Acquisitions

6 Months Ended

Jan. 31, 2021

CGC Technology Limited

On January 27, 2020, we completed the acquisition of CGC Technology Limited ("CGC"), a privately held company located in the United Kingdom, pursuant to the Share Purchase Agreement, dated as of January 27, 2020. CGC is a leading global provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment.

The acquisition has an aggregate purchase price for accounting purposes of $23,650,000, of which $12,075,000 was paid in cash and $11,575,000 was paid by the issuance of 323,504 shares of Comtech’s common stock at a volume weighted average stock price of $35.78. The fair value of consideration transferred in connection with this acquisition was $23,490,000, which was net of $160,000 of cash acquired.

We are accounting for the acquisition of CGC under the acquisition method of accounting in accordance with FASB ASC 805. The purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value as of January 27, 2020, pursuant to the business combination accounting rules. Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred. Pro forma financial information is not disclosed, as the acquisition was not material.

The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with the CGC acquisition:


	Purchase Price Allocation (1)		Measurement Period Adjustments	Purchase Price Allocation
Paid in cash	$	12,075,000	—	$	12,075,000
Paid in common stock	11,575,000		—	11,575,000
Purchase price at fair value	$	23,650,000	—	$	23,650,000
Allocation of aggregate purchase price:
Cash and cash equivalents	$	160,000	—	$	160,000
Current assets	5,005,000		—	5,005,000
Property, plant and equipment	697,000		121,000	818,000
Operating lease assets	924,000		—	924,000
Deferred tax assets, non-current	470,000		47,000	517,000
Non-current assets	89,000		—	89,000
Contract liabilities	(6,890,000)		—	(6,890,000)
Accrued warranty obligations	(1,000,000)		(500,000)	(1,500,000)
Other current liabilities	(3,104,000)		—	(3,104,000)
Non-current liabilities	(1,327,000)		—	(1,327,000)
Net tangible liabilities at fair value	$	(4,976,000)	(332,000)	$	(5,308,000)
Identifiable intangibles, deferred taxes and goodwill:						Estimated Useful Lives
Technology	$	6,700,000	300,000	$	7,000,000	20 years
Customer relationships	8,100,000		(300,000)	7,800,000		19 years
Trade name	1,000,000		100,000	1,100,000		5 years
Other intangible liabilities	—		(2,500,000)	(2,500,000)		1.5 years
Deferred tax liabilities	(2,984,000)		426,000	(2,558,000)
Goodwill	15,810,000		2,306,000	18,116,000		Indefinite
Allocation of aggregate purchase price	$	23,650,000	—	$	23,650,000

(1) As reported in the Company's Quarterly Report on Form 10-Q for the three months ended October 31, 2020.

The acquired identifiable intangible assets and liabilities are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets and liabilities are utilized over their estimated useful lives. The fair value of customer relationships was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future. The fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets. The fair value of other intangible liabilities was based on the difference in cash flows related to remaining performance obligations under certain acquired contracts as compared to market terms for similar arrangements that a market participant would expect. Other intangible liabilities will be credited against the cost of sales over the remaining performance of the contracts.

Among the factors contributing to the recognition of goodwill, as a component of the purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Government Solutions segment based on specific identification and is generally not deductible for income tax purposes.

Subsequent Event - Acquisition of UHP Networks Inc.

On March 2, 2021, we completed our acquisition of UHP Networks Inc. ("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions pursuant to a stock purchase agreement initially entered into in November 2019 and amended in June 2020 and on March 2, 2021.

The initial up-front payment of approximately $24,000,000 was paid in shares of our common stock. An additional $5,000,000, payable at our option in cash and or shares of common stock, is subject to certain conditions that we expect will be satisfied within twelve months after the acquisition. The stock purchase agreement also provides for an earn-out payment of up to an additional $9,000,000, also payable at our option in cash and or common stock, if specified sales milestones are reached during the eighteen-month period ending September 30, 2022. We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average price of approximately $28.14 per share, to satisfy initial payment and escrow arrangements under the terms of the stock purchase agreement.

Acquisition Plan Expenses

During the three and six months ended January 31, 2021 and 2020, we incurred acquisition plan expenses of $3,357,000 and $6,025,000 and $94,540,000 and $8,414,000, respectively. Of the amount recorded in the six months ended January 31, 2021, $88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd. ("Gilat"), including $70,000,000 paid in cash to Gilat. The remaining costs for the three and six months ended January 31, 2021 primarily related to the acquisition of UHP and GD NG-911 acquisition-related litigation. Additionally, we recorded $1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter.

Cash Flow Presentation of $70,000,000 Merger Termination Fee

Because we did not complete the Gilat acquisition, we presented the first quarter fiscal 2021 $70,000,000 payment to Gilat as a reduction to cash flows from operating activities for the period rather than as a cash outflow stemming from investing activities.