Acquisitions

6 Months Ended

Jun. 30, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Acquisitions

Acquisition

Acquisitions are accounted for in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). Accordingly, we make an initial allocation of the purchase price at the date of acquisition based upon our understanding of the fair value of the acquired assets and assumed liabilities.

OpSec Acquisition

On May 3, 2024, we acquired the OpSec Security business (“OpSec”), for a base purchase price of $270 million on a cash-free and debt-free basis, subject to customary purchase price adjustments. The amount paid, net of cash acquired, was $269.8 million. We utilized $210.0 million from our Revolving Facility (as defined in Note 13, “Financing”) and cash on hand to fund the acquisition.

OpSec is a global leader in authentication and brand integrity with a heritage that spans four decades. OpSec serves brand owners, licensors, and media rights owners, helping them build intangible value and mitigate vulnerability across both physical and digital domains. OpSec also provides high-security and compliance solutions to governments. The acquisition of OpSec expands the Company’s capabilities across the entire authentication value chain, creating a leading brand and product authentication platform. In connection with the acquisition of OpSec, we renamed our “Crane Currency” reportable segment to “Security and Authentication Technologies,” which consists of the Crane Currency business and the acquired OpSec business.

Allocation of Consideration Transferred to Net Assets Acquired

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of OpSec. The final determination of the fair value of certain assets and liabilities will be completed within the measurement period as required by ASC 805. The purchase price allocation is preliminary, pending our evaluation and determination of post-closing and final working capital adjustments. Potential adjustments made are not expected to be material in relation to the preliminary values presented below:

Net assets acquired (in millions)
Total current assets	$	36.8
Property, plant and equipment	17.3
Other assets	9.8
Intangible assets	158.3
Goodwill	123.1
Total assets acquired	$	345.3
Total current liabilities	$	33.6
Other liabilities	41.9
Total assumed liabilities	$	75.5
Net assets acquired	$	269.8

The amount allocated to other assumed liabilities includes a contingent liability of $1.5 million related to a prior OpSec acquisition. The amount payable is contingent upon achievement of specific revenue targets and is capped at $2.2 million. The contingency conditions expire at the end of 2026, at which point if the contingency conditions have not been met, no payment will occur. The contingent liability is measured at fair value. See Note 14, “Fair Value Measurements” for further details.

The amount allocated to goodwill reflects expected sales synergies, manufacturing efficiency and research and development. Goodwill from this acquisition is not deductible for tax purposes.

The amounts allocated to acquired intangible assets, and their associated weighted-average useful lives which were determined based on the period in which the assets are expected to contribute directly or indirectly to our future cash flows, consist of the following:

Intangible Assets (in millions)	Intangible Fair Value		Weighted Average Life (in years)
Intellectual property rights	$	4.3	9.0
Customer relationships	115.5		19.3
Developed technology	36.5		5.7
Backlog	2.0		0.7
Total acquired intangible assets	$	158.3

The intellectual property rights intangible asset category consists of trade names. The fair values of the trade names were determined by using an “income approach”, specifically the relief-from-royalty approach, which is a commonly accepted valuation approach. This approach is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty in order to exploit the related benefits of this asset. Therefore, a portion of OpSec’s earnings, equal to the after-tax royalty that would have been paid for the use of the asset, can be attributed to the Company’s ownership. The trade names are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 9 years.

The fair values of the developed technology intangible assets were also determined by the relief-from-royalty approach. Similarly, this approach is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty in order to exploit the related benefits of the technology. Therefore, a portion of OpSec’s earnings, equal to the after-tax royalty that would have been paid for the use of the technology, can be attributed to the Company’s ownership of the technology. The technology assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 3 to 6 years.

The fair values of the customer relationships and backlog intangible assets were determined by using an “income approach”, which is a commonly accepted valuation approach. Under this approach, the net earnings attributable to the asset or liability being measured are isolated using the discounted projected net cash flows. These projected cash flows are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible asset or liability being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. The Company’s estimates of market participant net cash flows considered historical and projected pricing, operational performance including market participant synergies, aftermarket retention, product life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows were adjusted to reflect the potential attrition of existing customers in the future, as existing customers are expected to decline over time. The attrition-adjusted future cash flows are then discounted to present value using an appropriate discount rate. The customer relationship is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 16 to 20 years.

Supplemental Pro Forma Data

OpSec’s results of operations have been included in our financial statements for the period subsequent to the completion of the acquisition on May 3, 2024. The following unaudited pro forma consolidated and combined information assumes that the acquisition was completed on January 1, 2023. The unaudited pro forma consolidated and combined net sales for the three-and-six months ended June 30, 2024 would have been $382.0 million and $729.4 million, respectively. The unaudited pro forma consolidated and combined net sales for the three-and-six months ended June 30, 2023 would have been $379.3 million and $738.1 million, respectively. The unaudited pro forma consolidated and combined net income attributable to common shareholders for the three-and-six months ended June 30, 2024 would have been $47.8 million and $88.8 million, respectively. The unaudited pro forma consolidated and combined net income attributable to common shareholders for the three-and-six months ended June 30, 2023 would have been $32.7 million and $67.5 million, respectively. The unaudited pro forma consolidated and combined information is provided for illustrative purposes only and is not indicative of our actual consolidated and combined results of operations or consolidated financial position.

Acquisition-Related Costs

Acquisition-related costs are expensed as incurred. For the three-and-six months ended June 30, 2024, we recorded $6.1 million and $10.0 million, respectively, of integration and transaction costs in our Unaudited Consolidated and Combined Condensed Statements of Operations.

In addition, the Company recorded $4.0 million of inventory step-up amortization within “Cost of sales” in the Unaudited Consolidated and Combined Condensed Statements of Operations.