15. Acquisitions

Dealerships and Consumer Shows

In 2018 and 2017, subsidiaries of the Company acquired the assets or stock of multiple dealership and retail locations and consumer shows that constituted businesses under accounting rules. The Company used a combination of cash, floor plan financing, proceeds from the May 2017 Public Offering (defined and described in Note 18 — Stockholders’ Equity), and additional borrowing on the Term Loan Facility in March 2018 and 2017 (see Note 8 — Long-term Debt) to complete the acquisitions. The Company considers acquisitions of independent dealerships to be a fast and capital efficient alternative to opening new retail locations to expand its business and grow its customer base. The Company acquires consumer shows as another channel for increasing its customer base. Additionally, the Company believes that its experience and scale allow it to operate these acquired dealerships and consumer shows more efficiently. The acquired businesses were recorded at their estimated fair values under the acquisition method of accounting. The balance of the purchase prices in excess of the fair values of net assets acquired were recorded as goodwill.

For the years ended December 31, 2018 and 2017, the Company purchased real property of $21.6 million and $17.1 million, respectively, from parties related to the sellers of the dealership businesses.

The estimated fair values of the assets acquired and liabilities assumed for the acquisitions of dealerships and consumer shows consist of the following:


	Year Ended December 31,				Estimated
($ in thousands)	2018		2017		Life
Tangible assets (liabilities) acquired (assumed):
Cash and cash equivalents	$	2,648	$	—
Contracts in transit		104		—
Accounts receivable, net		100		1,250
Inventory, net		43,067		121,808
Prepaid expenses and other assets		124		—
Property and equipment, net		532		1,450
Deferred tax asset, net		48		—
Other assets		—		164
Accounts payable		(64)		(569)
Accrued liabilities		(1,096)		(2,480)
Deferred revenues and gains		(168)		—
Total tangible net assets acquired		45,295		121,623
Intangible assets acquired:
Membership and customer lists		766		793	4-7 years
Total intangible assets acquired		766		793
Goodwill		47,197		158,815
Purchase price		93,258		281,231
Cash and cash equivalents acquired		(2,648)		—
Cash paid for acquisition, net of cash acquired		90,610		281,231
Inventory purchases financed via floor plan		(34,313)		(99,451)
Cash payment net of floor plan financing	$	56,297	$	181,780

The fair values above are preliminary relating to the year ended December 31, 2018 as they are subject to measurement period adjustments for up to one year from the date of acquisition as new information is obtained about facts and circumstances that existed as of the acquisition date relating to the valuation of the acquired assets. The primary items that generated the goodwill are the value of the expected synergies between the acquired businesses and the Company and the acquired assembled workforce, neither of which qualify for recognition as a separately identified intangible asset. For the years ended December 31, 2018 and 2017, acquired goodwill of $30.8 million and $158.8 million is expected to be deductible for tax purposes. Included in the years ended December 31, 2018 and 2017 consolidated financial results were $91.1 million and $300.8 million of revenue, respectively, and $4.2 million and $14.2 million of pre-tax income, respectively, of the acquired dealerships from the applicable acquisition dates. Pro forma information on these acquisitions has not been included, because the Company has deemed them to not be individually or cumulatively material.

Retail Acquisitions

On May 26, 2017, CWI, Inc. (“CWI”), an indirect subsidiary of the Company, completed the acquisition of certain assets of the Gander Mountain Company (“Gander Mountain”) and its Overton’s, Inc. (“Overton’s”) boating business through a bankruptcy auction that took place in April 2017 for $35.4 million in cash and $1.1 million of contingent consideration related to Gander Mountain. Prior to the acquisition, Gander Mountain operated 160 retail locations and an e-commerce business that serviced the hunting, camping, fishing, shooting sports, and outdoor markets. Overton’s operated two retail locations and an e-commerce business that services the marine and watersports markets.

The assets acquired included the right to designate any real estate leases for assignment to CWI or other third parties (the “Designation Rights”), other agreements CWI could elect to assume, intellectual property rights, operating systems and platforms, certain distribution center equipment, Overton’s inventory, the Gander Mountain and Overton’s e-commerce businesses, and fixtures and equipment for Overton’s two retail locations and corporate operations. Furthermore, CWI had committed to exercise Designation Rights and take an assignment of no fewer than 15 Gander Mountain retail leases on or before October 6, 2017, in addition to the two Overton’s retail leases assumed at the closing of the acquisition. The Designation Rights expired on October 6, 2017, which was immediately after CWI assumed the minimum 15 additional Gander Mountain retail leases. CWI also assumed certain liabilities, such as cure costs for leases and other agreements it elected to assume, accrued time off for employees retained by CWI and retention bonuses payable to certain key Gander Mountain employees retained by CWI. The cure costs for the minimum 15 Gander Mountain leases assumed under the Designation Rights were $1.1 million, which was recorded as contingent consideration and paid during the year ended December 31, 2017.

