Acquisitions

3 Months Ended

Dec. 31, 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 the fiscal first quarter 2023 acquisitions, 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 three months ended December 31, 2022, the Company completed the following transactions:

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On October 1, 2022, Taylor Marine Centers with locations in Maryland and Delaware

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On December 1, 2022, Harbor View Marine with locations in Alabama and Florida

Consideration paid for the acquisitions was $41.8 million with $28.6 million paid at closing, $10.6 million in non-cash financing and the remaining $2.6 million in estimated payments of contingent consideration. The estimated payments of contingent consideration are part of earnouts related to the achievement of certain post-acquisition increases in adjusted EBITDA of the acquired companies. The acquisition contingent consideration was developed using weighted average projections based on the Company’s historical experience and current forecasts for the industry. There are no minimum or maximum payouts on the acquisition contingent consideration.

The table below summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transaction:

Summary of Assets Acquired and Liabilities Assumed ($ in thousands)	Total Acquisitions
Accounts receivable	$	188
Inventories		6,232
Prepaid expenses		73
Property and equipment		11,587
Operating lease right-of-use assets		2,952
Identifiable intangible assets		8,400
Goodwill		18,880
Accounts payable		(17	)
Accrued expenses		(354	)
Customer deposits		(1,000	)
Notes payable - floor plan		(2,228	)
Operating lease liabilities		(2,952	)
Aggregate acquisition date fair value	$	41,761

Consideration transferred	$	41,761

In connection with the acquisition of Harbor View Marine, an entity affiliated with the Company agreed to acquire the real estate for the two acquired locations, in effect providing non-cash financing. The Company has accounted for this transaction as a sale and leaseback of the properties in our unaudited condensed consolidated financial statements. There was no gain or loss recorded as part of the transaction. The leases for the two properties include an initial term of 15 years and two, five-year renewal options. The leases are accounted for as an operating leases and are included in the operating lease right-of-use assets and operating lease liabilities on the unaudited condensed consolidated balance sheet.

We expect substantially all of the goodwill related to acquisitions completed during the three months ended December 31, 2022 to be deductible for federal income tax purposes. The fair value of trade name intangible assets as of the acquisition date were determined using the relief from royalty model.

Included in our results for the three months ended December 31, 2022, the acquisitions contributed $8.7 million to our consolidated revenue and $0.5 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 $0.8 for the three months ended December 31, 2022. Comparatively, we recorded $3.0 million in acquisition related transaction costs for the three months ended December 31, 2021.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three-month period ended December 31, 2022 and 2021 had occurred on October 1, 2021:

	Three Months Ended December 31, 2022		Three Months Ended December 31, 2021
	($ in thousands)
	(Unaudited)
Pro forma revenue	$	369,363	$	428,136
Pro forma net income	$	11,542	$	25,916

The amounts have been calculated by applying our accounting policies and estimates. Pro forma net income has been tax affected based on the Company’s effective tax rate in the historical periods presented.