on a number of assumptions including the estimated
period of economic benefit and utilization. The weighted-average
amortization period for identifiable intangible assets acquired in
the Barat acquisition is 19 years.
The goodwill for Super Label is attributable to access to the label
market in Malaysia, Indonesia, the Philippines and Thailand and the
acquired workforce. The goodwill for Barat is attributable to
access to the label market in the Bordeaux wine region and the
acquired workforce. Goodwill arising from the Super Label and Barat
acquisition is not deductible for income tax purposes.
Below is a roll forward of the goodwill acquired from the
acquisition date to September 30, 2015:
Super Label Barat
Balance at acquisition date $ 6,081 $ 25,429
Foreign exchange impact (667 ) 66
Balance at September 30, 2015 $ 5,414 $ 25,495
The accounts receivable acquired as part of the Super Label
acquisition had a fair value of $8,306 at the acquisition date. The
gross contractual value of the receivables prior to any adjustments
was $8,681 and the estimated contractual cash flows that are not
expected to be collected are $375. The accounts receivable acquired
as part of the Barat acquisition had a fair value of $8,601 at the
acquisition date. The gross contractual value of the receivables
prior to any adjustments was $8,679 and the estimated contractual
cash flows that are not expected to be collected are $78.
The net revenues and net income of Super Label included in the
condensed consolidated statement of income from the acquisition
date through September 30, 2015 were $5,159 and $790,
respectively. The net revenues and net loss of Barat included in
the condensed consolidated statement of income during the three
months ended September 30, 2015 were $7,298 and $114,
respectively. The net revenues and net income of Barat included in
the condensed consolidated statement of income from the acquisition
date through September 30, 2015 were $13,615 and $275,
respectively.
Pro Forma Information
The following table provides the unaudited pro forma results of
operations for the three and six months ended September 30,
2015 and 2014 as if Super Label and Barat had been acquired as of
the beginning of fiscal year 2015. However, pro forma results do
not include any anticipated synergies from the combination of the
companies, and accordingly, are not necessarily indicative of the
results that would have occurred if the acquisitions had occurred
on the dates indicated or that may result in the future.
Three Months Ended Six Months Ended
September 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014
Net revenues $ 223,973 $ 233,032 $ 454,682 $ 456,896
Net income attributable to Multi-Color $ 16,892 $ 11,239 $ 32,252 $ 25,398
Diluted earnings per share $ 1.00 $ 0.67 $ 1.91 $ 1.52
The following is a reconciliation of actual net revenues and net
income attributable to Multi-Color Corporation to pro forma net
revenues and net income:
Three Months Ended Six Months Ended
September 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014
Net revenues Net income Net revenues Net income Net revenues Net income Net revenues Net income
Multi-Color Corporation actual results $ 219,784 $ 16,570 $ 213,041 $ 11,262 $ 437,704 $ 29,824 $ 416,180 $ 24,562
Acquired companies results 4,189 81 19,991 892 16,978 1,063 40,716 2,617
Pro forma adjustments
— 241
— (915 )
— 1,365
— (1,781 )
Pro forma results $ 223,973 $ 16,892 $ 233,032 $ 11,239 $ 454,682 $ 32,252 $ 456,896 $ 25,398
The following table identifies the pro forma adjustments:
Three Months Ended Six Months Ended
September 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014
Acquired companies financing costs $
— $ 539 $ 150 $ 1,097
Acquisition transaction costs 457
— 2,140
—
Incremental depreciation and amortization
— (281 )
— (572 )
Incremental interest costs (216 ) (1,173 ) (925 ) (2,306 )
Pro forma adjustments $ 241 $ (915 ) $ 1,365 $ (1,781 )
Other Acquisition Activity
Effective May 1, 2015, the Company acquired 100% of
Mr. Labels in Brisbane, Queensland Australia for $2,110. The
purchase price includes $196 that is deferred until the first
anniversary of the closing date. Mr. Labels provides labels
primarily to food and beverage customers. The results of operations
of this acquired business have been included in the condensed
consolidated financial statements since the date of acquisition and
have been determined to be immaterial for purposes of further
disclosure in this report.
Effective February 2, 2015, the Company acquired 100% of New
Era Packaging (New Era) for $16,366 less net cash received of
$1,741. New Era is based near Dublin, Ireland and specializes in
labels for the healthcare, pharmaceutical and food industries.
Effective January 5, 2015, the Company acquired 100% of Multi
Labels Ltd. (Multi Labels) for $15,670 plus net debt assumed of
$3,733. Multi Labels is based in Daventry, near London, England,
and specializes in premium alcoholic beverage labels for spirits
and imported wine. On July 1, 2014, the Company acquired 100%
of Multiprint Labels Limited (Multiprint) based in Dublin, Ireland
for $1,662 plus net debt assumed of $2,371. The purchase price
includes $273 that was deferred for one year after the closing
date, which was paid during the three months ended
September 30, 2015. Multiprint specializes in pressure
sensitive labels for the wine & spirit and beverage
markets in Ireland and the UK. 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 purposes of further disclosure in this report.
