|9 Months Ended|
Sep. 30, 2014
Value Lighting—On April 17, 2014, the Company completed the acquisition of Value Lighting, a supplier of lighting solutions to the multifamily residential market. The purchase consideration aggregated to $39.1 million and consisted of cash of $10.6 million funded with a loan from an affiliate, an unconditional obligation to issue an aggregate of 8,468,192 shares of common stock in four installments at six, twelve, eighteen and twenty-four months from the acquisition date, preliminarily valued at $20.9 million, and contingent consideration payable in cash or common stock at the option of the Company aggregating up to a total of $11 million, preliminarily valued at $7.8 million, if certain revenue and EBITDA targets are achieved by Value Lighting for 2014 and 2015. The purchase price was preliminarily reduced by $0.2 million based on the closing working capital. The Company acquired Value Lighting for its presence in the multifamily residential market and construction, the experience of the management team, its customer base, operational and business development synergies.
The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Value Lighting acquisition. The excess of the purchase price over the estimated fair value of the net tangible assets acquired was allocated to intangible assets of approximately $19.8 million and goodwill of approximately $17.8 million. The final determination of the fair value of certain assets and liabilities including income taxes and contingencies will be completed within the one-year measurement period from the date of acquisition as required by the FASB ASC Topic 805, “Business Combinations.”
The acquired intangibles are being amortized consistent with the period the underlying cash flows are generated. All of the goodwill is included in the Lighting Fixtures and Lamps reportable segment. Goodwill is not expected to be deductible for income tax purposes.
In connection with the acquisition, Value Lighting formalized a leasing arrangement pursuant to which Value Lighting leased its warehouse in Marietta, Georgia from Aldean Properties LLC., an entity owned by the sellers. Since Aldean was not acquired by the Company, the terms of the lease were negotiated between the Sellers and the Company and approximate market rates. The lease does not include any residual value guaranties or purchase options.
The merger agreement provides for the sellers to indemnify the Company for undisclosed liabilities, including guarantees. Subsequent to the acquisition, the Company became aware that Value Lighting was a guarantor, together with the sellers individually, of debt encumbering the property with a carrying amount of approximately $2.4 million. There was no intention to have the Company assume the guarantee. Accordingly, the Company notified the sellers who executed an agreement jointly and severally indemnifying and holding Value Lighting and the Company harmless from and against any losses and expenses relating to the guarantee.
Tri-State—On November 15, 2013, the Company completed the acquisition of Tri-State, a distributor of Seesmart products, for cash at closing of approximately $1.8 million (including a preliminary working capital adjustment), an obligation to pay an additional $1.5 million in cash originally due in six months bearing interest at 5% annually, 543,052 shares of common stock valued at approximately $1.6 million, of which one half were issued at closing, and an obligation to issue up to 365,628 additional shares contingent on Tri-State achieving specified revenue targets within one year following the acquisition date, which has been initially valued at approximately $0.9 million. The deferred consideration payment obligation remains outstanding. Under the terms of the agreement, the Company acquired Tri-State debt free and cash free. The Company acquired Tri-State for its management team, its client base in New York, New Jersey and Connecticut and operational and business development synergies. The purchase price exceeds the fair value of the tangible assets acquired and reflects the expected growth of the business.
The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Tri-State acquisition.
The acquired intangibles are being amortized consistent with the period the underlying cash flows are generated. All of the goodwill is included in the Lighting Fixtures and Lamps reportable segment. Goodwill is expected to be deductible for income tax purposes. Goodwill was retroactively adjusted by $25,000 to reflect a working capital adjustment finalized in 2014.
Pro forma information—The following pro forma information gives effect to all the acquisitions described above as if they had been consummated on January 1, 2013 (in thousands):
The pro forma results for the nine months ended September 30, 2014 reflect pre acquisition transaction costs of $0.5 million incurred by Value Lighting’s sellers. The results for the year ended December 31, 2013 includes a pro forma charge of $2.3 million for amortization of the intangible assets related to acquired backlog of Value Lighting, which is not expected to reoccur after the first year following the acquisition, a gain on the bargain purchase of Elite of $0.7 million, as well as the following charges and credits directly related to the acquisition recorded by Relume: transaction costs of $0.4 million, change in control payments of $0.7 million, loss on extinguishment of debt of $4.2 million, and a gain of $1.5 million resulting from the deconsolidation of a subsidiary that had filed of a petition for liquidation under Chapter 7 of the Bankruptcy Code prior to the acquisition. Revenues and net income of Value Lighting included in the results of operations for the three months ended September 30, 2014 were $16,466,000 and $1,485,000 respectively.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://www.xbrl.org/2003/role/presentationRef