Business Combinations

9 Months Ended

Sep. 30, 2020

Note 2 — BUSINESS COMBINATIONS

On July 1, 2020, the Company completed its acquisition of the equity interests in the global masterbatch business of Clariant AG, a corporation organized and existing under the law of Switzerland (Clariant), and the masterbatch assets in India of Clariant Chemicals (India) Limited, a public limited company incorporated in India and an indirect majority owned subsidiary of Clariant (Clariant India). The business and assets are collectively referred to as Clariant MB and the acquisitions are collectively referred to as the Clariant MB Acquisition. The Clariant MB Acquisition increased the Company's scale, product depth and geographic reach in its Color, Additives and Inks segment. Clariant MB has leading portfolios of solid and liquid masterbatches that include sustainable solutions for alternative energy, and reduced material requirements for packaging and light weighting. In connection with the completion of the Clariant MB Acquisition and effective as of June 30, 2020, the Company amended its existing Articles of Incorporation to change its name to Avient Corporation. In conjunction with its rebranding and new name, the Company also changed its ticker symbol from “POL” to “AVNT”, effective at the start of trading on July 13, 2020.

Total consideration paid by the Company to complete the Clariant MB Acquisition was $1.3 billion, net of cash, which includes preliminary working capital and net debt adjustments. Clariant's proposed net debt and working capital adjustment reflects a $44.0 million adjustment, representing a payment by the Company to Clariant. The review period for this proposed adjustment is still open and the adjustment will likely be finalized prior to the end of the first quarter of 2021. To finance the purchase of Clariant MB, the Company used $496.1 million in net proceeds from the issuance of common shares in an underwritten public offering completed in February 2020 and $640.5 million in net proceeds from a senior unsecured notes offering completed in May 2020, and funded the balance using the net proceeds of the October 2019 sale of our Performance Products and Solutions business segment (PP&S). For additional details related to the sale of PP&S and the senior unsecured notes offering, refer to Note 3, Discontinued Operations and Note 9, Financing Arrangements, respectively.

The Clariant MB Acquisition is being accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 805. As of September 30,

2020, the purchase accounting for the Clariant MB Acquisition is preliminary and the amounts recognized in the financial statements for the Clariant MB Acquisition are provisional. The purchase price allocation adjustments will be made throughout the end of Company’s measurement period, which is not to exceed one year from the acquisition date. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from the preliminary estimates. We are in the ongoing process of conducting a valuation of the assets acquired and liabilities assumed related to the acquisition, including the personal and real property, lease obligations, deferred taxes, pension and other post-employment benefit plan liabilities, and intangible assets. The provisional measurements and preliminary allocation of consideration transferred and determination of fair values of assets acquired and liabilities assumed, reflect estimates, judgments and assumptions made by management. These estimates, judgments and assumptions are subject to change upon final valuation.

The summarized preliminary purchase price allocation is as follows:


	July 1, 2020
Cash and cash equivalents	$	145.1
Accounts receivable	170.8
Inventories	102.3
Other current assets	54.1
Property	267.6
Goodwill	570.1
Intangible assets:
Customer relationships	221.4
Trade names and trademarks	32.0
Patents, technology and other	273.9
Operating lease assets	33.6
Other long-term assets	1.1
Short term debt	(0.4)
Accounts payable	(91.6)
Current operating lease obligations	(3.1)
Accrued expenses and other current liabilities	(81.9)
Long-term debt	(6.7)
Non-current operating lease obligations	(29.0)
Deferred tax liabilities	(58.2)
Pension and other post retirement benefits	(56.7)
Non-controlling interests	(12.7)
Total purchase price consideration	$	1,531.7

The intangible assets that have been acquired are being amortized over a period of 18 to 20 years.

Goodwill of $570.1 million was recorded and allocated to the Color, Additives and Inks segment. The goodwill recognized is primarily attributable to the expected synergies to be achieved from the business combination. We expect a portion of goodwill to be deductible for tax purposes.

The amounts of revenue and income from continuing operations before income taxes of Clariant MB since the acquisition date included in the consolidated income statement for the three months ended September 30, 2020 are $264.2 million and $18.3 million, respectively. Had the Clariant MB Acquisition occurred as of the beginning of fiscal 2019, sales and income from continuing operations before income taxes on a pro forma basis would have been as follows:


	(Unaudited)				(Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Sales	$	924.5	$	976.3	$	2,782.6	$	3,055.5
Income from continuing operations before income taxes	28.9		29.8		146.5		78.4

The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments that assume the acquisition occurred on January 1, 2019. These unaudited pro forma results do not represent financial results realized, nor are they intended to be a projection of future results. In preparation of the pro forma financial information, we eliminated certain historical allocations made by Clariant as they do not represent the stand alone operations of Clariant MB and replaced them with costs more likely to occur as a part of Avient. This elimination removed expense of $7.5 million and $10.0 million during the nine months ended September 30, 2020 and 2019, respectively, while the three months ended September 30, 2020 reflect actual results. The amortization of inventory step-up from the preliminary purchase price allocation was $10.5 million, and is reflected in Cost of sales in the three and nine months ended September 30, 2020. Additionally, we incurred $9.6 million and $10.1 million of costs related to committed financing which are reflected in Interest expense, net in the three and nine months ended September 30, 2020, respectively. The amounts associated with the amortization of inventory step-up and costs related to committed financing were removed from the three and nine months ended September 30, 2020, and presented in the nine months ended September 30, 2019 pro forma financial information.

Costs incurred in connection with the Clariant MB Acquisition were $3.5 million and $15.1 million in the three and nine months ended September 30, 2020, respectively. These fees were charged to Selling and Administrative expense on the Condensed Consolidated Statements of Income.

Other Acquisitions

Our acquisitions of PlastiComp, Inc. (PlastiComp) on May 31, 2018 and Fiber-Line, LLC (Fiber-Line) on January 2, 2019 involve contingent earnout consideration. The PlastiComp earnout had a ceiling of $35.0 million that was reached during the first quarter of 2020 and paid in the third quarter of 2020. The Fiber-Line earnout is based on two annual earnout periods, with the second earnout period target based on year-one results. The second earnout period ends on December 31, 2020 and we expect settlement in 2021. A payment of $53.9 million associated with the first Fiber-Line earnout period was made in the first quarter of 2020. During the three and nine months ended September 30, 2020, the Company recorded charges of $1.5 million and $2.5 million, respectively, associated with the earnouts within Selling and administrative expense on the Condensed Consolidated Statements of Income that were primarily attributable to improved earnings from the acquisitions.