Acquisitions

DELTA ACQUISITION

On April 3, 2017, the Company entered into a membership interest purchase agreement with Delta, pursuant to which, the Company acquired Delta on a cash-free, debt-free basis for a total purchase price of $40,500, subject to net working capital and net debt adjustments. Delta is a designer and manufacturer of high-value RF, microwave and millimeter wave sub-assemblies and components for the military, aerospace and space markets. The acquisition and transaction related expenses were funded with cash on hand.

The following table presents the net purchase price and the preliminary fair values of the assets and liabilities of Delta:



	Amounts
Consideration transferred
Cash paid at closing	$	40,500
Net purchase price	$	40,500

Estimated fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	957
Inventory	4,452
Fixed assets	1,918
Other current and non-current assets	67
Current liabilities	(1,854		)
Estimated fair value of net tangible assets acquired	5,540
Estimated fair value of identifiable intangible assets	17,000
Estimated goodwill	17,960
Estimated fair value of net assets acquired	40,500
Net purchase price	$	40,500

The amounts above represent the preliminary fair value estimates as of June 30, 2017 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period. The preliminary identifiable intangible asset estimates include customer relationships of $8,000 with a useful life of 9 years, developed technology of $5,900 with a useful life of 7 years and backlog of $3,100 with a useful life of 2 years. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of $17,960 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The Delta acquisition expands scale and breadth of the Company’s RF, microwave and millimeter wave capabilities, provides highly complementary program portfolio in missiles and munitions, deepens market penetration in core radar, electronic warfare ("EW"), and precision-guided munitions markets, and opens new growth opportunities in space launch, GPS, satellite communications and datalinks. The goodwill from this acquisition was initially reported under the MCE reporting unit.

The Company and the shareholders of Delta have agreed to treat the acquisition of Delta as an asset purchase for tax purposes by filing the required election forms under IRC Section 338(h)(10). The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes. As of June 30, 2017, the Company had $18,029 of goodwill deductible for tax purposes.

The revenues and income before income taxes from Delta included in the Company's consolidated results for the fiscal year ended June 30, 2017 were $5,435 and $805, respectively. The Company has not furnished pro forma financial information relating to Delta because such information is not material to the Company's financial results.

CES ACQUISITION

On November 4, 2016, the Company and the shareholders of CES entered into a Stock Purchase Agreement, pursuant to which, Mercury acquired CES for a total purchase price of $39,123, subject to net working capital and net debt adjustments. The acquisition and associated transaction expenses were funded with cash on hand. Based in Geneva, Switzerland, CES is a provider of embedded solutions for military and aerospace mission-critical computing applications. CES specializes in the design, development and manufacture of safety-certifiable product and subsystems solutions including: primary flight control units, flight test computers, mission computers, command and control processors, graphics and video processing and avionics-certified Ethernet and IO. CES products and solutions are used on platforms such as aerial refueling tankers and multi-mission aircraft, as well as the several types of unmanned platforms.

The following table presents the net purchase price and the preliminary fair values of the assets and liabilities of CES:



	Amounts
Consideration transferred
Cash paid at closing	$	39,123
Working capital adjustment	(330		)
Net purchase price	$	38,793

Estimated fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	2,698
Inventory	8,950
Fixed assets	1,480
Other current and non-current assets	748
Current liabilities	(3,154		)
Non-current liabilities	(6,140		)
Deferred tax liabilities	(857		)
Estimated fair value of net tangible assets acquired	3,725
Estimated fair value of identifiable intangible assets	14,722
Estimated goodwill	20,346
Estimated fair value of net assets acquired	38,793
Net purchase price	$	38,793

The amounts above represent the preliminary fair value estimates as of June 30, 2017 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period. The preliminary identifiable intangible asset estimates include customer relationships of $9,060 with a useful life of 9 years and developed technology of $5,662 with a useful life of 7 years. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

The goodwill of $20,346 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. CES provides the Company with capabilities in mission computing, safety-critical avionics and platform management that are in demand from its customers. These new capabilities will also substantially expand Mercury’s addressable market into commercial aerospace, defense platform management, command, control, communications, computers, and intelligence ("C4I") and mission computing markets that are aligned to Mercury’s existing market focus. The acquisition is directly aligned with the Company's strategy of expanding its capabilities, services and offerings along the sensor processing chain. The goodwill from this acquisition was initially reported under the MCE reporting unit.

The revenues and income before income taxes from CES included in the Company's consolidated results for the fiscal year ended June 30, 2017 were $17,008 and $1,196, respectively. The Company has not furnished pro forma financial information relating to CES because such information is not material to the Company's financial results.

CARVE-OUT BUSINESS ACQUISITION

On March 23, 2016, the Company and Microsemi entered into a Stock Purchase Agreement, pursuant to which, Microsemi agreed to sell all the membership interests in the Carve-Out Business to the Company for $300,000 in cash on a cash-free, debt-free basis, subject to a working capital adjustment. On May 2, 2016, the transaction closed and the Company acquired the Carve-Out Business. Pursuant to the terms of the Stock Purchase Agreement, all outstanding Carve-Out Business employee stock awards that were unvested at the closing were replaced by Mercury. The replacement stock awards granted were determined based on a conversion ratio provided in the Stock Purchase Agreement. Mercury funded the acquisition with a combination of a new $200,000 bank term loan facility (see Note L) and cash on hand, which included net proceeds of approximately $92,788 raised from an underwritten common stock public offering (see Note N).

The following table presents the net purchase price and the fair values of the assets and liabilities of the Carve-Out Business:



	Amounts
Consideration transferred
Cash paid at closing	$	300,000
Value allocated to replacement awards	407
Working capital adjustment	(1,838		)
Net purchase price	$	298,569

Fair value of tangible assets acquired and liabilities assumed
Accounts receivable and cost in excess of billings	$	17,157
Inventory	25,477
Fixed assets	13,996
Other current and non-current assets	524
Current liabilities	(4,692		)
Non-current deferred tax liabilities	(25,449		)
Fair value of net tangible assets acquired	27,013
Fair value of identifiable intangible assets	102,800
Goodwill	168,756
Fair value of assets acquired	298,569
Net purchase price	$	298,569

On May 2, 2017, the measurement period for the Carve-Out Business expired. The identifiable intangible assets include customer relationships of $70,900, completed technology of $29,700 and backlog of $2,200.

The goodwill of $168,756 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The Carve-Out Business provides the Company with additional capability and expertise related to embedded security custom microelectronics, and microwave and radio frequency technology. The acquisition is directly aligned with the Company's strategy of expanding its capabilities, services and offerings along the sensor processing chain. The goodwill from this acquisition is reported under the AMS and MDS reporting units. As of June 30, 2016, the Company had $26,494 of goodwill deductible for tax purposes.