Acquisitions

6 Months Ended

Jul. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

ACQUISITIONS

Earthsavers Acquisition

On June 28, 2022, the Company completed the acquisition of certain assets and assumption of certain liabilities of Earthsavers Erosion Control, LLC (“Earthsavers”) in a transaction valued up to $25 million, subject to working capital adjustments (the “Earthsavers Acquisition”). Earthsavers has three locations and produces and distributes a variety of geosynthetic materials, including straw wattles, erosion control blankets and a broad array of geotextile products. The transaction price was funded with cash on hand. Given the size of the purchase price, a full purchase price allocation has not been presented. However, significant components of the preliminary purchase price allocation include $9 million to net working capital, $9 million to goodwill and $7 million to customer relationships.

L&M Acquisition

On August 30, 2021, the Company completed the acquisition of certain assets and assumption of certain liabilities of L&M Bag & Supply Co., Inc. (“L&M”) in a transaction valued up to $60 million, subject to working capital adjustments (the “L&M Acquisition”). L&M is a specialized supplier of geotextile fabrics and geogrids, silt fences, turbidity barriers and safety fences, weed control fabric and sod staples. The transaction price was funded with cash on hand.

Pacific Pipe Acquisition

On August 9, 2021, the Company completed the acquisition of all of the outstanding shares of Pacific Pipe Company, Inc. (“Pacific Pipe”) in a transaction valued up to $103 million, subject to working capital adjustments (the “Pacific Pipe Acquisition”). Pacific Pipe has four branch locations and serves municipalities and contractors in the water, wastewater, storm drainage and irrigation industries throughout Hawaii, with a broad product offering. The transaction price was funded with cash on hand.

Other Acquisitions

During the six months ended July 31, 2022, the Company completed the acquisitions of certain assets and liabilities in transactions valued at $17 million in total, subject to working capital adjustments (the “Other 2022 Acquisitions”). Given the lack of significance of these transactions, a full purchase price allocation has not been presented. However, a substantial portion of the aggregate purchase price was allocated to customer relationships, goodwill and net working capital.

In the above transactions, to the extent applicable, the excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents the assembled workforce and anticipated long-term growth in new markets, customers and products. Goodwill associated with the Earthsavers Acquisition, the L&M Acquisition and the Other 2022 Acquisitions are fully deductible by the Company for U.S. income tax purposes.

The following table represents the final allocation of the transaction price to the fair value of identifiable assets acquired and liabilities assumed in the L&M Acquisition and Pacific Pipe Acquisition:

	L&M Acquisition		Pacific Pipe Acquisition
Cash	$	—	$	2
Accounts receivable	7		10
Inventories	16		17
Intangible assets	19		47
Goodwill	18		41
Operating lease right-of-use assets	2		17
Other assets, current and non-current	5		6
Total assets acquired	67		140
Accounts payable	3		5
Deferred income taxes	—		12
Operating lease liabilities	2		17
Net assets acquired	$	62	$	106

The following reconciles the total consideration to net assets acquired:

	L&M Acquisition		Pacific Pipe Acquisition
Total consideration, net of cash	$	62	$	104
Plus: Cash acquired in acquisition	—		2
Net assets acquired; investing cash outflow	$	62	$	106

Pro Forma Financial Information

The following pro forma information presents a summary of the results of operations for the periods indicated as if the Pacific Pipe and L&M acquisitions had been completed as of February 3, 2020. The pro forma financial information is based on the historical financial information for the Company and Pacific Pipe and L&M, along with certain pro forma adjustments. These pro forma adjustments consist primarily of:

•increased amortization expense related to the intangible assets acquired in the Pacific Pipe and L&M acquisitions;

•reclassification of direct acquisition transaction costs, retention bonuses and inventory fair value adjustments from the period incurred to periods these expenses would have been recognized given the assumed transaction dates identified above; and

•the related income tax effects of the aforementioned adjustments to the provision for income taxes for Core & Main.

The following pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the Pacific Pipe and L&M acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results. In addition, the pro forma information does not reflect the cost of any integration activities, benefits from any synergies that may be derived from the Pacific Pipe and L&M acquisitions or revenue growth that may be anticipated.

	Three Months Ended		Six Months Ended
	August 1, 2021		August 1, 2021
Net sales	$	1,335	$	2,424
Net income	15		44

As a result of integration of the Pacific Pipe and L&M acquisitions, including the consolidation of certain acquired and existing branches, it is impracticable to identify the explicit financial performance associated with the Pacific Pipe and L&M acquisitions. As such, the Company has not presented the post-acquisition net sales and net income for the Pacific Pipe and L&M acquisitions.

Intangible Assets

For the Pacific Pipe and L&M acquisitions discussed above, the Company valued intangible assets acquired, which included customer relationships and trademarks.

The customer relationship intangible assets represent the value associated with those customer relationships in place at the date of the Pacific Pipe and L&M acquisitions. The Company valued the customer relationships using an excess earnings method using various inputs such as customer attrition rate, revenue growth rate, gross margin percentage and discount rate. Cash flows associated with the existing relationships are expected to diminish over time due to customer turnover. The Company reflected this expected diminishing cash flow through the utilization of an annual customer attrition rate assumption and in its method of amortization.

The trademark intangible asset represents the value associated with the brand names in place at the date of the Pacific Pipe acquisition.

A summary of the intangible assets acquired and assumptions utilized in the valuation for the Pacific Pipe and L&M acquisitions are as follows:

	Intangible Asset Amount		Amortization Period	Discount Rate		Attrition Rate
L&M Acquisition
Customer relationships	$	19	10 years	15.5	%	15.0	%
Pacific Pipe Acquisition
Customer relationships	$	46	10 years	11.5	%	10.0	%
Trademark	1		2 years	11.5	%	N/A