NOTE 12 – BUSINESS COMBINATIONS

As part of our ongoing strategy to increase market share in certain markets, we completed multiple business combinations during each of the years ended December 31, 2016, 2015 and 2014. Acquisition-related costs amounted to $2.3 million and $1.1 million for the years ended December 31, 2016 and 2015, respectively, and are included in Administrative expenses on the Consolidated Statements of Operations. Acquisition-related costs for the year ended December 31, 2014 were insignificant. Costs for the year ended December 31, 2016 include expenses related to our acquisition of Alpha consummated in January 2017. For more information, see Note 14, Subsequent Events. The goodwill to be recognized in conjunction with these business combinations is attributable to expected improvement in the business of these acquired companies. We expect to deduct $17.2 million of goodwill for tax purposes as a result of 2016 acquisitions.

2016

On January 25, 2016, we acquired substantially all of the assets of Key Green Builder Services, LLC d/b/a Key Insulation. The purchase price consisted of cash of $5.0 million and seller obligations of $0.7 million. Revenue and net (loss) since the date of acquisition included in our Consolidated Statements of Operations for the year ended December 31, 2016 were $8.6 million and $(0.4) million, respectively.

On February 2, 2016, we acquired substantially all of the assets of Marshall Insulation, LLC (“Marshall”). The purchase price consisted of cash of $0.9 million and seller obligations of $0.1 million. Revenue and net (loss) since the date of acquisition included in our Consolidated Statements of Operations for the year ended December 31, 2016 were $3.8 million and $(0.3) million, respectively.

On February 29, 2016, we acquired substantially all of the assets of Kern Door Company, Inc. (“Kern”). The purchase price consisted of cash of $2.9 million and seller obligations of $0.1 million. Revenue and net (loss) since the date of acquisition included in our Consolidated Statements of Operations for the year ended December 31, 2016 were $2.7 million and $(0.3) million, respectively.

On April 12, 2016, we acquired substantially all of the assets of Alpine Insulation Co., Inc. (“Alpine”). The purchase price consisted of cash of $21.1 million and seller obligations of $1.6 million. Revenue and net income since the date of acquisition included in our Consolidated Statements of Operations for the year ended December 31, 2016 were $21.4 million and $1.4 million, respectively.

On July 25, 2016, we acquired substantially all of the assets of FireClass, LLC (“FireClass”). The purchase price consisted of cash of $2.3 million. Revenue and net income since the date of acquisition included in our Consolidated Statements of Operations for the year ended December 31, 2016 were $2.1 million and $69 thousand, respectively.

On August 15, 2016, we acquired substantially all of the assets of Southern Insulators & Specialties, LLC (“Southern”). The purchase price consisted of cash of $4.2 million and seller obligations of $0.4 million. Revenue and net income since the date of acquisition included in our Consolidated Statements of Operations for the year ended December 31, 2016 were $1.9 million and $0.3 million, respectively.

On October 17, 2016, we acquired substantially all of the assets of East Coast Insulators II, L.L.C. (“East Coast”). The purchase price consisted of cash of $15.6 million and seller obligations of $0.6 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2016 were $4.7 million and $21 thousand, respectively.

On November 1, 2016, we acquired substantially all of the assets of Mike’s Garage Door, L.L.C. (“Mike’s Garage Door”). The purchase price consisted of cash of $0.2 million and seller obligations of $0.4 million. Revenue and net (loss) since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2016 were $0.2 million and $(2) thousand, respectively.

On November 14, 2016, we acquired substantially all of the assets of 3R Products & Services, LLC. (“3R”). The purchase price consisted of cash of $3.3 million and seller obligations of $0.6 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2016 were $0.7 million and $40 thousand, respectively.

2015

On March 12, 2015, we acquired 100% of the stock and membership interests of nine different legal entities, collectively referred to as BDI Insulation (“BDI”). The purchase price consisted of cash of $30.7 million and seller obligations of $5.8 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $32.5 million and $2.0 million, respectively.

On April 6, 2015, we acquired 100% of the common stock of C.Q. Insulation Inc. (“CQ”). The purchase price consisted of cash of $5.2 million and seller obligations of $2.3 million, of which approximately $1.8 million was contingent upon certain requirements of the seller. All requirements were met and the full amount was paid during the year ended December 31, 2016. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $7.8 million and $0.6 million, respectively.

On June 1, 2015, we acquired substantially all of the assets of Layman Brothers Contracting (“Layman”). The purchase price consisted of cash of $9.1 million and seller obligations of $0.6 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $8.2 million and $0.5 million, respectively.

