Business Combinations

12 Months Ended

Dec. 31, 2021

BUSINESS COMBINATIONS

As part of our ongoing strategy to expand geographically and increase market share in certain markets, as well as diversify our products and end markets, we completed eleven, nine and six business combinations during the years ended December 31, 2021, 2020 and 2019, respectively, as well as several insignificant tuck-in acquisitions merged into existing operations in 2019, in which we acquired 100% of the voting equity interests in each acquired entity. Acquisition-related costs amounted to $2.8 million, $2.8 million and $2.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, and are included in Administrative expenses on the Consolidated Statements of Operations and Comprehensive Income. The goodwill recognized in conjunction with these business combinations represents the excess cost of the acquired entity over the net amount assigned to assets acquired and liabilities assumed. We expect to deduct $100.5 million of goodwill for tax purposes as a result of 2021 acquisitions.

Below is a summary of each significant acquisition by year, including revenue and net income (loss) since date of acquisition, shown for the year of acquisition. The largest of our 2021 acquisitions were I.W. International Insulation, Inc., dba

Intermountain West Insulation (“IWI”) in March 2021, Alert Insulation ("Alert") and Alpine Construction Services ("Alpine") in April 2021, General Ceiling & Partitions, Inc. ("GCP") in June 2021, Five Star Building Products, LLC and Five Star Building Products of Southern Utah, LLC (collectively "Five Star") in September 2021, Denison Glass and Mirror, Inc. ("DGM") and CFI Insulation ("CFI") in November 2021, and AMD Distribution ("AMD") in December 2021. In each table, “Other” represents acquisitions that were individually immaterial in that year. Net income (loss), as noted below, includes amortization, taxes and interest allocations when appropriate.

For the year ended December 31, 2021 (in thousands):


2021 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
IWI	03/01/2021	Share	$	42,098	$	5,959	$	48,057	$	36,259	$	3,373
Alert	4/13/2021	Asset	5,850		2,980		8,830		13,494		(151)
Alpine	4/19/2021	Asset	7,945		2,208		10,153		8,267		189
GCP	6/7/2021	Asset	9,700		1,427		11,127		7,125		83
Five Star	9/13/2021	Share	26,308		5,466		31,774		6,861		(119)
DGM	11/1/2021	Asset	11,634		2,069		13,703		2,198		(462)
CFI	11/22/2021	Share	13,450		1,145		14,595		1,289		53
AMD	12/13/2021	Asset	119,490		6,631		126,121		3,707		(225)
Other	Various	Asset	6,540		1,284		7,824		3,231		(102)
Total			$	243,015	$	29,169	$	272,184	$	82,431	$	2,639

For the year ended December 31, 2020 (in thousands):


2020 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
Royals	2/29/2020	Asset	$	7,590	$	2,500	$	10,090	$	11,095	$	1,332
Energy One	8/10/2020	Asset	13,200		1,591		14,791		7,454		(558)
Storm Master	8/31/2020	Asset	13,000		1,336		14,336		8,131		619
ICON	10/13/2020	Asset	16,900		3,598		20,498		4,798		449
Norkote	10/26/2020	Asset	8,725		2,426		11,151		2,702		417
WeatherSeal	11/16/2020	Asset	9,500		922		10,422		766		(23)
Other	Various	Asset	7,531		1,713		9,244		5,548		(344)
Total			$	76,446	$	14,086	$	90,532	$	40,494	$	1,892

For the year ended December 31, 2019 (in thousands):


2019 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
1st State Insulation	3/18/2019	Asset	$	5,125	$	1,355	$	6,480	$	9,828	$	476
Expert Insulation	6/24/2019	Asset	16,165		1,993		18,158		6,484		155
Premier	11/18/2019	Share	25,000		2,765		27,765		2,161		(62)
Other	Various	Asset	5,750		1,430		7,180		3,339		23
Total			$	52,040	$	7,543	$	59,583	$	21,812	$	592

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):


	2021
	IWI		Alert		Alpine		GCP		Five Star		DGM		CFI		AMD		Other		Total
Estimated fair values:

Cash	$	168	$	—	$	—	$	—	$	1,472	$	—	$	67	$	—	$	—	$	1,707
Accounts receivable	5,122		4,710		—		3,067		4,597		4,007		1,318		8,393		446		31,660
Inventories	1,157		765		359		—		1,399		6		311		7,540		345		11,882
Other current assets	3,014		738		—		—		330		1,016		26		—		74		5,198
Property and equipment	796		693		726		206		1,161		853		714		1,133		932		7,214
Intangibles	25,200		2,770		5,543		5,670		17,400		8,800		7,699		52,800		4,072		129,954
Goodwill	23,282		940		3,582		2,695		6,482		3,447		6,799		56,327		2,063		105,617
Other non-current assets	264		132		—		—		—		213		—		—		18		627
Accounts payable and other current liabilities	(8,416)		(1,184)		(57)		(493)		(1,040)		(4,625)		(242)		(23)		(123)		(16,203)
Deferred income tax liabilities	—		—		—		—		—		—		(2,089)		—		—		(2,089)
Other long-term liabilities	(2,530)		(734)		—		(18)		(27)		(14)		(8)		(49)		(3)		(3,383)
Fair value of assets acquired and purchase price	48,057		8,830		10,153		11,127		31,774		13,703		14,595		126,121		7,824		272,184
Less seller obligations	5,959		2,980		2,208		1,427		5,466		2,069		1,145		6,631		1,284		29,169
Cash paid	$	42,098	$	5,850	$	7,945	$	9,700	$	26,308	$	11,634	$	13,450	$	119,490	$	6,540	$	243,015


