ACQUISITIONS

Acquisitions in 2017

ARM, Chipola and Central Gas Asset Acquisitions

In August 2017, PESCO acquired certain natural gas marketing assets of ARM. We have accounted for the purchase of these assets as a business combination and recorded goodwill of $6.8 million, which is included in Unregulated Energy segment. The acquired assets complement PESCO’s current asset portfolio and expand our regional footprint and retail demand in a market where we have existing pipeline capacity and wholesale liquidity. In connection with the acquisition, we recorded a contingent liability of $2.5 million, which represents the expected future payment of additional consideration to ARM based on the achievement of certain performance targets. The payment, which is expected to be paid in 2019, is contingent upon the achievement of certain gross margin targets during the 2018 calendar year. The recorded liability is based upon our most recent gross margin projections for the acquired assets and is subject to change based on actual performance or changes in our gross margin projections.

In August 2017, Flo-gas acquired certain operating assets of Chipola, which provides propane distribution service to approximately 800 residential and commercial customers in Bay, Calhoun, Gadsden, Jackson, Liberty, and Washington Counties, Florida.

In December 2017, Flo-gas acquired certain operating assets of Central Gas, which provides propane distribution service to approximately 325 residential and commercial customers in Glades, Highlands, Martin, Okeechobee, and St. Lucie Counties, Florida.

The revenue and net income from these acquisitions that were included in our consolidated statement of income for the year ended December 31, 2017, were not material. The amounts recorded in conjunction with these acquisitions are preliminary and subject to adjustment based on additional valuations performed during the measurement period.

Acquisition in 2015

Gatherco Merger

On April 1, 2015, we completed the merger with Gatherco, in which Gatherco merged with and into Aspire Energy, our then newly formed, wholly-owned subsidiary.

At closing, we issued 592,970 shares of our common stock, valued at $30.2 million based on the closing price of our common stock as reported on the NYSE on April 1, 2015. In addition, we paid $27.5 million in cash and assumed $1.7 million of existing outstanding debt, which we paid off on the same date. We also acquired $6.8 million of cash on hand at closing.



(in thousands)	Net Purchase Price
Chesapeake Utilities common stock issued	$	30,164
Cash	27,494
Acquired debt	1,696
Aggregate amount paid in the acquisition	59,354
Less: cash acquired	(6,806		)
Net amount paid in the acquisition	$	52,548

The merger agreement provided for additional contingent cash consideration to Gatherco's shareholders of up to $15.0 million based on a percentage of revenue generated from potential new gathering opportunities during the five-year period following the closing. As of December 31, 2017, there have been no related gathering opportunities developed; therefore, no contingent liability has been recorded. We are unable to estimate the range of future undiscounted contingent liability outcomes at this time. However, a liability for additional contingent cash consideration may be recorded prior to April 2020 as additional information becomes available.

We incurred $1.3 million in transaction costs associated with this merger, of which $514,000 and $786,000 were expensed during the years ended December 31, 2015 and 2014, respectively. Transaction costs were included in operations expense in the consolidated statements of income. The revenues and net income from this acquisition for the years ended December 31, 2017, 2016 and 2015, included in our consolidated statements of income, were $33.3 million and $8.9 million, respectively, for 2017, $26.6 million and $2.1 million, respectively, for 2016 and $16.7 million and $312,000, respectively, for 2015.

The purchase price allocation of the Gatherco acquisition is as follows:



(in thousands)	Purchase Price Allocation
Purchase price	$	57,658

Property plant and equipment	53,203
Cash	6,806
Accounts receivable	3,629
Income taxes receivable	3,163
Other assets	425
Total assets acquired	67,226

Long-term debt	1,696
Deferred income taxes	13,409
Accounts payable	3,837
Other current liabilities	745
Total liabilities assumed	19,687
Net identifiable assets acquired	47,539
Goodwill	$	10,119

The goodwill reflects the value paid primarily for opportunities for growth in a new and strategic geographic area. All of the goodwill from this acquisition was recorded in the Unregulated Energy segment and is not deductible for income tax purposes.