Acquisition

3 Months Ended

Mar. 31, 2024

Business Combination and Asset Acquisition [Abstract]

Elkay Merger

On July 1, 2022, the Company completed the Elkay Merger for a purchase price (after final purchase price adjustments) of $1,457.8 million. Elkay, a market leader of drinking water solutions and commercial sinks, complements the Company's existing product portfolio. The purchase price includes $1,411.9 million of Zurn's common stock based on Zurn's closing stock price of $27.48 on July 1, 2022, and $45.9 million of net cash payments for the repayment of Elkay's term loan and Elkay's transaction related costs outstanding that were in excess of Elkay's cash and cash equivalents at the time of closing. Pursuant to the terms of the merger agreement, the Company issued 51,564,524 shares of its common stock, which represented approximately 29% of outstanding shares immediately following the Merger. During the first quarter of 2023, we completed the final price adjustments and the adjusted purchase price is reflected in the purchase price amounts above, following the return of 186,020 of the shares issued at closing to the Company as a result of lower working capital and cash balances at closing compared to targets stipulated in the merger agreement. The shares returned to the Company were canceled upon receipt.

In accordance with the merger agreement, at closing the Company increased the size of its Board of Directors to eleven members and appointed two directors designated by Elkay. As of March 31, 2024, the Board of Directors consisted of ten members, including one director designated by Elkay. Zurn senior management immediately prior to the consummation of the Elkay Merger remained as the executive officers of the Company immediately after the Elkay Merger. The Company's management determined that the Company is the accounting acquirer in the Elkay Merger based on the facts and circumstances noted within this section and other relevant factors. As such, the Company applied the acquisition method of accounting to the identifiable assets and liabilities of the Elkay business, which have been measured at estimated fair value as of the date of the business combination. The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is not deductible for tax purposes.

Elkay’s assets and liabilities were measured at estimated fair values at July 1, 2022, primarily using Level 3 inputs. Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of the Merger date.

As of June 30, 2023, the valuation process to determine the fair values of the net assets acquired during the measurement period was complete. The final fair value of the assets acquired and liabilities assumed were as follows (in millions):


	As Reported June 30, 2023
Assets acquired:
Receivables, net	$	92.0
Inventories	139.5

Other current assets	8.5
Property, plant and equipment, net	127.1
Intangible assets, net	865.5
Goodwill	546.2
Other assets	56.9
Total assets acquired	1,835.7
Liabilities assumed:
Trade payables	30.5
Compensation and benefits	39.3

Current portion of pension and postretirement benefit obligations	17.3
Other current liabilities	45.8

Operating lease liability	24.2
Pension and postretirement benefit obligations	3.6
Deferred income taxes	206.7
Other liabilities	10.5
Total liabilities assumed	377.9
Total purchase price	$	1,457.8