	2020
	Royals		Energy One		Storm Master		ICON		Norkote		WeatherSeal		Other		Total
Estimated fair values:

Accounts receivable	$	2,848	$	3,357	$	2,362	$	4,828	$	1,926	$	865	$	1,419	$	17,605
Inventories	305		838		175		243		444		156		600		2,761
Other current assets	430		12		—		675		178		14		145		1,454
Property and equipment	598		2,319		798		380		584		520		663		5,862
Intangibles	3,930		6,500		8,720		11,830		5,310		5,450		4,483		46,223
Goodwill	3,015		3,253		3,631		2,870		2,841		3,472		2,223		21,305
Other non-current assets	58		—		—		145		—		—		38		241
Accounts payable and other current liabilities	(1,059)		(1,469)		(1,336)		(445)		(86)		(50)		(196)		(4,641)

Other long-term liabilities	(35)		(19)		(14)		(28)		(46)		(5)		(131)		(278)
Fair value of assets acquired and purchase price	10,090		14,791		14,336		20,498		11,151		10,422		9,244		90,532
Less seller obligations	2,500		1,591		1,336		3,598		2,426		922		1,713		14,086
Cash paid	$	7,590	$	13,200	$	13,000	$	16,900	$	8,725	$	9,500	$	7,531	$	76,446


	2019
	1st State		Expert		Premier		Other		Total
Estimated fair values:
Cash	$	—	$	—	$	334	$	—	$	334
Accounts receivable	—		1,796		2,929		479		5,204
Inventories	291		723		1,242		410		2,666
Other current assets	—		—		—		3		3
Property and equipment	989		235		876		887		2,987
Intangibles	3,382		6,740		14,300		3,619		28,041
Goodwill	1,857		8,545		10,151		1,765		22,318
Other non-current assets	—		161		329		41		531
Accounts payable and other current liabilities	(39)		(42)		(2,396)		(24)		(2,501)

Fair value of assets acquired and purchase price	6,480		18,158		27,765		7,180		59,583
Less seller obligations	1,355		1,993		2,765		1,430		7,543
Cash paid	$	5,125	$	16,165	$	25,000	$	5,750	$	52,040

Contingent consideration is included as “seller obligations” in the above table or within “fair value of assets acquired” if subsequently paid during the period presented. These contingent payments consist primarily of earnouts based on performance that are recorded at fair value at the time of acquisition, and/or non-compete agreements and amounts based on working capital calculations. When these payments are expected to be made over one year from the acquisition date, the contingent consideration is discounted to net present value of future payments based on a weighted average of various future forecast scenarios.

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, contingent consideration is settled, 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 may not agree to the total gross increases of these assets as shown in Note 7, Goodwill and Intangibles, during the years ended December 31, 2021, 2020 and 2019 due to minor adjustments to goodwill for the allocation of certain acquisitions still under measurement as well as other immaterial intangible assets added during the ordinary course of business. In addition, goodwill and intangibles increased during the year ended December 31, 2019 due to various small acquisitions merged into existing operations that do not appear in the above tables.

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


	2021			2020			2019
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	$	94,473	12	$	28,307	8	$	20,659	8
Trademarks and trade names	23,349		15	9,834		15	5,286		15
Non-competition agreements	7,254		5	3,315		5	2,096		5
Backlog	4,878		2.5	4,767		1.5	—		—

Pro Forma Information (unaudited)

The unaudited pro forma information has been prepared as if the 2021 acquisitions had taken place on January 1, 2020, the 2020 acquisitions had taken place on January 1, 2019 and the 2019 acquisitions had taken place on January 1, 2018. 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, 2020, 2019 and 2018 and the unaudited pro forma information does not purport to be indicative of future financial operating results (in thousands, except for per share data).


	December 31,
	2021		2020		2019
Net revenue	$	2,105,295	$	1,922,327	$	1,660,326
Net income	129,825		107,791		76,474
Basic net income per share	4.42		3.65		2.57
Diluted net income per share	4.38		3.63		2.56

Unaudited pro forma net income reflects additional intangible asset amortization expense of $8.2 million, $18.2 million and $10.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, additional interest expense of $4.1 million and $4.3 million for the years ended December 31, 2021 and 2020, respectively, as well as additional income tax expense of $3.9 million, $3.7 million and $3.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.