Acquisition

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

On August 31, 2020, the Company acquired Partsmaster from NCH Corporation. Partsmaster is a leading maintenance, MRO solutions provider that serves approximately 16,000 customers with approximately 200 sales representatives. The acquisition was made primarily to expand the Company's sales coverage, expand product lines, add experienced sales representatives, and leverage the Company's infrastructure.

The purchase price was $35.3 million in cash plus the assumption of certain liabilities. The Company paid $2.3 million of the purchase price in cash at closing and paid the remaining $33.0 million in May 2021. The payment obligation was discounted to present value and recognized as an accrued acquisition liability of $32.7 million as of December 31, 2020 in the Company's condensed consolidated balance sheet. Interest expense of $0.3 million was recorded in the nine months ended September 30, 2021. Payment was guaranteed under the Purchase Agreement, and included the issuance of a $33.0 million irrevocable standby letter of credit. The letter of credit was released upon payment of the acquisition liability in May 2021.

The purchase price of the acquisition was allocated to the fair value of Partsmaster’s assets and liabilities on the acquisition date. The fair market value appraisals of the majority of the assets and liabilities was determined by a third party valuation firm using management estimates and assumptions including intangible assets of $5.0 million for customer relationships and $2.8 million for trade names, and their estimated useful lives of 10 and 5 years, respectively. The $15.8 million allocated to goodwill reflects the purchase price less the fair market value of the identifiable net assets. The goodwill is attributable to the workforce of the acquired business and the synergies expected to arise after Lawson's acquisition of Partsmaster. The entire amount of goodwill is expected to be deductible for tax purposes.

The accounting for this acquisition was complete as of June 30, 2021. Partsmaster contributed $13.6 million of revenue and an operating loss of $0.8 million in the third quarter of 2021 and $44.6 million of revenue and $0.4 million of operating income in the first nine months of 2021, compared to $5.4 million of revenue and $0.4 million of operating income in the third quarter 2020 post acquisition.

A summary of the purchase price allocation of the acquisition is as follows (Dollars in thousands):


Cash paid and payable and liabilities assumed
Cash paid	$	34,523
Accounts payable and accrued expenses	4,086
Deferred compensation	2,938
Lease obligation	620
	$	42,167
Fair value of assets acquired
Goodwill	$	15,816
Inventories	7,797
Accounts receivable	7,706
Customer relationships	4,961
Trade names	2,775
Property, plant and equipment	2,121
Right of use asset	620
Other assets	371
	$	42,167

The unaudited pro forma revenue and net income for the Company for the three months ended September 30, 2020, assuming the Partsmaster acquisition closed on January 1, 2019, was $101.2 million and $2.0 million, respectively. The unaudited pro forma revenue and net income for the Company for the nine months ended September 30, 2020, assuming the Partsmaster acquisition closed on January 1, 2019, was $298.5 million and $16.3 million, respectively.

The pro forma disclosures include adjustments for amortization of intangible assets, implied interest expense and acquisition costs to reflect results as if the acquisition of Partsmaster had closed on January 1, 2019 rather than on the actual

acquisition date. This pro forma information utilizes certain estimates, is presented for illustrative purposes only and is not intended to be indicative of the actual results of operation. In addition, future results may vary significantly from the results reflected in the pro forma information. The unaudited pro forma financial information does not reflect the impact of future positive or negative events that may occur after the acquisition, such as anticipated cost savings from operating synergies.