On July 1, 2015, we acquired substantially all of the assets of EcoLogic Energy Solutions (“EcoLogic”). The purchase price consisted of cash of $3.0 million and seller obligations of $0.5 million. Revenue and net (loss) since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $3.9 million and $(0.2) million, respectively.

On August 10, 2015, we acquired 100% of the common stock of Eastern Contractor Services (“Eastern”). The purchase price consisted of cash of $24.2 million and seller obligations of $2.9 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $7.4 million and $0.3 million, respectively.

On November 9, 2015, we acquired substantially all of the assets of Sierra Insulation Contractors, Inc. (“Sierra”) and Eco-Tect Insulation, Inc. (“Eco-Tect”). The purchase price consisted of cash of $3.2 million and seller obligations of $0.5 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $0.8 million and $40 thousand, respectively.

On November 10, 2015, we acquired substantially all of the assets of Overhead Door Company of Burlington (“Overhead Door”). The purchase price consisted of cash of $5.1 million and seller obligations of $0.1 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $1.0 million and $14 thousand, respectively.

On December 7, 2015, we acquired substantially all of the assets of BioFoam of North Carolina, LLC, d/b/a Prime Energy Group (“Prime Energy”). The purchase price consisted of cash of $4.7 million and seller obligations of $0.5 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2015 were $0.6 million and $20 thousand, respectively.

2014

On March 24, 2014, we acquired 100% of the common stock of U.S. Insulation Corp. (“U.S. Insulation”). The purchase price consisted of cash of $2.0 million and seller obligations of $0.3 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2014 were $9.7 million and $0.8 million, respectively.

On August 11, 2014, we acquired 100% of the common stock of Marv’s Insulation, Inc. (“Marv’s Insulation”). The purchase price consisted of cash of $1.4 million and seller obligations of $0.2 million. Revenue and net income since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2014 were $1.5 million and $0.2 million, respectively.

On November 10, 2014, we acquired substantially all of the assets of Installed Building Systems (“IBS”). The purchase price consisted of cash of $9.0 million and seller obligations of $3.0 million. Revenue and net (loss) since the date of acquisition included in our Consolidated Statement of Operations for the year ended December 31, 2014 were $2.3 million and $(5) thousand, respectively.

Purchase Price Allocations

The estimated fair values of the assets acquired and liabilities assumed for the acquisitions, as well as total purchase prices and cash paid, approximated the following (in thousands):


	2016
	Alpine			East Coast			Other			Total
Estimated fair values:
Cash	$	—		$	2,181		$	—		$	2,181
Accounts receivable		3,959			3,093			2,502			9,554
Inventories		700			332			1,183			2,215
Other current assets		—			1			29			30
Property and equipment		656			666			1,615			2,937
Intangibles		12,800			6,400			11,067			30,267
Goodwill		6,642			4,348			5,928			16,918
Other non-current assets		—			116			345			461
Accounts payable and other current liabilities		(2,046	)		(948	)		(1,617	)		(4,611	)

Fair value of assets acquired		22,711			16,189			21,052			59,952
Less seller obligations		1,560			600			2,299			4,459

Cash paid	$	21,151		$	15,589		$	18,753		$	55,493


	2015
	BDI			CQ			Layman			Eastern			Other			Total
Estimated fair values:
Cash	$	661		$	100		$	—		$	165		$	—		$	926
Accounts receivable		4,735			1,423			1,245			2,768			4,093			14,264
Inventories		980			152			267			335			720			2,454
Other current assets		368			39			—			109			32			548
Property and equipment		1,006			190			733			1,364			1,574			4,867
Intangibles		21,280			4,350			5,330			13,871			10,534			55,365
Goodwill		16,213			3,035			3,143			9,904			4,809			37,104
Other non-current assets		3,736			—			—			322			60			4,118
Accounts payable and other current liabilities		(3,303	)		(1,539	)		(1,030	)		(1,681	)		(2,220	)		(9,773	)
Deferred income tax liabilities		(5,495	)		—			—			—			(825	)		(6,320	)
Long-term debt		—			—			—			(82	)		—			(82	)
Other long-term liabilities		(3,736	)		(238	)		—			(1	)		—			(3,975	)

Fair value of assets acquired		36,445			7,512			9,688			27,074			18,777			99,496
Gain on bargain purchase		—			—			—			—			(1,116	)		(1,116	)

