| Acquisitions | Note 2 – Acquisitions
Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in existing and contiguous markets, and leverage fixed operating costs such as distribution and advertising.
Subsequent Event
On October 16, 2016, we acquired one retail tire and automotive repair store located in Rhode Island from Hamel Tire Center Inc. This store operates under the Monro name. The acquisition was financed through our existing credit facility.
On October 2, 2016, we acquired three retail tire and automotive repair stores located in Ohio from Parkway D/C Enterprises, Inc. These stores operate under the Mr. Tire name. The acquisition was financed through our existing credit facility.
Fiscal 201 7
During the first six months of fiscal 2017, we acquired the following businesses for an aggregate purchase price of $129.1 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.
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On September 19, 2016, we acquired one commercial tire and automotive repair store located in Florida from Florida Tire Service, LLC. This store will operate under The Tire Choice name.
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On September 18, 2016, we acquired two retail tire and automotive repair stores located in Michigan from Davco Development Company and Ricketts, Inc. These stores operate under the Monro name.
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On September 11, 2016, we acquired 26 retail/commercial tire and automotive repair stores and one retread plant located in North Carolina, as well as four wholesale centers, from Clark Tire & Auto, Inc. These stores will operate under the Mr. Tire name. The wholesale centers will operate under the Tires Now name.
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On July 18, 2016, we acquired one retail tire and automotive repair store located in Indiana from NTI, LLC. This store operates under the Car-X name.
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On July 17, 2016, we acquired one retail tire and automotive repair store located in Georgia from Kwik-Fit Tire & Service. This store operates under the Mr. Tire name.
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On July 10, 2016, we acquired four retail tire and automotive repair stores located in Minnesota from Task Holdings, Inc. and Autopar, Inc. These stores operate under the Car-X name.
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On June 26, 2016, we acquired one retail tire and automotive repair store located in Michigan from Harlow Tire Company. This store operates under the Monro name.
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On June 19, 2016, we acquired two retail tire and automotive repair stores located in New Hampshire from Express Tire Centers, LLC. These stores operate under the Tire Warehouse name.
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On May 8, 2016, we acquired one retail tire and automotive repair store located in Florida from Pioneer Tire Pros. This store operates under The Tire Choice name.
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On May 1, 2016, we acquired 29 retail/commercial tire and automotive repair stores and one retread plant located in Florida from McGee Tire Stores, Inc. These stores will operate primarily under The Tire Choice name.
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combini n g these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to customer lists, favorable leases and trade names.
We expensed all costs related to acquisitions in the six months ended September 24, 2016. The total costs related to completed acquisitions were $.2 million and $.4 million for the three and six months ended September 24, 2016, respectively. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales for the fiscal 2017 acquired entities for the three and six months ended September 24, 2016 totaled $16.7 million and $25.6 million, respectively, for the period from acquisition date through September 24, 2016.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuations and estimates. The excess of the net purchase price over net tangible and intangible assets acquired was recorded as goodwill. The preliminary allocation of the aggregate purchase price as of September 24, 2016 was as follows:
As of Acquisition Date
(Dollars in thousands)
Trade receivables
$ 7,052
Inventories
19,009
Other current assets
377
Property, plant and equipment
20,094
Intangible assets
15,845
Other non-current assets
208
Long-term deferred income tax assets
5,076
Total assets acquired
67,661
Warranty reserves
393
Other current liabilities
1,991
Long-term capital leases and financing obligations
21,418
Other long-term liabilities
654
Total liabilities assumed
24,456
Total net identifiable assets acquired
$ 43,205
Total consideration transferred
$ 129,103
Less: total net identifiable assets acquired
43,205
Goodwill
$ 85,898
The total consideration of $129.1 million is comprised of $129 million in cash, and a $.1 million payable to a seller. The payable is being paid via equal annual payments through September 2019.
