3. Business Acquisitions

The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing acquired assets and liabilities, fair value estimates use Level 3 inputs, including future expected cash flows and discount rates. Goodwill is measured as the excess of consideration transferred over the fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments arising from new facts and circumstances are recorded to the Consolidated Statements of Operations and Comprehensive Income. The results of operations of acquisitions are reflected in the Company’s Consolidated Financial Statements from the date of acquisition.

Acquisition of Titan

On June 1, 2018, the Company acquired all of the outstanding equity interests of WSB Titan (“Titan”), a distributer of wallboard, lumber, insulation and other complementary commercial and residential building materials. Titan is a gypsum specialty dealer with 30 locations across five provinces in Canada. The stated purchase price was $627.0 million ($800.0 million Canadian dollars). As part of the consideration, certain members of Titan’s management converted a portion of their ownership position into 1.1 million shares of equity that are exchangeable for the Company’s common stock (“Exchangeable Shares”). The purpose of the transaction was to extend the Company’s leadership position in North America with additional scale and footprint, expand its geographic coverage into the Canadian market and create opportunities for further expansion in Canada.

To finance this transaction, on June 1, 2018, the Company entered into a Third Amendment to its First Lien Credit Agreement (the “Third Amendment”) that provides for a new first lien term loan facility under the first lien credit agreement in the aggregate principal amount of $996.8 million due in June 2025 that bears interest at a floating rate based on LIBOR, with a 0% floor, plus 2.75%. The Company also drew down $143.0 million under its Asset Backed Lending Facility (“ABL Facility”). The net proceeds from the new first lien term loan facility, ABL Facility and cash on hand were used to repay the Company’s existing first lien term loan facility of $571.8 million under the Credit Agreement and to finance its acquisition of Titan.

The fair value of consideration transferred was $611.1 million, after adjusting for foreign currency changes in the stated purchase price and other fair value changes, which consisted of $581.5 million in cash and $29.6 million for the fair value of the 1.1 million Exchangeable Shares. See Note 10, “Stockholders’ Equity,” for more information on the Exchangeable Shares. The Company also assumed certain contingent consideration arrangements that relate to previous acquisitions of Titan. The contingent consideration arrangements are based on performance of Titan’s business and are payable in cash in fiscal 2020.

The assets acquired and liabilities assumed of Titan were recognized at their acquisition date fair values. The purchase price allocation is subject to change as the Company obtains additional information during the measurement period about the facts and circumstances that existed as of the acquisition date. During the year ended April 30, 2019, the Company received and analyzed new information about the fair value of consideration transferred, intangible assets and deferred income taxes as of the June 1, 2018 acquisition date and subsequently made adjustments to those amounts based on this information.

The following table summarizes the preliminary allocation of the consideration transferred, and subsequent measurement period purchase price adjustments recorded, based on currently available information (in thousands):


	June 1, 2018		Adjustments		April 30, 2019
Cash	$	5,573	$	—	$	5,573
Trade accounts and notes receivable		84,039		970		85,009
Inventories		60,272		—		60,272
Prepaid and other current assets		8,334		—		8,334
Property and equipment		37,263		—		37,263
Goodwill		196,524		(2,726)		193,798
Intangible assets		289,423		(2,469)		286,954
Accounts payable and accrued expenses		(40,833)		(970)		(41,803)
Contingent consideration		(12,039)		—		(12,039)
Deferred income taxes		(14,337)		2,085		(12,252)
Fair value of consideration transferred	$	614,219	$	(3,110)	$	611,109

Goodwill arising from the acquisition is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence. All of the goodwill is assigned to the Company’s geographic divisions segment. The goodwill is not expected to be deductible for income tax purposes.

Trade accounts and notes receivable had a preliminary estimate of fair value of $85.0 million and a gross contractual value of $86.6 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected.

The following table summarizes the preliminary components of intangible assets acquired in connection with the acquisition of Titan (dollars in thousands):


			Weighted
			Average
			Amortization
	Fair Value		Period (Years)
Customer relationships	$	246,954	15
Tradenames		30,870	15
Developed technology		5,402	5
Non-compete agreements		2,856	3
Other		872	3
Total intangible assets	$	286,954

Net sales related to the Titan business included in the Company’s Consolidated Statement of Operations and Comprehensive Income for the year ended April 30, 2019 were $414.4 million. Net income related to the Titan business included in the Company’s Consolidated Statement of Operations and Comprehensive Income for the year ended April 30, 2019 was $8.1 million.

