Acquisitions

9 Months Ended

Sep. 30, 2019

For all acquisitions, the Company allocates the purchase price to assets acquired and liabilities assumed as of the date of acquisition based on the estimated fair values at the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives.

The Company accounts for all acquisitions using the acquisition method of accounting under ASC 805, Business Combinations, whereby the results of operations of the acquired company are included in the Company’s consolidated financial statements beginning on the acquisition date.

2019 Acquisitions

The Company completed the following acquisitions during the nine months ended September 30, 2019:


•	On January 14, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Barefoot and Company (“Barefoot”), a supplier of windows, exterior doors, hardware, specialty products and installation services in the Charlotte, North Carolina metropolitan area.


•	On February 8, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Locust Lumber, a supplier of lumber products and building materials primarily to custom homebuilders and professional remodeling contractors in the Charlotte, North Carolina metropolitan area.


•	On August 1, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Kingston Lumber, a supplier of lumber products, trusses and other building materials primarily to custom homebuilders and professional remodeling contractors in the Seattle, Washington metropolitan area.


•	On September 3, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Heritage One Door & Carpentry (“Heritage One”), a supplier of pre-hung doors, millwork, hardware and finish carpentry services in the Sacramento, California metropolitan area.


•	On September 16, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Colorado Fasteners, a supplier of fasteners, tools and other related products in the Denver, Colorado metropolitan area.

The Barefoot, Locust Lumber, Kingston Lumber, Heritage One and Colorado Fasteners acquisitions (the “2019 Acquisitions”) enhance the Company’s value-added offerings and footprint in the respective metropolitan areas.

The preliminary purchase price, in aggregate, for the 2019 Acquisitions was $90.9 million. The preliminary purchase price includes holdbacks which, after certain post-closing adjustments, require the Company to pay $5.5 million, in aggregate, to the sellers of Barefoot, Kingston Lumber, Heritage One and Colorado Fasteners one year from the respective closing dates. The holdback amounts may be further reduced under certain circumstances. The Company funded the 2019 Acquisitions through available cash.

The preliminary purchase price allocation for the 2019 Acquisitions, in aggregate, resulted in the initial recognition of goodwill of $20.4 million, customer relationship intangible assets of $33.1 million, non-compete agreement intangible assets of $0.5 million, accounts receivable of $22.1 million, inventory of $14.7 million and property and equipment of $5.6 million, as well as other operating assets and liabilities. The customer relationship and non-compete agreement intangible assets have a weighted average useful life of 9 years and 4 years, respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill is expected to be deductible for tax purposes.

The purchase price allocations for the 2019 Acquisitions are preliminary and based upon all information available to the Company at the present time, and are subject to change. The Company is in the process of finalizing its valuation of the acquired intangible assets, property and equipment and inventory, and therefore, the initial purchase accounting for the 2019 Acquisitions is not complete. As the Company receives additional information during the measurement period, the fair values assigned to the assets and liabilities may be adjusted.

For the year ended December 31, 2018, the 2019 Acquisitions generated net sales, in aggregate, of approximately $199 million. The Company incurred transaction costs of $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively, related to the 2019 Acquisitions.

Net sales and estimated pre-tax earnings for the 2019 Acquisitions included in the unaudited condensed consolidated statements of operations during the three months ended September 30, 2019 were $38.7 million and $2.9 million, respectively. Net sales and estimated pre-tax earnings for the 2019 Acquisitions included in the unaudited condensed consolidated statements of operations during the nine months ended September 30, 2019 were $84.6 million and $7.1 million, respectively. The impact of the 2019 Acquisitions was not considered significant for the reporting of pro forma financial information.

2018 Acquisition

On March 1, 2018, the Company acquired substantially all of the assets and assumed certain liabilities of W.E. Shone Co. (“Shone Lumber”), a supplier of building materials in the state of Delaware, for a purchase price of $22.4 million. This acquisition enhances the Company’s value-added offerings and footprint in the Mid-Atlantic region. The purchase price included a holdback that, after certain post-closing adjustments, required the Company to pay $1.4 million to the sellers during the nine months ended September 30, 2019. The Company funded the transaction through available cash and borrowings on the Company’s revolving line of credit.

The purchase price allocation resulted in the recognition of goodwill of $2.5 million, a customer relationship intangible asset of $7.0 million, accounts receivable of $6.4 million, inventory of $8.8 million, property and equipment of $2.9 million and total current liabilities of $5.3 million, as well as other operating assets. The customer relationship intangible asset has a useful life of 9 years. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible for tax purposes.

Net sales and estimated pre-tax earnings for Shone Lumber included in the unaudited condensed consolidated statements of operations for the three months ended September 30, 2018 were $18.7 million and $0.8 million, respectively. Net sales and estimated pre-tax earnings for Shone Lumber included in the unaudited condensed consolidated statements of operations from the March 1, 2018 acquisition date to September 30, 2018 were $45.0 million and $2.8 million, respectively. The impact of the acquisition was not considered significant for the reporting of pro forma financial information.