Business Combinations

12 Months Ended

Dec. 31, 2023

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 eight business combinations during each of the years ended December 31, 2023 and 2022, respectively, and eleven business combinations during the year ended December 31, 2021. We also completed one insignificant tuck-in acquisition merged into an existing operation during the year ended December 31, 2023. Acquisition-related costs amounted to $1.9 million, $3.0 million and $3.8 million for the years ended December 31, 2023, 2022 and 2021, respectively, and are included in Administrative expenses on the Consolidated Statements of Operations and Comprehensive Income. In addition, we recognized gains on acquisition earnouts on the Consolidated Statements of Operations and Comprehensive Income of $16.1 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively, due to probability assessments and the cancellations of acquisition-related earnouts. We did not recognize any gains on acquisition earnouts during the year ended December 31, 2023. The gain recorded during the year ended December 31, 2022, is primarily comprised of a $15.1 million gain for the CAS (as defined below) acquisition recorded as a result of revised earnout target expectations. 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 $20.4 million of goodwill for tax purposes as a result of 2023 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 2023 acquisitions was Anchor Insulation Co., Inc. ("Anchor") in March 2023. The largest of our 2022 acquisitions were Central Aluminum Supply Corporation and Central Aluminum Supply of North Jersey, LLC (collectively "CAS") in April 2022 and ABS Insulating Company, Inc., ABS Sprayfoam Insulation, Inc. and ABS Coastal Insulating Company, LLC (collectively "ABS") in December 2022. In each table, “Other” represents acquisitions that were individually immaterial in that year. Net income (loss), as noted below, includes intangible asset amortization, taxes and interest allocations when appropriate. Prior period amounts have been recast to conform with the current year presentation.

For the year ended December 31, 2023 (in millions):


2023 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income
Anchor	3/12/2023	Share	$	35.9	$	2.7	$	38.6	$	30.4	$	1.6



Other	Various	Asset	23.7		1.6		25.3		9.0		0.2
Total			$	59.6	$	4.3	$	63.9	$	39.4	$	1.8

For the year ended December 31, 2022 (in millions):


2022 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
CAS	4/11/2022	Share	$	55.1	$	27.3	$	82.4	$	37.8	$	(1.0)


ABS	12/19/2022	Share	23.1		0.5		23.6		0.7		(0.1)
Other	Various	Asset/Share	35.8		3.7		39.5		22.6		0.8
Total			$	114.0	$	31.5	$	145.5	$	61.1	$	(0.3)

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


2021 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)
IWI	03/01/2021	Share	$	42.1	$	6.0	$	48.1	$	36.2	$	3.3
Five Star	9/13/2021	Share	26.3		5.5		31.8		6.9		(0.1)
AMD	12/13/2021	Asset	119.5		6.6		126.1		3.7		(0.2)
Other	Various	Asset/Share	55.1		9.8		64.9		35.6		(0.4)
Total			$	243.0	$	27.9	$	270.9	$	82.4	$	2.6

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 millions):


	2023
	Anchor		Other		Total
Estimated fair values:

Accounts receivable	$	5.0	$	2.1	$	7.1
Inventories	1.6		1.4		3.0
Other current assets	1.9		—		1.9
Property and equipment	2.3		1.9		4.2
Operating lease right-of-use asset	—		0.2		0.2
Intangibles	16.4		13.3		29.7
Goodwill	13.3		7.5		20.8
Other non-current assets	0.2		0.1		0.3
Accounts payable and other current liabilities	(2.1)		(1.1)		(3.2)



Other long-term liabilities	—		(0.1)		(0.1)
Fair value of assets acquired and purchase price	38.6		25.3		63.9
Less seller obligations	2.7		1.6		4.3
Cash paid	$	35.9	$	23.7	$	59.6


	2022
	CAS		ABS		Other		Total
Estimated fair values:
Cash	$	0.2	$	0.2	$	0.1	$	0.5
Accounts receivable	3.5		2.8		5.8		12.1
Inventories	13.4		0.9		2.5		16.8
Other current assets	0.1		0.3		0.1		0.5
Property and equipment	2.6		1.4		4.5		8.5
Operating lease right-of-use asset	0.8		—		—		0.8
Intangibles	34.9		12.8		17.4		65.1
Goodwill	32.9		9.7		11.1		53.7
Other non-current assets	—		—		0.1		0.1
Accounts payable and other current liabilities	(5.4)		(3.4)		(2.1)		(10.9)
Deferred income tax liabilities	—		(1.1)		—		(1.1)


