| 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 was publicly
listed on the Malaysian stock exchange. During the second and third
quarters of fiscal 2016, the Company acquired the remaining shares
and delisted Super Label. Super Label has operations in Malaysia,
Indonesia, the Philippines, Thailand and China and produces
home & personal care, food and 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 an 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 $ 39,782
Net cash acquired (6,035 )
Total purchase price $ 33,747
The cash portion of the purchase price was funded through
borrowings under our Credit Agreement (see Note 4). Net cash
acquired includes $8,152 of cash acquired less $2,117 of bank debt
assumed. The Company spent $1,434 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, $7 in the first quarter of
fiscal 2017, $1 in the fourth quarter of fiscal 2016, $105 in the
third quarter of fiscal 2016, $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 the
Company 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 the
Credit Agreement (see Note 4). The purchase price includes $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 $1,492 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: $4 in the first quarter of fiscal 2017, $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. The purchase price allocation 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 $ 6,035 $ 746
Accounts receivable 8,479 8,489
Inventories 4,205 2,863
Property, plant and equipment 17,418 8,356
Intangible assets 754 21,852
Goodwill 13,346 23,391
Other assets 1,858 2,794
Total assets acquired 52,095 68,491
Liabilities Assumed:
Accounts payable 5,087 3,049
Accrued income taxes payable 974 355
Accrued expenses and other liabilities 1,652 7,043
Deferred tax liabilities 1,123 8,071
Total liabilities assumed 8,836 18,518
Net assets acquired 43,259 49,973
Noncontrolling interests (3,477 )
—
Net assets acquired attributable to Multi-Color Corporation $ 39,782 $ 49,973
The fair value of the noncontrolling interests for Super Label were
estimated based on market valuations performed by an independent
third party using a combination of: (i) an income approach
based on expected future discounted cash flows; and (ii) an
asset approach.
The estimated fair value of identifiable intangible assets acquired
and their estimated useful lives are as follows:
Super Label Barat
Fair Useful Fair Useful
Customer relationships $ 754 10 years $ 20,849 20 years
Non-compete agreements
—
— 780 2 years
Trademarks
—
— 223 1 year
Total identifiable intangible assets $ 754 $ 21,852
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
markets 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
acquisitions is not deductible for income tax purposes.
Below is a roll forward of the goodwill acquired from the
acquisition date to June 30, 2016:
Super Label Barat
Balance at acquisition date $ 13,346 $ 23,391
Foreign exchange impact (30 ) (86 )
Balance at June 30, 2016 $ 13,316 $ 23,305
The accounts receivable acquired as part of the Super Label
acquisition had a fair value of $8,479 at the acquisition date. The
gross contractual value of the receivables prior to any adjustments
was $8,809 and the estimated contractual cash flows that are not
expected to be collected are $330. The accounts receivable acquired
as part of the Barat acquisition had a fair value of $8,489 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 $190.
The net revenues and net income of Barat included in the condensed
consolidated statement of income from the acquisition date through
June 30, 2015 were $6,317 and $389, respectively.
Pro Forma Information
The following table provides the unaudited pro forma results of
operations for the three months ended June 30, 2015 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
June 30, 2015
Net revenues $ 230,709
Net income attributable to Multi-Color $ 15,358
Diluted earnings per share $ 0.91
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 attributable to Multi-Color
Corporation:
Three Months Ended
Net revenues Net income
Multi-Color Corporation actual results $ 217,920 $ 13,254
Acquired companies results 12,789 982
Pro forma adjustments
— 1,122
Pro forma results $ 230,709 $ 15,358
The following table identifies the pro forma adjustments:
Three Months Ended
June 30, 2015
Acquired companies financing costs $ 150
Acquisition transaction costs 1,682
Incremental interest costs (710 )
Pro forma adjustments $ 1,122
Other Acquisition Activity
On January 4, 2016, the Company acquired 100% of Cashin Print
for $17,487 less net cash acquired of $135 and 100% of System Label
for $11,665 less net cash acquired of $2,025. Cashin Print and
System Label are located in Castlebar, Ireland and Roscommon,
Ireland, respectively. The purchase prices for Cashin Print and
System Label include $1,411 and $1,571, respectively, for purchase
price adjustments, which were paid to the seller during the three
months ended June 30, 2016. In addition, the purchase prices
for Cashin Print and System Label include deferred payments of
$3,317 and $1,011, respectively, that are likely to be paid out in
the fourth quarter of fiscal 2019. The acquired businesses supply
multinational customers in Ireland, the United Kingdom and
Continental Europe and provide Multi-Color with the opportunity to
supply a broader product range to a larger customer base,
especially in the healthcare market. On October 1, 2015, the
Company acquired 100% of Supa Stik Labels (Supa Stik) for $6,787
less net cash acquired of $977. Supa Stik is located in Perth, West
Australia and services the local wine, food & beverage and
healthcare label markets. The purchase price includes $622 that is
deferred for two years after the closing date. On May 1, 2015,
the Company acquired 100% of Mr. Labels in Brisbane,
Queensland Australia for $2,110. The purchase price includes $196
that was deferred until the first anniversary of the closing date.
Mr. Labels provides labels primarily to food and beverage
customers. The results of operations of these acquired businesses
have been included in the condensed consolidated financial
statements since the respective dates of acquisition and have been
determined to be immaterial for purposes of further disclosure.
The determination of the final purchase price allocation to
specific assets acquired and liabilities assumed is incomplete for
Cashin Print and System Label. 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.
Effective 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
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. The
escrow amount is to fund certain potential obligations of the
seller with respect to the transaction. During the second quarter
of fiscal 2016, all but $598 of the escrow amount was released to
the seller. As of June 30, 2016, $373 remained in the escrow
account.
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 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 & spirits 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. 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. |