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
As of Acquisition Date
Dollars in thousands
Weighted Average Useful Life
Customer lists
$ 9,325
9 years
Favorable leases
5,197
13 years
Trade names
1,323
11 years
Total
$ 15,845
10 years
Fiscal 201 6
During the first six months of fiscal 2016, we acquired the following businesses for an aggregate purchase price of $49.6 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in Monro’s financial results from the respective acquisition dates.
In July and August 2015, we acquired three retail tire and automotive repair stores located in Illinois and Indiana from two former Car-X franchisees. These stores operate under the Car-X name.
On August 16, 2015, we acquired 27 retail tire and automotive repair stores located in Central New York and Pennsylvania from Kost Tire. These stores operate under the Mr. Tire name.
On July 12, 2015, we acquired four retail tire and automotive repair stores located in Massachusetts from Windsor Tire Co., Inc. These stores operate under the Monro name.
On April 25, 2015, we acquired the Car-X Brand, as well as the franchise rights for 146 auto service centers from Car-X Associates Corp., a subsidiary of Tuffy Associates Corp. At the time of acquisition, the Car-X stores were owned and operated by 32 independent Car-X franchisees in Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri, Ohio, Tennessee, Texas and Wisconsin. The franchise locations operate under the Car-X name. Monro operates as the franchisor through a standard royalty agreement, while Car-X remains a separate and independent brand and business through Car-X, LLC, Monro’s wholly-owned subsidiary, with franchise operations based in Illinois.
The acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining this business with ours, and unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to customer relationships, trade name, favorable leases and franchise agreements.
We expensed all costs related to acquisitions in the six months ended September 26, 2015. The total costs related to completed acquisitions were $.3 million and $.5 million for the three and six months ended September 26, 2015, respectively. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales for the fiscal 2016 acquired entities, including franchise royalty income, for the three and six months ended September 26, 2015 totaled $5.3 million and $6.0 million, respectively, for the period from acquisition date through September 26, 2015.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We have recorded the identifiable assets acquired and liabilities assumed at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the remainder recorded as goodwill as follows:
As of Acquisition Date
(Dollars in thousands)
Trade receivables
$ 377
Inventories
820
Other current assets
486
Property, plant and equipment
12,244
Intangible assets
11,227
Other non-current assets
25
Long-term deferred income tax assets
6,647
Total assets acquired
31,826
Warranty reserves
162
Other current liabilities
2,074
Long-term capital leases and financing obligations
26,137
Other long-term liabilities
870
Total liabilities assumed
29,243
Total net identifiable assets acquired
$ 2,583
Total consideration transferred
$ 49,560
Less: total net identifiable assets acquired
2,583
Goodwill
$ 46,977
The total consideration of $49.6 million is comprised of $43.6 million in cash, and a $6.0 million payable to a seller. The payable is being liquidated via equal monthly payments through August 2022.
The following are the intangible assets acquired and their respective fair values and weighted average useful lives:
As of Acquisition Date
Dollars in thousands
Weighted Average Useful Life
Franchise agreements
$ 7,100
13 years
Trade name
2,000
15 years
Favorable leases
1,528
14 years
Customer lists
599
7 years
Total
$ 11,227
13 years
As a result of the purchase price allocations that have been updated from the fiscal year ended March 26, 2016 , certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates include an increase in trade receivables of $.1 million; an increase in property, plant and equipment of $1.3 million; an increase in long-term deferred income tax assets of $1.2 million; an increase in other current liabilities of $.5 million ; and an increase in long-term capital leases and financing obligations of $4.0 million. The measurement period adjustments resulted in an increase of goodwill of $1.9 million.
These measurement period adjustments were not material to the Consolidated Statements of Comprehensive Income for the quarter and six months ended September 24, 2016, respectively.
We continue to refine the valuation data and estimates primarily related to inventory, road hazard warranty, intangible assets, real estate and real property leases for fiscal 2016 acquisitions which closed subsequent to September 26, 2015, and for the fiscal 2017 acquisitions, and expect to complete valuations no later than the first anniversary date of the respective acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material. |