The determination of the final purchase price allocation to
specific assets acquired and liabilities assumed is incomplete for
Mr. Labels, New Era, and Multi Labels. The purchase price
allocations may change in future periods as the fair value
estimates of assets and liabilities (including, but not limited to,
accounts receivable, inventory, property, plant and equipment,
intangibles and debt) and the valuation of the related tax assets
and liabilities are completed.
On February 1, 2014, the Company acquired the assets of the
DI-NA-CAL label business, based near Cincinnati, Ohio, from Graphic
Packaging International, Inc., for $80,667. DI-NA-CAL operates
manufacturing facilities near Cincinnati, Ohio and Greensboro,
North Carolina and provides decorative label solutions primarily in
the heat transfer label markets for home & personal care
and food & beverage through long-standing relationships
with blue chip national and multi-national customers. Upon closing,
$8,067 of the purchase price was deposited into an escrow account
and was to be released to the seller on the 18 month anniversary of
the closing date in accordance with the provisions of the escrow
agreement. During the three months ended September 30, 2015,
all but $598 of the escrow amount was released to the seller. The
escrow amount is to fund certain potential obligations of the
seller with respect to the transaction. The Company spent $452 in
acquisition expenses related to the DI-NA-CAL acquisition. These
expenses were recorded in selling, general and administrative
expenses in the condensed consolidated statements of income, $1 in
the fourth quarter of fiscal 2015, $44 in the second quarter of
fiscal 2015, $102 in the first quarter of fiscal 2015 and $305 in
the fourth quarter of fiscal 2014.
In conjunction with the acquisition of DI-NA-CAL, the Company
recorded an indemnification asset of $427, which represented the
seller’s obligation to indemnify Multi-Color relating to
pre-acquisition customer quality claims. As discussed above, an
escrow fund exists for indemnification obligations, subject to
certain minimum thresholds and deductibles. The seller paid the
Company for the indemnification asset during the fourth quarter of
fiscal 2015.
On October 1, 2013, the Company acquired 100% of John
Watson & Company Limited (Watson) based in Glasgow,
Scotland, for $21,634 less net cash acquired of $143. Watson is a
leading glue-applied spirit label producer in the U.K. The purchase
price included a future performance based earnout of $8,498,
estimated as of the acquisition date. The amount of the earnout was
based on a comparison between EBITDA for the acquired business for
fiscal 2013 and fiscal 2014 less certain adjustments and any claims
to fund certain potential indemnification obligations of the seller
with respect to the transaction. An additional $1,063 related to
the earnout due to the sellers was accrued in the fourth quarter of
fiscal 2014 based on better than estimated fiscal 2014 performance
by the acquired company compared to estimates made at the time of
the acquisition, which was recorded in other expense in the
consolidated statements of income. In June 2014, the amount of the
earnout was finalized and an additional $343 was accrued, which was
recorded in other expense in the consolidated statements of income.
The earnout was paid in July 2014.
On August 1, 2013, the Company acquired 100% of Flexo Print
S.A. De C.V. (Flexo Print) based in Guadalajara, Mexico for $31,847
plus net debt assumed of $2,324. Flexo Print is a leading producer
of home & personal care, food & beverage,
wine & spirit and pharmaceutical labels in Latin America.
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 third 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
$359 in acquisition expenses related to the Flexo Print
acquisition. These expenses were recorded in selling, general and
administrative expenses in the condensed consolidated statements of
income, $2 in the first quarter of fiscal 2015 and $357 in fiscal
2014.
In the fourth quarter of fiscal 2014, second quarter of fiscal
2015, third quarter of fiscal 2015 and first quarter of fiscal
2016, the Company adjusted the deferred payment by $(1,157), $69,
$69 and $217, respectively, in settlement of an indemnification
claim.
In conjunction with the acquisition of Flexo Print, the Company
recorded an indemnification asset of $3,279, which represents the
seller’s obligation under the purchase agreement to indemnify
Multi-Color for the outcome of potential contingent liabilities
relating to uncertain tax positions. As discussed above, a portion
of the purchase price has been held back by Multi-Color and
additional funds are being held in an escrow account in order to
support the sellers’ indemnification obligations.
On April 2, 2012, the Company acquired 100% of Labelgraphics
(Holdings) Ltd. (Labelgraphics), a wine & spirit label
specialist located in Glasgow, Scotland, for $24,634 plus net debt
assumed of $712. The purchase price included a future performance
based earnout of $3,461, estimated as of the acquisition date. The
amount of the earnout was based on a comparison between EBITDA for
the acquired business for fiscal 2012 and the average for fiscal
2013 and fiscal 2014 less certain adjustments and any claims to
fund certain potential indemnification obligations of the seller
with respect to the transaction. The accrual related to the earnout
due to sellers was decreased to $500 in the fourth quarter of
fiscal 2014 based upon the actual results of the acquired company
for fiscal 2013 and 2014 compared to the estimates made at the time
of acquisition and was paid in July 2014. |
