Note 4—Business Combinations

2017 Acquisitions

On May 26, 2017, we acquired certain assets of Florida Gas Contractors, a utility contractor specializing in underground natural gas infrastructure, for approximately $33.0 million in cash. In addition, the sellers could receive a contingent earnout amount of up to $1.5 million over a one-year period ending May 26, 2018, based as of the achievement of certain operating targets. The estimated fair value of the potential contingent consideration on the acquisition date was $1.2 million. FGC operates in the Utilities segment and expands our presence in the Florida and Southeast markets. The purchase was accounted for using the acquisition method of accounting. During the fourth quarter of 2017, we finalized the estimate of fair value of the acquired assets of FGC, which included $4.8 million of fixed assets; $3.3 million of working capital; $9.1 million of intangible assets; and $17.0 million of goodwill. In connection with the FGC acquisition, we also paid $3.5 million to acquire certain land and buildings. Intangible assets primarily consist of customer relationships. Goodwill associated with the FGC acquisition principally consists of expected benefits from providing expertise for our construction efforts in the underground utility business as well as the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce that FGC provides to us. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. From the acquisition date through December 31, 2017, FGC contributed revenues of $15.5 million and gross margin of $3.8 million.

On May 30, 2017, we acquired certain engineering assets for approximately $2.3 million in cash which further enhances our ability to provide quality service for engineering and design projects. The purchase was accounted for using the acquisition method of accounting. The allocation of the total purchase price consisted of $0.2 million of fixed assets and $2.1 million of intangible assets. Intangible assets primarily consist of customer relationships. The operations of this acquisition were fully integrated into our operations and no separate financial results were maintained. Therefore, it is impracticable for us to report the amounts of revenues and gross profit included in the Consolidated Statements of Income.

On June 16, 2017, we acquired certain assets and liabilities of Coastal Field Services for approximately $27.5 million in cash. Coastal provides pipeline construction and maintenance, pipe and vessel coating and insulation, and integrity support services for companies in the oil and gas industry. Coastal operates in the Pipeline segment and increases our market share in the Gulf Coast energy market. The purchase was accounted for using the acquisition method of accounting. The preliminary allocation of the total purchase price consisted of $4.0 million of fixed assets; $4.6 million of working capital; $9.9 million of intangible assets; $9.3 million of goodwill; and $0.3 million of long-term capital leases. We continue to assess the final cutoff data and expect to finalize the estimate of fair value of the acquired assets of Coastal during 2018. Intangible assets primarily consist of customer relationships and tradename. Goodwill associated with the Coastal acquisition principally consists of expected benefits from providing expertise for our expansion of services in the pipeline construction and maintenance business. Goodwill also includes the value of the assembled workforce that Coastal provides to us. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. From the acquisition date through December 31, 2017, Coastal contributed revenues of $17.9 million and gross margin of $3.2 million.

2016 Acquisitions

On January 29, 2016, we acquired certain assets and liabilities of Mueller Concrete Construction Company for $4.1 million. The purchase was accounted for using the acquisition method of accounting. During the second quarter of 2016, we finalized the estimate of fair value of the acquired assets of Mueller, which included $2.0 million of fixed assets, $2.0 million of goodwill and $0.1 million of inventory. Mueller operates within the Utilities segment. Goodwill largely consists of expected benefits from providing foundation expertise for our construction efforts in underground line work, substations and telecom/fiber. Goodwill also includes the value of the assembled workforce that Mueller provides to our business. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. The operations of Mueller were fully integrated into our operations and no separate financial results were maintained. Therefore, it is impracticable for us to report the amounts of revenues and gross profit included in the Consolidated Statements of Income.

On June 24, 2016, we purchased property, plant and equipment from Pipe Jacking Unlimited, Inc., consisting of specialty directional drilling and tunneling equipment for $13.4 million in cash. We determined this purchase did not meet the definition of a business as defined under ASC 805. The estimated fair value of the equipment was equal to the purchase price. We believe the purchase of the equipment will aid in our pipeline construction projects and enhance the work provided to our utility clients. Pipe Jacking operations are included in the Pipeline segment.

On November 18, 2016, we acquired certain assets and liabilities of Northern Energy & Power for $6.9 million. Northern operates in the Power segment and serves the renewable energy sector with a specific focus on solar photovoltaic installations in the United States. The purchase was accounted for using the acquisition method of accounting. During the second quarter of 2017, we finalized our estimated fair value of the acquired assets of Northern, which resulted in a $0.1 million reduction in goodwill compared to amounts previously recorded. The allocation of the total purchase price included $3.0 million of intangible assets, $3.7 million of goodwill and $0.1 million of fixed assets. Intangible assets consist of customer relationships. Goodwill is derived from the expected benefits of services in the renewable energy sector with a specific focus on Solar Photovoltaic installations in the United States. Goodwill also includes the value of the assembled workforce that Northern provides to our business. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. For the year ended December 31, 2017, Northern contributed revenues of $19.1 million and gross profit of $1.1 million. From the acquisition date through December 31, 2016, Northern contributed revenues of $2.0 million and gross margin of $0.6 million.