As of December 31, 2018, the Company has opened a net of 60 Gander Mountain locations under the rebranded “Gander Outdoors” name. With the large quantity of stores opened in a relatively short period of time relating to the initial rollout of Gander Outdoors, the Company deemed it necessary to staff the appropriate levels of labor for functions such as management, merchandise procurement, and distribution center to open these retail locations in the compressed timeframe of the initial rollout plan. Many of these expenses were expensed as incurred before retail locations were opened and began to generate revenues.

On August 17, 2017, CW an indirect subsidiary of the Company, completed the acquisition of all of the outstanding capital stock and outstanding debt of Active Sports, Inc. (“TheHouse.com”), which specialized in bikes, sailboards, skateboards, wakeboards, snowboards, and outdoor gear. The purchase price consisted of $30.0 million in cash, $5.7 million in restricted shares of Class A common stock of the Company, and the purchase or extinguishment of $35.3 million of TheHouse.com’s debt, including accrued interest.

On September 22, 2017, W82, LLC, an indirect subsidiary of the Company, completed the acquisition of substantially all of the assets of EIGHTEEN0THREE LLC, dba W82 (“W82”), which specializes in snowboarding, skateboarding, longboarding, swimwear, footwear, apparel and accessories. The purchase price consisted of $0.6 million in cash and the extinguishment of $1.5 million of W82’s debt, including accrued interest.

On October 19, 2017, CW, an indirect subsidiary of the Company, completed the acquisition of all of the outstanding capital stock and outstanding debt of Uncle Dan’s LTD. (“Uncle Dan’s”), which specializes in outdoor apparel. The Company believes this business is complementary to its existing businesses and enhances the product offerings from its earlier acquisition of Gander Mountain. The purchase price consisted of $7.5 million in cash, the extinguishment of $0.7 million of Uncle Dan’s debt, and $0.1 to replace the collateral on Uncle Dan’s letter of credit.

On January 30, 2018 and April 19, 2018, indirect subsidiaries of the Company acquired substantially all of the assets of Earth Sports LLC, dba Erehwon Mountain Outfitters (“Erehwon”) and Rock Creek Outfitters, Inc. (“Rock Creek”), respectively, for $3.5 million and $5.2 million in cash, respectively. These businesses are specialty retailers of outdoor gear and apparel.

The Company believes these businesses are complementary to its existing businesses and will allow for cross marketing of the Company’s consumer services and plans to a wider customer base. The estimated fair values of the assets acquired and liabilities assumed for the acquisition of outdoor lifestyle retail businesses consist of the following:


	Year Ended December 31,				Estimated
($ in thousands)	2018		2017		Life
Tangible assets (liabilities) acquired (assumed):
Cash and cash equivalents	$	—	$	591
Accounts receivable		—		174
Inventory		4,599		50,171
Prepaid expenses and other assets		77		1,262
Property and equipment		416		10,311
Accounts payable		—		(9,965)
Accrued and other liabilities		(359)		(2,438)
Other liabilities		—		(4,098)
Total tangible net assets acquired		4,733		46,008
Intangible assets acquired:
Trademarks and trade names		318		28,987	15 years
Membership and customer lists		—		500	6 years
Websites		—		6,074	10 years
Total intangible assets acquired		318		35,561
Goodwill		3,579		36,467
Purchase price		8,630		118,036
Cash and cash equivalents acquired		—		(591)
Non-cash consideration - Class A shares issued		—		(5,720)
Cash paid for acquisition, net of cash acquired	$	8,630	$	111,725

The fair values above are preliminary relating to the year ended December 31, 2018 as they are subject to measurement period adjustments for up to one year from the date of acquisition as new information is obtained about facts and circumstances that existed as of the acquisition date relating to the valuation of the acquired assets. The primary items that generated the goodwill are the value of the expected synergies between the acquired businesses and the Company and the acquired assembled workforce, neither of which qualify for recognition as a separately identified intangible asset. For the years ended December 31, 2018 and 2017, acquired goodwill of $3.6 million and $36.5 million, respectively, is expected to be deductible for tax purposes. Included in the years ended December 31, 2018 and 2017 consolidated financial results were $14.7 million and $64.5 million, respectively, of revenue and less than $0.1 million and $28.8 million, respectively, of pre-tax loss of the acquired outdoor lifestyle retail locations from the applicable acquisition dates. Pro forma information on these acquisitions has not been included, because the Company has deemed them to not be individually or cumulatively material.