Acquisitions

3 Months Ended

Apr. 29, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisition of Topo- On December 13, 2022, we acquired a 79.4% ownership interest in Topo for $19.3 million in cash. We have an exclusive call option to purchase the remaining 20.6% ownership interest in Topo upon the occurrence of certain events or after a period of two years following the close of the transaction. The noncontrolling interest holders also have a put option with respect to the remaining 20.6% ownership interest in Topo upon the occurrence of certain events or after a period of three years following the close of the transaction. The redemption price is defined in the operating agreement and is based primarily on a fixed multiple of Topo's trailing 12 months of adjusted earnings before interest, taxes, depreciation, amortization, and other agreed upon adjustments.

The final purchase price and the allocation of the total consideration to the fair values of the assets, liabilities, and redeemable noncontrolling interest consisted of the following:


(in thousands)	Preliminary Purchase Price and Allocation as of December 13, 2022		Measurement Period Adjustments		Final Purchase Price Allocation as of April 29, 2023
Purchase price cash consideration	$	19,062	$	193	$	19,255
Fair value of assets and liabilities acquired:
Accounts receivables	$	3,195	$	(150)	$	3,045
Inventories	5,612		(20)		5,592
Goodwill	3,460		868		4,328
Intangible assets	12,500		(500)		12,000
Other assets	1,898		—		1,898
Accounts payable and other liabilities	(4,438)		(5)		(4,443)
Redeemable noncontrolling interest	(3,165)		—		(3,165)
	$	19,062	$	193	$	19,255

The fair value of the intangible assets relates to customer relationships and a tradename, which are amortized over a useful life of 10 and 15 years, respectively, and are based on the excess earnings method under the income approach. The fair value measurements are based on significant unobservable inputs, including discounted future cash flows and customer attrition rates. The fair value measurement of the redeemable noncontrolling interest was calculated by considering the implied fair value of Topo using the purchase price and an estimated amount to redeem the noncontrolling interest. The goodwill represents the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to acquiring an established design and sourcing process for athletic footwear. Goodwill is expected to be deductible for income tax purposes. During 2022, we incurred $1.3 million of acquisition-related costs in connection with the acquisition of Topo, which was included in operating expenses on the consolidated statements of operations.

Acquisition of Keds- On February 4, 2023, we acquired the Keds business, including the Keds brand, inventory, and inventory-related accounts payable, from Wolverine World Wide, Inc. ("Seller") for $124.9 million. The cash portion of the purchase price was funded with available cash and borrowings on the ABL Revolver.

The preliminary purchase price and the allocation of the total consideration to the fair values of the assets and liabilities consisted of the following:


(in thousands)	Preliminary Purchase Price and Allocation as of February 4, 2023
Purchase price:
Cash Consideration	$	109,360
Due to Seller	19,040
Due from Seller for estimated contingent consideration	(3,500)
	$	124,900
Fair value of assets and liabilities acquired:
Inventories	$	46,700
Goodwill	36,787
Intangible assets	44,800
Accounts payable	(3,387)
	$	124,900

We recorded an allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The purchase price is subject to adjustments primarily based upon contingent considerations as provided by the purchase agreement, which are based on recognized sales and incurred marketing costs for certain identified aged inventories and may result in the Seller paying us up to $15.0 million by March 2024. We recorded an estimated amount due from Seller at fair value based on our estimated probability of the conditions being met requiring payment. The allocation of the purchase price is based on certain preliminary valuations and analysis that have not been completed as of the date of this filing. Any subsequent changes in the estimated fair values assumed upon the finalization of more detailed analysis within the measurement period will change the allocation of the purchase price and will be adjusted during the period in which the amounts are determined. We expect to finalize the valuations as soon as practicable, but not later than one year from the acquisition date.

The fair value of inventories, which is made up of finished goods, was determined based on market assumptions for realizing a reasonable profit after selling costs. The fair value of the intangible assets relates to $40.1 million of an indefinite lived tradename and $4.7 million of customer relationships, which is amortized over a useful life of 10 years, and are based on the excess earnings method under the income approach. The fair value measurements are based on significant unobservable inputs, including discounted future cash flows and customer attrition rates. The goodwill represents the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to acquiring an established design and sourcing process for casual footwear, including kids' footwear, with international distribution. We determined that goodwill should be allocated to reporting units within the U.S. Retail and Brand Portfolio segments based on each reporting unit’s estimated benefit from the expected synergies from the Keds business acquisition. We recorded a preliminary allocation of goodwill of $25.5 million to the U.S. Retail segment based primarily on a discounted cash flow of the sourcing benefit. The remaining $11.3 million of goodwill was allocated to the Brand Portfolio segment. Goodwill is expected to be deductible for income tax purposes. We incurred $2.9 million of acquisition-related costs in connection with the acquisition of the Keds business, which was included in operating expenses on the condensed consolidated statements of operations.

Combined Results of Acquired Entities- The results of operations for Topo and the Keds business for the three months ended April 29, 2023 were not material and are included in the condensed consolidated statements of operations within the Brand Portfolio segment. Supplemental pro forma results of operations reflecting the acquisitions are not presented as the impact on our consolidated financial results would not have been material.