Acquisitions and Divestitures

9 Months Ended

Jun. 30, 2020

Acquisitions

Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses, assets and product lines and believes that capex-like, tuck-in acquisitions present a key opportunity within its overall growth strategy.

On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”) for $11,160 cash paid at closing. During the third quarter of 2020, as a result of net working capital adjustments, the Company received $275 in cash from the sellers of Frontier, reducing the purchase price to $10,885. Frontier is a pioneer in the development of patented, engineered equipment packages for high-rate treatment and removal of selenium, nitrate and other metals from complex water systems. During the nine months ended June 30, 2020, the Company incurred approximately $424 in acquisition costs, which are included in General and administrative expenses. Frontier is part of the Integrated Solutions and Services segment.

The Company has entered into an agreement to purchase the remaining 40% interest in Frontier on or prior to March 30, 2024. This agreement (a) gives holders of the remaining 40% interest in Frontier (the “Minority Owners”) the right to sell to Evoqua up to approximately 10% of the outstanding equity in Frontier at a predetermined price, which right may be exercised by the Minority Owners between January 1, 2021 and February 28, 2021 (the “Option”), and (b) obligates the Company to purchase and the Minority Owners to sell all of the Minority Owners’ remaining interest in Frontier at the fair market value at the time of sale on or prior to March 30, 2024 (the “Purchase Right”). The Purchase Right may be exercised early by the Minority Owners. The agreement to purchase the remaining interest was determined to be financing due to the mandatory Purchase Right, as per ASC Topic 480, Distinguishing Liabilities From Equity, and as such, the Company has recognized a liability for the remaining 40% interest.

The value of the Option was determined to be $506 using a Black Scholes model, and is included within Accrued expenses and other liabilities on the Consolidated Balance Sheets.

The value of the Purchase Right was determined to be $6,661, and is included within Other non‑current liabilities on the Consolidated Balance Sheets, based upon the enterprise value of Frontier upon the acquisition date as per ASC Topic 480, Distinguishing Liabilities From Equity. Pursuant to ASC Topic 480, the Company determined that this should be recorded as a liability and should be recognized at the fair value at the time of inception, adjusted for any consideration or unstated rights or privileges. The liability will be subsequently measured at an amount that would be paid on the reporting date with any change in value from the previous reporting date recognized as interest cost.

The accounting for the acquisition has not yet been completed because the Company has not finalized the deferred tax accounting related to the purchase price allocation. The preliminary opening balance sheet for Frontier is summarized as follows:



Current assets	$	3,186
Property, plant and equipment	2,963
Goodwill	1,798
Intangible assets	11,571
Total assets acquired	19,518
Liabilities related to Option and Purchase Right	(7,167		)
Other liabilities assumed	(1,466		)
Net assets acquired	$	10,885

Divestitures

On December 31, 2019, the Company completed the sale of the Memcor product line to DuPont de Nemours, Inc. (“DuPont”). The aggregate purchase price paid by DuPont in the Transaction was $110,000 in cash, subject to certain adjustments. Following adjustments for cash and net working capital, gross proceeds paid by DuPont were $131,011. The Company recognized a $49,000 net pre-tax benefit on the sale of the Memcor product line, net of $8,300 of discretionary

compensation payments to employees in connection with the transaction and $1,000 in transaction costs incurred in the three months ended December 31, 2019. As a result of net working capital adjustments, the Company recognized an additional $9,000 net pre-tax benefit in the three months ended March 31, 2020. The Company utilized $100,000 of the proceeds from the transaction to repay a portion of the Company’s First Lien Term Loans in January 2020.