Acquisitions

3 Months Ended

May 04, 2024

Business Combination and Asset Acquisition [Abstract]

ACQUISITION OF KEDS

On February 4, 2023, we acquired the Keds business ("Keds"), including the Keds brand, inventory, and inventory-related accounts payable, from Wolverine World Wide, Inc. ("Seller"). The cash consideration was funded with available cash and borrowings on the ABL Revolver.

The final purchase price and the allocation of the total consideration to the fair values of the assets and liabilities was finalized as of February 3, 2024, and consisted of the following:


(in thousands)	Final Purchase Price and Allocation
Purchase price:
Cash Consideration	$	127,304

Due from Seller for estimated contingent consideration	(8,899)
	$	118,405
Fair value of assets and liabilities acquired:
Inventories	$	42,516
Goodwill	25,776
Intangible assets	53,500
Accounts payable	(3,387)
	$	118,405

The purchase price was subject to adjustments primarily based upon estimated contingent considerations as provided by the purchase agreement, which were based on recognized sales and incurred marketing costs for certain identified aged inventories. We recorded an estimated amount due from Seller at fair value based on our estimated probability of the conditions being met requiring payment. Changes to the estimated amount due from Seller after we have finalized the purchase price were recorded to earnings and were immaterial.

The fair value of inventories, which were 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 $46.9 million of an indefinite-lived tradename and $6.6 million of customer relationships, amortized over a useful life of 10 years, and were based on the excess earnings method under the income approach with the relief from royalty method for the tradename. The fair value measurements were based on significant unobservable inputs, including discounted future cash flows, market-based assumed royalty rates, and customer attrition rates. The goodwill, included within the Brand Portfolio segment, 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. Goodwill is expected to be deductible for income tax purposes.

ACQUISITION OF RUBINO

On April 8, 2024, we acquired Rubino for $16.7 million in cash, subject to a working capital adjustment to be determined by the end of the third quarter of 2024, along with $1.5 million in contingent consideration. The cash consideration was funded with available cash and borrowings on the ABL Revolver. The contingent consideration represents the estimated fair value associated with a potential earn-out payment to the sellers of Rubino, which was estimated at the maximum potential amount, subject to Rubino's achievement of a defined average annual financial performance target for the 24-month period following the acquisition.

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 April 8, 2024
Purchase Price:
Cash consideration	$	16,674
Contingent consideration	1,472
	$	18,146
Fair value of assets and liabilities acquired:
Inventories	$	6,967

Operating lease assets	9,334
Goodwill	9,972
Intangible assets	3,166
Other assets	2,273
Accounts payable and other current liabilities	(4,232)
Operating lease liabilities	(9,334)
	$	18,146

We recorded an allocation of the purchase price to the tangible assets and intangible tradename acquired and liabilities assumed based on their fair value at the acquisition date. The contingent consideration and 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 the intangible asset relates to an indefinite-lived tradename and was determined using the relief from royalty method of the income approach. The fair value measurements are based on significant unobservable inputs, including discounted future cash flows and an assumed royalty rate. The fair value of the operating lease assets was determined based on the market valuation approach. The goodwill, included within the Canada Retail segment, represents the excess of the purchase price over the fair value of the net assets acquired and was primarily attributable to acquiring an established retail banner in a province in Canada we did not previously have a presence in. Goodwill is expected to be deductible for income tax purposes.

COMBINED RESULTS OF ACQUIRED ENTITY

The results of operations for Rubino for the three months ended May 4, 2024 were not material and are included in the condensed consolidated statements of operations within the Canada Retail segment. Supplemental pro forma results of operations reflecting the acquisition are not presented as the impact on our consolidated financial results would not have been material.