Business Acquisitions

12 Months Ended

Apr. 30, 2020

Business Acquisitions

Business Acquisitions

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 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 (Loss). The results of operations of acquisitions are reflected in the Company’s Consolidated Financial Statements from the date of acquisition.

Fiscal 2020 Acquisitions

In fiscal 2020, the Company completed the following acquisitions, with an aggregate purchase price of $25.1 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
J.P. Hart Lumber Company	Purchase of net assets	June 3, 2019
Rigney Building Supplies Ltd.	Purchase of 100% of outstanding common stock	November 1, 2019
Trowel Trades Supply, Inc.	Purchase of net assets	February 1, 2020

The assets acquired and liabilities assumed 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. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to working capital adjustments.

The following table summarizes the preliminary acquisition accounting for these acquisitions based on currently available information:

	Preliminary
	Acquisition
	Accounting
	(in thousands)
Cash	$	713
Trade accounts and notes receivable		5,149
Inventories		7,194
Other current assets		72
Property and equipment		6,788
Customer relationships		4,252
Tradenames		644
Goodwill		5,291
Liabilities assumed		(5,028)
Fair value of consideration transferred	$	25,075

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 geographic divisions reportable segment. Goodwill of $2.1 million is expected to be deductible for U.S. federal income tax purposes. Goodwill of $3.2 million is not expected to be 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 2019 Acquisitions

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 Based 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 11, “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 were based on performance of Titan’s business and were substantially paid in cash in fiscal 2020.

The following table summarizes the acquisition accounting:

	Preliminary				Final
	Acquisition		Adjustments/		Acquisition
	Accounting		Reclassifications		Accounting
	(in thousands)
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 reportable segment. The goodwill is not deductible for income tax purposes.

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 following table summarizes the acquisition accounting:

	Preliminary				Final
	Acquisition		Adjustments/		Acquisition
	Accounting		Reclassifications		Accounting
	(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)
Fair value of consideration transferred	$	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 geographic divisions reportable segment. The goodwill related to these acquisitions is deductible for U.S. federal income tax purposes.