Business Combinations

9 Months Ended

Jan. 31, 2022

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. The Company's Condensed Consolidated Statement of Operations and Comprehensive Income for the nine months ended January 31, 2022 included $150.1 million of net sales and $3.5 million of net income from acquisitions made in fiscal 2022.

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 $140.1 million. Westside is a leading supplier of steel framing, wallboard, ceilings, insulation and complementary 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. 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 settlement of the holdback liability.

The following table summarizes the components of the preliminary consideration:


	(in thousands)
Cash consideration	$	126,609
Holdback liability	13,500
Total preliminary consideration transferred	$	140,109

Included in the total preliminary consideration as of January 31, 2022 is a $13.5 million holdback liability for general representations and warranties of the sellers that is scheduled to be settled 15 months after the acquisition date.

The following table summarizes the preliminary acquisition accounting for this acquisition, and subsequent measurement period adjustments recorded, based on currently available information:


	July 1, 2021		Adjustments		January 31, 2022
	(in thousands)
Trade accounts and notes receivable	$	27,081	$	(799)	$	26,282
Inventories	28,900		(145)		28,755
Prepaid and other current assets	228		—		228
Property and equipment	16,687		—		16,687
Operating lease right-of-use assets	20,782		—		20,782
Customer relationships	51,500		—		51,500
Tradenames	11,300		—		11,300
Goodwill	13,351		1,363		14,714
Accounts payable and accrued expenses	(14,375)		55		(14,320)
Operating lease liabilities	(15,819)		—		(15,819)
Fair value of consideration transferred	$	139,635	$	474	$	140,109

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.

Ames Acquisition

On December 1, 2021, the Company acquired Ames Taping Tools Holding LLC (“Ames”) for preliminary consideration of $224.5 million in cash. Ames is the leading provider of automatic taping and finishing (“ATF”) tools and related products to the professional drywall finishing industry. Ames operates more than 90 retail locations servicing professionals in the interior finishing market. The acquisition was primarily funded with borrowings under the Company's asset based revolving credit facility. The primary purpose of the transaction was to expand the Company's complementary product offerings 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 Ames, 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 the finalization of preliminary fair value estimates, working capital adjustments and residual goodwill.

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


	Preliminary Acquisition Accounting
	(in thousands)
Cash and cash equivalents	$	10,692
Trade accounts and notes receivable	9,955
Inventories	15,464
Prepaid and other current assets	1,941
Property and equipment	6,165
Operating lease right-of-use assets	8,238
Customer relationships	63,000
Tradenames	53,000
Patents	3,000
Goodwill	104,557
Accounts payable and accrued expenses	(14,827)
Deferred tax liability	(28,440)
Operating lease liabilities	(8,238)
Fair value of consideration transferred	$	224,507

Goodwill recognized is attributable to expected synergies and the expected value in the potential to expand and enhance the Company's complementary product offerings. Goodwill is not expected to be deductible for U.S. federal income tax purposes. The estimated useful life for the customer relationships is eleven years and the estimated useful life for the patents is ten years. The tradenames are estimated to have an indefinite useful life.

Trade accounts and notes receivable had a preliminary estimate of fair value of $10.0 million and a gross contractual value of $11.6 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected.

Pro Forma Financial Information

The following table presents the unaudited pro forma consolidated net sales and net income for the Company for the periods indicated:


	Three Months Ended January 31,				Nine Months Ended January 31,
	2022		2021		2022		2021
	(in thousands)
Net sales	$	1,160,211	$	813,078	$	3,429,878	$	2,571,616
Net income	61,336		15,303		203,721		75,924

The above pro forma results have been calculated by combining the historical results of the Company, Westside and Ames as if the acquisitions of Westside and Ames had occurred on May 1, 2020, the first day of the comparable prior reporting period presented. The pro forma results include estimates for intangible asset amortization, depreciation, interest expense and income taxes, and are subject to change once final asset values have been determined. 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 Acquisitions

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. On August 2, 2021, the Company acquired certain assets of DK&B Construction Specialties, Inc. (“DK&B”). DK&B is a distributor of External Insulation and Finishing Systems (“EIFS”) and stucco products through one location in Omaha, Nebraska. On December 1, 2021, the Company acquired the assets of Kimco Supply Company (“Kimco”). Kimco is an interior building products

distributor through two locations in the Tampa, Florida area. The impact of these acquisitions is not material to the Company’s Consolidated Financial Statements.