Total purchase price		36,445			7,512			9,688			27,074			17,661			98,380
Less seller obligations		5,765			2,319			600			2,875			1,621			13,180

Cash paid	$	30,680		$	5,193		$	9,088		$	24,199		$	16,040		$	85,200


	2014
Estimated fair values:
Cash	$	53
Accounts receivable		4,666
Inventories		1,315
Other current assets		195
Property and equipment		1,576
Intangibles		7,111
Goodwill		4,065
Accounts payable and other current liabilities		(2,470	)
Deferred income tax liabilities		(515	)
Other long-term liabilities		(35	)

Fair value of assets acquired		15,961
Less seller obligations		3,544

Cash paid	$	12,417

Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party or internal valuations are finalized, certain tax aspects of the transaction are completed, and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the date of acquisition and future adjustments may be made through the end of each measurement period. Goodwill and intangibles per the above table do not agree to the total gross increases of these assets as shown in Note 4—Goodwill and Intangibles during the years ended December 31, 2016 and 2015 due to minor adjustments to goodwill for the allocation of certain acquisitions still under measurement, an immaterial goodwill reclassification in the year ended December 31, 2016 related to the prior period, as well as other immaterial intangible assets added during the ordinary course of business. In addition, goodwill and intangibles increased during the year ended 2015 due to an immaterial tuck-in acquisition that does not appear in the above table.

The fair value of the net assets acquired, including identifiable intangible assets, relating to one of the 2015 business combinations included in the “Other” column in the above table was approximately $4.8 million, which exceeds the purchase price of $3.7 million. Accordingly, we recognized the excess of the fair value of the net assets acquired over purchase price paid of approximately $1.1 million as a gain on bargain purchase. The gain on bargain purchase is included in other income in our Consolidated Statements of Operations. Prior to recognizing the gain, we reassessed the fair value of the assets acquired and liabilities assumed in the business combination including consultation with our external valuation experts. Assets were valued using the same methodology as our other business combinations, including the use of a discounted cash flow model as well as several other factors. We believe we were able to acquire this entity for less than the fair value of its net assets due to an absence of multiple bidders combined with the significant improvement of our purchasing power.

Included in other noncurrent assets in the above table as of the year ended December 31, 2015 is an insurance receivable of $2.0 million and an indemnification asset in the amount of $1.7 million associated with the 2015 acquisition of BDI. These assets offset equal liabilities included in other long-term liabilities in the above table, which represent additional insurance reserves and an uncertain tax position liability for which we may be liable. All amounts are measured at their acquisition date fair value.

Estimates of acquired intangible assets related to the acquisitions are as follows (dollars in thousands):


	2016				2015				2014
Acquired intangibles assets	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs)
Customer relationships	$	18,511		9	$	36,129		8	$	4,708		14
Trademarks and trade names		8,983		15		14,567		15		1,799		15
Non-competition agreements		2,773		5		4,668		5		604		5

Pro Forma Information (unaudited)

The unaudited pro forma information has been prepared as if the 2016 acquisitions had taken place on January 1, 2015, the 2015 acquisitions had taken place on January 1, 2014 and the 2014 acquisitions had taken place on January 1, 2013. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, 2015 and 2014 and the unaudited pro forma information does not purport to be indicative of future financial operating results (in thousands, except for per share data).


	Pro Forma for the years ended December 31,
	2016		2015		2014
Net revenue	$	896,853	$	786,144	$	637,434
Net income	$	39,752	$	29,463	$	15,219
Accretion charges on Series A Redeemable Preferred Stock		—		—		(19,897	)

Net income (loss) attributable to common stockholders	$	39,752	$	29,463	$	(4,678	)
Net income (loss) per share attributable to common stockholders (basic and diluted)	$	1.27	$	0.94	$	(0.16	)

Unaudited pro forma net income attributable to common stockholders reflects additional intangible asset amortization expense of $1.4 million, $6.6 million and $6.8 million for the years ended December 31, 2016, 2015 and 2014, respectively, as well as additional income tax expense of $0.7 million, $1.7 million and $0.8 million for the years ended December 31, 2016, 2015 and 2014, respectively, that would have been recorded had the 2016 acquisitions taken place on January 1, 2015, the 2015 acquisitions taken place on January 1, 2014 and the 2014 acquisitions taken place on January 1, 2013.

We included approximately $1.0 million in transaction costs incurred by a seller resulting from a business combination occurring in the year ended December 31, 2015 in earnings for the year ended December 31, 2014 as though the acquisition occurred as of the beginning of the comparable period.