Other long-term liabilities	(0.6)		—		—		(0.6)
Fair value of assets acquired and purchase price	82.4		23.6		39.5		145.5
Less seller obligations	27.3		0.5		3.7		31.5
Cash paid	$	55.1	$	23.1	$	35.8	$	114.0


	2021
	IWI		Five Star		AMD		Other		Total
Estimated fair values:
Cash	$	0.2	$	1.5	$	—	$	—	$	1.7
Accounts receivable	5.1		4.6		8.4		13.6		31.7
Inventories	1.1		1.4		7.5		1.8		11.8
Other current assets	3.0		0.3		—		2.0		5.3
Property and equipment	0.8		1.1		1.1		4.1		7.1
Operating lease right of-use-asset	—		—		0.2		—		0.2
Intangibles	25.2		17.4		52.8		31.6		127.0
Goodwill	23.3		6.6		56.3		21.1		107.3
Other non-current assets	0.3		—		—		0.4		0.7
Accounts payable and other current liabilities	(8.4)		(1.1)		(0.2)		(6.8)		(16.5)
Deferred income tax liabilities	—		—		—		(2.1)		(2.1)
Other long-term liabilities	(2.5)		—		—		(0.8)		(3.3)
Fair value of assets acquired and purchase price	48.1		31.8		126.1		64.9		270.9
Less seller obligations	6.0		5.5		6.6		9.8		27.9
Cash paid	$	42.1	$	26.3	$	119.5	$	55.1	$	243.0

Contingent consideration, non-compete agreements and/or amounts based on working capital calculations are included as “seller obligations” in the above table or within “fair value of assets acquired” if subsequently paid during the period presented. Contingent consideration payments consist primarily of earnouts based on performance that are recorded at fair value at the time of acquisition. 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 and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, 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. Any acquisition acquired

after December 31, 2022 is deemed to be within the measurement period and its purchase price considered preliminary. During the year ended December 31, 2023, we increased the purchase price for CAS by $4.4 million primarily due to measurement period adjustments associated with a tax election.

The provisional amounts for one of our 2022 acquisitions originally reported in our Consolidated Balance Sheets included in our Annual Report on Form 10-K for the period ended December 31, 2022 were adjusted due to adjustments to pre-acquisition financial information and a tax-related adjustment. As a result, we decreased goodwill and deferred tax liabilities by approximately $0.8 million and $1.3 million, respectively, and increased accounts payable and other current liabilities by $0.5 million. These adjustments were within applicable measurement period guidelines and did not impact earnings.

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, 2023, 2022 and 2021 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. All of the goodwill for CAS was assigned to our Distribution operating segment. All other acquisitions during the years ended December 31, 2023 and 2022 had their respective goodwill assigned to our Installation operating segment.

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


	2023			2022			2021
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	$	19.4	12	$	45.3	12	$	95.2	12
Trademarks and trade names	8.4		15	16.8		15	23.1		15
Non-competition agreements	1.1		5	2.6		5	7.1		5
Backlog	0.8		1	0.4		1	1.6		1.5

Pro Forma Information (unaudited)

The unaudited pro forma information has been prepared as if the 2023 acquisitions had taken place on January 1, 2022, the 2022 acquisitions had taken place on January 1, 2021 and the 2021 acquisitions had taken place on January 1, 2020. 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, 2022, 2021 and 2020 and the unaudited pro forma information does not purport to be indicative of future financial operating results (in millions, except per share data):


	December 31,
	2023		2022		2021
Net revenue	$	2,812.0	$	2,807.2	$	2,217.6
Net income	245.0		231.0		135.9
Basic net income per share	8.70		8.05		4.63
Diluted net income per share	8.66		8.00		4.59

Unaudited pro forma net income reflects additional intangible asset amortization expense of $1.2 million, $5.8 million and $13.1 million for the years ended December 31, 2023, 2022 and 2021, respectively, additional interest expense of $4.3 million for the year ended December 31, 2021, as well as additional income tax expense of $0.4 million, $2.5 million and $5.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.