Business Combinations

3 Months Ended

Jul. 31, 2021

The Company accounts for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value. In valuing certain 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 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.

Westside Acquisition

On July 1, 2021, the Company acquired substantially all the assets of Westside Building Material ("Westside"), one of the largest independent distributors of interior building products in the U.S., for preliminary consideration of $139.6 million. Westside is a leading supplier of steel framing, wallboard, acoustical ceilings, insulation and related building products serving commercial and residential markets. Westside’s distribution network comprises ten locations, including nine across California (Anaheim, Hesperia, Oakland, Chatsworth, Fresno, Lancaster, Santa Maria, San Diego and National City) and one in Las Vegas, Nevada. The primary purpose of the transaction was to expand the geographical coverage of the Company and grow the business.

The assets acquired and liabilities assumed were recognized at their acquisition date fair values. Due to the limited amount of time since the acquisition of Westside, the acquisition accounting 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 acquisition accounting that are not yet finalized relate to working capital adjustments, the finalization of preliminary fair value estimates and residual goodwill.

The following table summarizes the components of the preliminary consideration:


	(in thousands)
Cash consideration	$	122,635
Holdback liability	17,000
Total preliminary consideration transferred	$	139,635

Included in the total preliminary consideration is a $17.0 million holdback liability, of which $3.5 million is for working capital adjustments that will be settled 150 days after the acquisition date and $13.5 million is for general representations and warranties of the sellers that will be settled 15 months after the acquisition date.

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


	Preliminary Acquisition Accounting
	(in thousands)
Trade accounts and notes receivable	$	27,081
Inventories	28,900
Prepaid and other current assets	228
Property and equipment	17,136
Operating lease right-of-use assets	20,782
Customer relationships	51,500
Tradenames	11,300
Goodwill	12,902
Accounts payable and accrued expenses	(14,375)
Operating lease liabilities	(15,819)
Fair value of consideration transferred	$	139,635

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 the Company's geographic divisions reportable segment. Goodwill is expected to be deductible for U.S. federal income tax purposes. The estimated useful life for the customer relationships is 12 years and the estimated useful life for the tradenames is 15 years. The pro forma impact of this acquisition is not presented as it is not considered material to the Company's Consolidated Financial Statements.

Other Acquisition

On June 3, 2021, the Company acquired the assets of Architectural Coatings Distributors, Inc. (“Architectural Coating”). Architectural Coating is an interior building products distributor in Cleveland, Ohio. The impact of this acquisition is not material to the Company’s Consolidated Financial Statements.