Quarterly report pursuant to Section 13 or 15(d)

Note 3 - Business Combinations and Asset Acquisitions

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Note 3 - Business Combinations and Asset Acquisitions
6 Months Ended
Apr. 30, 2023
Notes to Financial Statements  
Asset Acquisition [Text Block]

Note 3. Business Combinations and Asset Acquisitions

 

The Company completed one asset acquisition during the second quarter of 2023, no acquisitions during the first quarter of fiscal 2023 and five acquisitions during fiscal 2022. All acquisitions either added complementary assets in markets in which the Company already operates or expanded the Company's footprint into adjacent markets. With the exception of the Coastal Carolina Pumping, Inc. ("Coastal") acquisition during the fourth quarter of fiscal 2022, all other transactions qualified as asset acquisitions. Except for the acquisition of Pioneer in the first quarter of fiscal 2022 and Coastal in the fourth quarter of fiscal 2022, these acquisitions were not individually significant to our results of operations. The consideration for the acquisitions in fiscal 2022 consisted of cash and was allocated to the acquired long-lived tangible and intangible assets. 

 

August 2022 (Fiscal 2022) Coastal Acquisition

 

In August 2022, the Company acquired the property, equipment and intangible assets of Coastal for total purchase consideration of $30.8 million, which was paid for using cash and the ABL Facility (defined below). This transaction expanded our operations in the Carolinas and Florida and qualified as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values. There was no goodwill recognized in this transaction.

 

The following table represents the final allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values with any measurement-period adjustments included:

 

(in thousands)        

Consideration paid:

  $ 30,762  
         

Net assets acquired:

       

Intangible assets

  $ 2,500  

Property and equipment

    28,500  

Liabilities assumed

    (238

)

Total net assets acquired

  $ 30,762  

 

All assets were valued using level 3 inputs. The equipment was valued using a market approach while the intangible assets were valued using an income approach based on management’s projections.

 

Identifiable intangible assets acquired consist of customer relationships of $1.7 million and non-compete agreements valued at $0.8 million. The customer relationships were valued using the multi-period excess earnings method. The non-competes were valued using a direct valuation of economic damages approach. The Company determined the useful life of both the customer relationships and non-compete agreements to be 5 years.

 

Concurrent with closing of the asset purchase agreement, the Company signed five leases directly with the seller. The leases were entered into at market rates and the Company recognized an ROU asset and liability of $6.5 million related to these leases.

 

November 2021 (Fiscal 2022) Pioneer Acquisition

 

In November 2021, the Company acquired the assets, no cash, of Pioneer Concrete Pumping Services (“Pioneer”) for total purchase consideration of $20.2 million, of which, $1.0 million was held back (the “Holdback”) to allow for a post-closing joint inspection of Pioneer’s fleet vehicles. The Holdback had not been paid out as of April 30, 2023. This transaction was treated as an asset acquisition. The Company allocated $19.1 million to the purchase of Pioneer's equipment. The remaining $1.1 million was allocated to a definite-lived assembled workforce intangible asset and a definite-lived customer relationships intangible asset. All assets were valued using level 3 inputs. The equipment was valued using a market approach while the intangible assets were valued using an income approach based on management’s projections. The intangible assets will be amortized over 3 to 5 years.

 

Transaction Costs

 

Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an asset acquisition or business combination. There were no significant transaction costs incurred in each of the three and six months ended April 30, 2023 and 2022.

 

Unaudited Pro Forma Financial Information

 

The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the Coastal business combination discussed above as if it had occurred on November 1, 2020. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Coastal business combination had been completed on November 1, 2020, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.

 

The unaudited pro forma financial information is as follows:

 

    Three Months Ended April 30,     Six Months Ended April 30,  

(in thousands)

 

2022

   

2022

 

Revenue

  $ 96,482     $ 181,930  

Pro forma revenue adjustments by Business Combination

               

Coastal

  $ 5,757     $ 9,881  

Total pro forma revenue

  $ 102,239     $ 191,811  
                 

Net income

  $ 5,985     $ 7,168  

Pro forma net income adjustments by Business Combination

               

Coastal

  $ 557     $ 510  

Total pro forma net income

  $ 6,542     $ 7,678  

 

Significant pro forma adjustments include:

 

 

Tangible and intangible assets are assumed to be recorded at their estimated fair values as of November 1, 2021 and are depreciated or amortized over their estimated useful lives; and

 

The Company incurred approximately $30.0 million on the ABL Facility (defined below) in connection with the acquisition of Coastal. Interest expense has been adjusted as of November 1, 2020.

 

Coastal’s contribution to the Company's revenue for the three and six months ended April 30, 2023 was $5.0 million and $9.4 million, respectively. Coastal's contribution to the Company's net income for the three and six months ended April 30, 2023 was $0.5 million and $1.1 million, respectively.