4. Acquisitions & Dispositions

CPO Commerce, Inc.

On May 30, 2014, Essendant Co. completed the acquisition of CPO Commerce, Inc. (“CPO”), a leading internet retailer of brand name power tools and equipment. The purchase price was $37.8 million, including $5.5 million related to the estimated fair value of contingent consideration. The contingent consideration ultimately paid will be determined based on CPO’s sales during a three-year period immediately following the acquisition date, and will be between zero and $10 million. The Company has currently recorded a liability for contingent consideration of $9.7 million. Any changes to the estimated fair value of contingent consideration after the original purchase accounting is completed are recorded in “warehousing, marketing and administrative expenses” in the period in which a change occurs. The Company financed the 100% stock acquisition with borrowings under the Company’s available committed bank facilities. Purchase accounting for this transaction was completed as of May 30, 2015.

CPO contributed $135.8 million and $119.7 million to the Company’s 2016 and 2015 net sales, respectively. Had the CPO acquisition been completed as of the beginning of 2014, the Company’s unaudited pro forma net sales and net income for the twelve-month period ending December 31, 2014 would not have been materially impacted.

MEDCO

On October 31, 2014, Essendant Co. completed the acquisition of 100% of the capital stock of Liberty Bell Equipment Corp., a United States wholesaler of automotive aftermarket tools and equipment, and its affiliates (collectively, MEDCO) including G2S Equipement de Fabrication et d’Entretien, a Canadian wholesaler. The purchase price was $150.4 million, including $4.7 million related to the estimated fair value of contingent consideration. The contingent consideration ultimately paid will be determined based on MEDCO’s sales and EBITDA during a three-year period immediately following the acquisition date. The final payments related to the contingent consideration will be determined by actual achievement in the earn-out periods and will be between zero and $10 million. The Company paid approximately $1.7 million in 2016 and has a liability for contingent consideration of $3.2 million remaining. Any changes to the estimated fair value of contingent consideration after the original purchase accounting is completed are recorded in “warehousing, marketing and administrative expenses” in the period in which a change occurs. Additionally, $6.0 million was reserved as a payable upon completion of an eighteen-month indemnification period, which was paid during the second quarter of 2016. This acquisition was funded through a combination of cash on hand and cash available under the Company’s committed bank facilities. Purchase accounting for this transaction was completed as of October 31, 2015.

MEDCO contributed $271.1 million and $270.8 million to the Company’s 2016 and 2015 net sales, respectively. Had the MEDCO acquisition been completed as of the beginning of 2014, the Company’s unaudited pro forma net sales for the year ended December 31, 2014 would have been $5.5 billion, and the Company’s unaudited pro forma net income for the year ended December 31, 2014 would have been $117.9 million.

Nestor Sales LLC

On July 31, 2015, Essendant Co. completed the acquisition of 100% of the capital stock of Nestor Sales LLC (“Nestor”), a leading wholesaler and distributor of tools, equipment and supplies to the transportation industry. The purchase price was $41.8 million. This acquisition was funded through a combination of cash on hand and cash available under the Company’s revolving credit facility. Purchase accounting for this transaction was completed as of June 30, 2016.

Nestor contributed $64.9 million to the Company’s 2016 net sales. Had the Nestor acquisition been completed as of the beginning of 2014, the Company’s unaudited pro forma net sales and net income for the twelve-month periods ended December 31, 2015 and 2014 would not have been materially impacted.

The final allocations of the purchase prices were as follows (amounts in thousands):

	CPO			MEDCO			NESTOR
Purchase price, net of cash acquired	$	32,225		$	145,873		$	39,983

Accounts receivable		(2,956	)		(44,815	)		(9,230	)
Inventories		(13,051	)		(55,491	)		(12,067	)
Other current assets		(269	)		(1,299	)		(339	)
Property, plant and equipment, net		(488	)		(4,408	)		(1,251	)
Other assets		-			(650	)		(752	)
Intangible assets		(12,800	)		(40,000	)		(16,930	)
Total assets acquired		(29,564	)		(146,663	)		(40,569	)

Accounts payable		16,911			32,383			4,992
Accrued liabilities		2,580			5,542			1,943
Deferred income taxes		3,453			2,167			3,287
Other long-term liabilities		90			52			76
Total liabilities assumed		23,034			40,144			10,298
Goodwill	$	25,695		$	39,354		$	9,712

The purchased identifiable intangible assets were as follows (amounts in thousands):

	CPO			MEDCO			NESTOR
	Total		Estimated Life	Total		Estimated Life	Total		Estimated Life
Customer relationships	$	5,200	3 years	$	37,590	3-15 years	$	15,570	13 years
Trademark		7,600	15 years		2,410	1.5-15 years		1,360	2.5-15 years
Total	$	12,800		$	40,000		$	16,930

Disposition of Azerty de Mexico

In September 2015, the Company completed the 100% stock-sale of its subsidiary, Azerty de Mexico, to the local general manager. The sale price was a combination of cash and a seller’s note, totaling $8.7 million. Final payment on the seller’s note was received in 2016. When the decision to sell the subsidiary was approved, in accordance with Accounting Standards Codification (ASC) 360-10-45-9 Property, Plant, and Equipment, Azerty de Mexico met all of the criteria to be classified as a held-for-sale asset disposal group. In accordance with ASC 350-20-40, Intangibles – Goodwill and Other, the Company allocated a proportionate share of the goodwill balance from the Office and Facilities reporting unit based on the subsidiary’s relative fair value to the reporting unit and performed an impairment test for the allocated goodwill utilizing the cost approach to value the subsidiary. Based upon the impairment test, the $3.3 million of goodwill allocated to the subsidiary was determined to be fully impaired. Additionally, in conjunction with classifying the subsidiary as a held-for-sale asset disposal group, the Company revalued the subsidiary to fair value using the cost-approach method less the estimated cost to sell. The carrying value of the disposal group, including a $10.1 million cumulative foreign currency translation adjustment, was then compared to the fair value less the estimated cost to sell, resulting in a pre-tax impairment loss of $10.1 million. The goodwill impairment of $3.3 million, the held-for-sale impairment of $10.1 million, and the additional costs to sell of $3.6 million were recorded in 2015 within “warehousing, marketing and administrative expenses. The loss recorded upon the disposition of Azerty de Mexico was $1.5 million. The pre-tax loss, excluding the foreign currency translation adjustment noted above, attributable to Azerty de Mexico was $5.2 million and $0.3 million for the years ended December 31, 2015 and 2014, respectively.

Disposition of MBS Dev

On December 16, 2014, the Company sold MBS Dev, as subsidiary focused on software solutions for distribution companies. In conjunction with this sale, the Company recognized an $8.2 million loss on the disposition of the business. This consisted of a $9.0 million goodwill impairment and an $0.8 million gain on the disposal. See Note 6 “Goodwill and Intangible Assets” for further detail.