Acquisitions

9 Months Ended

Jun. 30, 2022

4.	Acquisitions

The results of operations of acquisitions are included in the accompanying unaudited condensed consolidated financial statements from the acquisition date. The purchase price of acquisitions is allocated to identifiable tangible assets and intangible assets acquired based on their estimated fair values at the acquisition date, with the excess being allocated to goodwill. Under the acquisition method of accounting, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on information currently available. For acquisitions of Quality Boats, Denison Yachting and YakGear, the valuation of tangible assets, assumed liabilities and identifiable intangible assets are preliminary as the acquisitions are subject to certain customary closing and post-closing adjustments and certain valuations are not complete. Any changes to the value of identifiable intangible assets will be reclassified from goodwill upon the completion of the valuations.

For the nine months ended June 30, 2022, the Company completed the following transactions:

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On October 1, 2021, Naples Boat Mart with one location in Florida

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On November 30, 2021, T-H Marine, a leading provider of branded marine parts and accessories, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas

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On December 1, 2021, Norfolk Marine Company with one location in Virginia

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On December 31, 2021, a majority interest in Quality Boats with three locations in Florida. The sellers retained a 20% economic interest in Quality Boats. The Company has the exclusive right, but not obligation, to acquire the remaining 20% interest at any time before January 1, 2027.

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On February 1, 2022, JIF Marine, a leading supplier of stainless steel ladders, dock products and other accessories which is based in Tennessee

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On March 1, 2022, YakGear, a leading supplier of kayak equipment, paddle sports accessories and boat mounting accessories which is based in Texas

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On April 1, 2022, Denison Yachting, a leader in yacht and superyacht sales as well as ancillary yacht services, with 20 retail locations in 7 states

Consideration paid for the consummated acquisitions was $357.2 million with $326.1 million paid at closing (net of cash acquired), $1.1 million financed through a note payable to the sellers bearing interest at a rate of 4.0% per year, estimated payments of $15.3 million in contingent consideration and the remaining $14.6 million with the issuance of shares of Class A common stock. The notes are payable in one lump sum on December 1, 2024, with interest payments due quarterly. The estimated payments of contingent consideration are part of multiple earnouts varying from the achievement of certain post-acquisition increases in adjusted EBITDA to the generation of acquisition leads for the Company. The acquisition contingent consideration was developed using weighted average projections based on the Company’s historical experience, current forecasts for the industry and current expectations of the ability to generate viable acquisition leads. The minimum payout on acquisition contingent consideration is $5.9 million and the maximum payout is $24.7 million.

The table below summarizes the fair values (Quality Boats, Denison Yachting and YakGear are preliminary) of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transactions:

Summary of Assets Acquired and Liabilities Assumed ($ in thousands)	T-H Marine			Quality Boats			Denison			Other Acquisitions			Total Acquisitions
Accounts receivable	$	8,955		$	-		$	654		$	1,122		$	10,731
Inventories		19,856			5,937			1,981			9,618			37,392
Prepaid expenses		1,547			47			2,053			357			4,004
Property and equipment		3,896			803			293			1,227			6,219
Deposits		-			-			126			13			139
Operating lease right-of-use assets		5,960			11,877			1,221			7,375			26,433
Identifiable intangible assets		105,500			31,700			16,600			11,276			165,076
Goodwill		51,694			78,682			29,144			14,594			174,114
Accounts payable		(3,876	)		-			(80	)		(471	)		(4,427	)
Accrued expenses		(1,697	)		-			(252	)		(553	)		(2,502	)
Customer deposits		(394	)		(5,047	)		(5,524	)		(3,307	)		(14,272	)
Operating lease liabilities		(5,960	)		(11,877	)		(1,221	)		(7,375	)		(26,433	)
Aggregate acquisition date fair value	$	185,481		$	112,122		$	44,995		$	33,876		$	376,474

Consideration transferred	$	185,481		$	92,811		$	44,995		$	33,876		$	357,163
Fair value of non-controlling interests		-			19,311			-			-			19,311
Aggregate acquisition date fair value	$	185,481		$	112,122		$	44,995		$	33,876		$	376,474

Included in our results for the three and nine months ended June 30, 2022, the acquisitions contributed $91.8 million and $178.5 million to our consolidated revenue and $16.6 million and $29.9 to our income before income tax expense, respectively. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, valuation and other fees, which are charged directly to operations in the accompanying consolidated statements of operations as incurred in the amount of $1.2 million and $4.9 million for the three and nine months ended June 30, 2022, respectively. Comparatively, we recorded $0.1 million and $0.6 million in acquisition related transaction costs for the three and nine months ended June 30, 2021, respectively.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in the nine months ended June 30, 2022 and the three and nine months ended June 30, 2021 had occurred on October 1, 2020:

	Three Months Ended June 30, 2021
	($ in thousands)
	(Unaudited)
Pro forma revenue	$	526,136
Pro forma net income	$	66,648

	Nine Months Ended June 30, 2022		Nine Months Ended June 30, 2021
	($ in thousands)
	(Unaudited)
Pro forma revenue	$	1,431,881	$	1,297,780
Pro forma net income	$	135,253	$	129,158

The amounts have been calculated by applying our accounting policies and estimates. Certain acquired entities completed acquisitions during the periods presented, prior to our acquisition of the business. Their acquisitions are included in the results of their operations from the acquisition date forward but were not included on a pro forma basis. Pro forma net income has been tax affected based on the Company’s effective tax rate in the historical periods presented.

We expect substantially all of the goodwill related to completed acquisitions to be deductible for federal income tax purposes.

On June 21, 2022, the Company announced that it signed a definitive agreement to acquire OBCI (NASDAQ: OBCI) (“the “Ocean Bio-Chem Acquisition”), a leading supplier and distributor of appearance, cleaning, and maintenance products for the marine industry and the automotive, powersports, recreational vehicles, and outdoor power equipment markets. As part of the transaction, the Company will also acquire Star Brite Europe, Inc. (the “SB Europe Acquisition”), and certain real property assets from PEJE, Inc., controlled by Peter G. Dornau, the Chairman of OBCI (the “Real Estate Acquisition” and together with the Ocean Bio-Chem Acquisition and SB Europe Acquisition, the “OBCI Acquisitions”).The transaction is expected to close in the Company’s fiscal fourth quarter.