The following table represents the unaudited pro forma consolidated net sales and net income for the Company for the periods indicated (in thousands):


	Year Ended April 30,
	2019		2018
Net sales	$	3,161,188	$	2,989,873
Net income		52,519		68,956

The above pro forma results have been calculated by combining the historical results of the Company and Titan as if the acquisition of Titan had occurred on May 1, 2017, the first day of the comparable prior reporting period presented. The pro forma results include estimates for intangible asset amortization, depreciation, interest expense and debt issuance costs and are subject to change once final asset values have been determined. No other material pro forma adjustments were deemed necessary to conform to the Company’s accounting policies or for any other situation. The pro forma information is not necessarily indicative of the results that would have been achieved had the transactions occurred on the first day of each of the periods presented or that may be achieved in the future.

Other Fiscal 2019 Acquisitions

On August 7, 2018, the Company acquired Charles G. Hardy, Inc. (“CGH”). CGH is an interior building products distributor in Paramount, California. On March 4, 2019, the Company acquired Commercial Builders Group, LLC (“CBG”). CBG is an interior building products distributor in LaPlace, Louisiana. The impact of these acquisitions is not material to the Company’s Consolidated Financial Statements.

Fiscal 2018 Acquisitions

In fiscal 2018, the Company completed the following acquisitions, with an aggregate purchase price of $24.4 million of cash consideration. The purpose of these acquisitions was to expand the geographical coverage of the Company and grow the business.


Company Name	Form of Acquisition	Date of Acquisition
ASI Building Products, LLC	Purchase of net assets	August 1, 2017
Washington Builders Supply, Inc.	Purchase of net assets	October 2, 2017
Southwest Building Materials, Ltd.	Purchase of net assets	December 4, 2017
California-based distribution business of Grabber Construction Products, Inc.	Purchase of net assets	April 2, 2018
CMH Distributing, Inc.	Purchase of net assets	April 2, 2018

The allocation of consideration for these acquisitions is summarized as follows:


	Preliminary				Final
	Purchase Price		Adjustments/		Purchase Price
	Allocation		Reclassifications		Allocation
	(in thousands)
Trade accounts and notes receivable	$	4,872	$	—	$	4,872
Inventories		4,321		—		4,321
Property and equipment		1,081		—		1,081
Tradenames		1,000		—		1,000
Vendor agreement		1,000		—		1,000
Other intangible assets		620		—		620
Customer relationships		9,358		—		9,358
Goodwill		4,145		8		4,153
Liabilities assumed		(1,951)		—		(1,951)
Purchase price	$	24,446	$	8	$	24,454

Goodwill recognized is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence and is all attributable to our one operating reportable segment. The goodwill and other intangible assets related to these acquisitions are deductible for U.S. federal income tax purposes. The pro forma impact of these acquisitions is not presented as it is not considered material to the Company’s Consolidated Financial Statements.

Fiscal 2017 Acquisitions

In fiscal 2017, the Company completed the following acquisitions, with an aggregate purchase price of $154.0 million, comprised of $148.7 million of cash consideration and $5.3 million of consideration related to working capital settlements and contingent consideration. The purpose of these acquisitions was to expand the geographical coverage of the Company and grow the business.


Company Name	Form of Acquisition	Date of Acquisition
Wall & Ceiling Supply Co., Inc.	Purchase of net assets	May 2, 2016
Rockwise, LLC	Purchase of net assets	July 5, 2016
Steven F. Kempf Building Materials, Inc.	Purchase of net assets	August 29, 2016
Olympia Building Supplies, LLC/Redmill, Inc.	Purchase of 100% of outstanding common stock	September 1, 2016
United Building Materials, Inc.	Purchase of net assets	October 3, 2016
Ryan Building Materials, Inc.	Purchase of net assets	October 31, 2016
Interior Products Supply	Purchase of net assets	December 5, 2016
Hawaii-based distribution business of Grabber Construction Products, Inc.	Purchase of net assets	February 1, 2017

The allocation of consideration for these acquisitions is summarized as follows:


	Preliminary				Final
	Purchase Price		Adjustments/		Purchase Price
	Allocation		Reclassifications		Allocation
	(in thousands)
Cash and cash equivalents	$	1,558	$	—	$	1,558
Trade accounts and notes receivable		37,691		(63)		37,628
Inventories		16,504		—		16,504
Other current assets		657		14		671
Property and equipment		8,357		—		8,357
Tradenames		9,490		—		9,490
Customer relationships		64,660		—		64,660
Goodwill		37,728		(144)		37,584
Deferred tax liability		(6,011)		—		(6,011)
Liabilities assumed		(16,958)		560		(16,398)
Purchase price	$	153,676	$	367	$	154,043

During the year ended April 30, 2018, the Company recorded adjustments to working capital for fiscal 2017 acquisitions that resulted in an increase in total consideration paid of $0.4 million. Goodwill recognized is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence and is all attributable to our one operating reportable segment. Goodwill of $25.4 million and other intangible assets of $53.6 million related to these acquisitions are deductible for U.S. federal income tax purposes. Goodwill of $12.2 million and other intangibles of $20.6 million are nondeductible for U.S. federal income tax purposes.