Business Combinations

9 Months Ended

Sep. 30, 2015

Business Combinations

3 Business Combinations

M/A-COM Automotive Solutions Business

On August 17, 2015, Autoliv completed the acquisition of the “Automotive Solutions” business of M/A-COM Technology Solutions Holdings, Inc. (MACOM) headquartered in Lowell, Massachusetts, which is a carve-out of the automotive business of MACOM, through the acquisition of all of the shares of M/A-COM Auto Solutions, Inc., a MACOM subsidiary, for approximately $99 million in cash (as adjusted), $15 million of deferred purchase price payable over two years, plus up to an additional $30 million in cash based on the achievement of revenue based earn-out targets through September 30, 2019. The transaction has been accounted for as a business combination.

The “Automotive Solutions” business of MACOM is a supplier of integrated, embedded Global Positioning System (GPS) modules to the automotive industry. The business includes technical, commercial and manufacturing support employees focused on the design, development and production of GPS modules. Other technologies and intellectual property acquired in the transaction are various Radio Frequency (RF) and antenna products (hardware and software) and Electronic Horizon, which is an advanced driver assistance system connecting navigation and GPS data to improve safety, fuel efficiency and reduce emissions. The acquisition expands the Company’s capability in the Electronics market and provides additional building blocks to its portfolio in automated driving.

The operating results of the MACOM “Automotive Solutions” business have been included in the Consolidated Statements of Net Income since the date of the acquisition. The acquired business is being reported in the Electronics reportable segment. From the date of the acquisition through September 30, 2015, the MACOM “Automotive Solutions” business reported net sales and operating income of $10.6 million and $0.3 million, respectively. Operating income from the date of the acquisition through September 30, 2015, included $1.7 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of acquired inventory. The total purchase accounting inventory fair value step-up adjustments included in the balance sheet at the acquisition date was $1.7 million.

The acquisition related costs were immaterial and were accounted for as Selling, general and administrative expenses in the Consolidated Statement of Net Income as of September 30, 2015.

The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented.

The fair value of acquired accounts receivable, net was determined to be $11.5 million as of the acquisition date. The gross contractual amounts receivable of $12.2 million included $0.7 million that is not expected to be collected.

The acquisition date fair value of the total consideration transferred is presented in the table below:

Acquisition consideration	August 17, 2015 Fair value
Cash		98.9
Earn-out		25.0
Deferred purchase consideration		14.6
Total consideration transferred	$	138.5

The fair value of the earn-out of $25 million is based on a range of estimated probability of revenue scenarios. The fair value of the earn-out and deferred purchase consideration were determined using the discounted cash flow method of the income approach. The estimated undiscounted outcomes are in the range of $0 - 30 million.

The following table summarizes the recognized preliminary fair values of identifiable assets acquired and liabilities assumed as of the acquisition date:

Amounts recognized as of acquisition date	August 17, 2015 Fair value
Assets:
Receivables	$	11.5
Inventories		6.0
Other current assets		0.1
Property, plant and equipment		0.1
Intangibles		43.8
Goodwill		84.9
Total assets	$	146.4
Liabilities:
Accounts payable	$	7.6
Accrued expenses		0.3
Total liabilities	$	7.9
Net assets acquired	$	138.5

Acquired Intangibles consist of the fair value of a customer contract of $36.9 million and certain technology and intellectual property of $6.9 million. The customer contract will be amortized straight-line over 4 years and the technology and intellectual property will be amortized straight-line over 7.5 years.

The recognized goodwill of $84.9 million reflects expected synergies from combining the Active Safety operations of the Company and the acquired “Automotive Solutions” business from MACOM and intangible assets that do not qualify for separate recognition. The goodwill is expected to be fully deductible for tax purposes and has been assigned to the Electronics reportable segment.

The amounts recognized for intangible assets and goodwill are preliminary pending finalization of valuation efforts.