2015 Acquisitions

On February 28, 2015, we acquired the net assets of Aevenia, Inc. (“Aevenia”) for $22.3 million in cash, which operates as part of our Utilities segment. The acquisition provides electrical construction expertise and provides a greater presence and convenient access to the central plains area of the United States. The purchase was accounted for using the acquisition method of accounting. The allocation of the total purchase price consisted of $11.2 million of fixed assets; $2.1 million of working capital; $3.8 million of intangible assets; and $5.2 million of goodwill. Goodwill largely consists of expected benefits from providing electrical construction expertise for us and the greater presence and convenient access to the central plains area of the United States. Goodwill also includes the value of the assembled workforce that Aevenia provides to our business. For the year ended December 31, 2017, Aevenia contributed revenues of $24.5 million and gross profit of $1.4 million. For the year ended December 31, 2016, Aevenia contributed revenues of $26.4 million and gross profit of $1.0 million. From the acquisition date through December 31, 2015, Aevenia contributed revenues of $23.7 million and gross margin of $2.4 million.

Summary of Cash Paid for Acquisitions

The following table summarizes the cash paid for acquisitions under ASC 805 for the years ended December 31, 2017, 2016, and 2015 (in thousands):


	Year ended December 31,
	2017			2016		2015
Coastal — purchased June 16, 2017	$	27,519		$	—	$	—
Engineering — purchased May 30, 2017		2,315			—		—
Florida Gas — purchased May 26, 2017		36,492			—		—
Northern — purchased November 18, 2016		(121)	*		6,889		—
Mueller — purchased January 29, 2016					4,108		—
Aevenia — purchased February 28, 2015		—			—		22,302
Cash paid	$	66,205		$	10,997	$	22,302

* In the second quarter of 2017, we finalized the estimated fair value of the Northern acquisition, which resulted in receipt of $0.1 million in cash and a reduction in goodwill.

Schedule of Assets Acquired and Liabilities Assumed

The following table summarizes the fair value of the assets acquired and the liabilities assumed at the acquisition date (in thousands):


	Year ended December 31,
	2017		2016		2015
	Acquisitions		Acquisitions		Acquisitions
Accounts receivable	$	10,721	$	1,606	$	2,734
Costs and estimated earnings in excess of billings		580		—		—
Inventory and other assets		2,352		64		1,476
Property, plant and equipment		12,402		2,133		11,173
Intangible assets		21,125		3,000		3,850
Goodwill		26,269		5,781		5,152
Accounts payable		(3,380)		(726)		(743)
Billings in excess of costs and estimated earnings		(447)		—		—
Accrued expenses		(2,096)		(861)		(1,340)
Total	$	67,526	$	10,997	$	22,302

Identifiable Tangible Assets. For each of the acquisitions, significant identifiable tangible assets acquired include accounts receivable, inventory and fixed assets, consisting primarily of construction equipment. We determined that the recorded value of accounts receivable and inventory reflect fair value of those assets. We estimated the fair value of fixed assets on the effective dates of the acquisitions using a market approach, based on comparable market values for similar equipment of similar condition and age.

Identifiable Intangible Assets. We generally use the assistance of an independent third party valuation specialist to estimate the fair value of the intangible assets acquired for the acquisitions. Based on our assessment, the acquired intangible asset categories, average amortization periods, generally on a straight-line basis, and fair values are as follows (in thousands):


	Amortization	2017		2016		2015
	Period	Fair Value		Fair Value		Fair Value
Tradename	1 to 3 years	$	2,150	$	—	$	—
Non-compete agreements	2 to 5 years		550		—		1,350
Customer relationships	5 to 10 years		18,150		3,000		2,500
Other	3 years		275		—		—
Total		$	21,125	$	3,000	$	3,850

The fair value of the tradename was determined based on the “relief from royalty” method. A royalty rate was selected based on consideration of several factors, including external research of third party trade name licensing agreements and their royalty rate levels, and management estimates.

The fair value for the non-compete agreements was valued based on a discounted “income approach” model, including estimated financial results with and without the non-compete agreements in place. The agreements were analyzed based on the potential impact of competition that certain individuals could have on the financial results, assuming the agreements were not in place. An estimate of the probability of competition was applied and the results were compared to a similar model assuming the agreements were in place.

The customer relationships were valued utilizing the “excess earnings method” of the income approach. The estimated discounted cash flows associated with existing customers and projects were based on historical and market participant data. Such discounted cash flows were net of fair market returns on the various tangible and intangible assets that are necessary to realize the potential cash flows.

Supplemental Unaudited Pro Forma Information

The following pro forma information for the twelve months ended December 31, 2017 and 2016 presents our results of operations as if the 2017 acquisitions of FGC and Coastal and the 2016 acquisitions of Mueller and Northern had occurred at the beginning of 2016. The supplemental pro forma information has been adjusted to include:

the pro forma impact of amortization of intangible assets and depreciation of property, plant and equipment, based on the purchase price allocations; and

the pro forma tax effect of both the income before income taxes and the pro forma adjustments, calculated using a tax rate of 28.2% and 44.2% for the years ended December 31, 2017 and 2016, respectively.

The pro forma results are presented for illustrative purposes only and are not necessarily indicative of, or intended to represent, the results that would have been achieved had the various acquisitions been completed on January 1, 2016. For example, the pro forma results do not reflect any operating efficiencies and associated cost savings that we might have achieved with respect to the acquisitions (in thousands):


	Year Ended December 31,
	2017		2016
	(unaudited)		(unaudited)
Revenues	$	2,406,062	$	2,092,872
Income before provision for income taxes	$	107,055	$	57,280
Net income attributable to Primoris	$	73,626	$	31,415

Weighted average common shares outstanding:
Basic		51,481		51,762
Diluted		51,741		51,989

Earnings per share:
Basic	$	1.43	$	0.61
Diluted	$	1.42	$	0.60