Acquisitions

9 Months Ended

Sep. 29, 2024

Acquisitions

Acquisitions

4. Acquisitions

Josam

Effective January 1, 2024, the Company completed the acquisition of Josam Company following its conversion into Josam Industries, LLC (“Josam”) in a share purchase transaction funded with cash on hand. The aggregate net purchase price was approximately $98.9 million, net of cash acquired of $4.6 million. The final post-closing working capital adjustment was immaterial and adjusted in the second quarter of 2024, resulting in a final purchase price of $99.0 million, net of cash acquired. Josam is based in Michigan City, Indiana, and is a leading provider and manufacturer of drainage and plumbing products, serving commercial, industrial, and multi-family end markets for over 100 years. Josam’s operating results since the date of acquisition are included in the Americas segment. The Company has determined that both the pro-forma and actual results, including Josam’s net sales, net income, and earnings per share, are not material to the Company’s financial results, and therefore has not included these disclosures.

The Company accounted for the transaction as a purchased business combination. During the first quarter of 2024, the Company performed the preliminary purchase price allocation for the Josam purchase, with immaterial adjustments in the second and third quarter of 2024 related to the final working capital and valuation adjustments. The purchase price allocation was considered substantially completed as of the third quarter of 2024, with final tax adjustments to be completed in the fourth quarter of 2024, which are not expected to be material. The acquisition resulted in the recognition of $35.5 million in goodwill and $39.4 million in intangible assets. The intangible assets acquired consist of customer relationships valued at $33.5 million with estimated lives of 15 years and the trade name valued at $5.9 million with an indefinite life. The goodwill is attributable to the workforce of Josam and the portfolio that will allow Watts to extend its product offerings as a result of the acquisition. For tax purposes, the Company accounted for the transaction as an asset acquisition and therefore the intangibles and goodwill are deductible for tax purposes resulting in future tax benefits.

The following table summarizes the preliminary value of the assets and liabilities acquired (in millions):

Cash	$	4.6
Trade accounts receivable		4.3
Inventories, net		15.0
Prepaid expenses and other current assets		0.5
Property, plant and equipment		7.6
Intangible assets		39.4
Goodwill		35.5
Accounts payable		(1.5)
Accrued expenses and other current liabilities		(1.8)
Purchase price	$	103.6

Bradley

On October 23, 2023, the Company completed the acquisition of Bradley Corporation following its conversion into Bradley Company, LLC (“Bradley”) in a share purchase transaction. The aggregate net purchase price was approximately $301.2 million, net of cash acquired of $9.2 million, and was financed by $210.0 million of borrowings under the Company’s Second Amended and Restated Credit Agreement with the remainder being funded by cash on hand. In the first quarter of 2024, the Company paid an additional $1.9 million to settle liabilities acquired in the transaction that were considered part of the total purchase price. The post-closing working capital adjustment was finalized and adjusted in the second quarter of 2024, resulting in a $4.6 million reduction to the purchase price. The adjusted aggregate net purchase price was approximately $298.5 million, net of cash of $9.2 million.

Bradley is based in Menomonee Falls, WI, and is a provider and manufacturer of commercial washroom and emergency safety products serving commercial (primarily institutional) and industrial end markets for over 100 years. Bradley offers a comprehensive product portfolio that includes plumbing fixtures, washroom accessories and emergency safety products to a diverse customer base. Bradley’s complementary portfolio will enable the Company to provide its customers with innovative water solutions, as it adds front-of-the-wall applications to its differentiated back-of-the-wall portfolio. The acquisition of Bradley is intended to align with the Company’s strategy to enhance its product offerings, drive growth and serve its customers.

Bradley’s operating results since the date of acquisition are included in the Americas segment. The Company accounted for the transaction as a purchased business combination. During the fourth quarter of 2023, the Company performed the preliminary purchase price allocation for the Bradley purchase, with immaterial adjustments expected related to the final working capital adjustment, final intangible asset valuations and deferred tax adjustments. During the first nine months of 2024, the Company completed the purchase price allocation. The changes to the purchase price allocation in the first nine months of 2024 were not material and resulted in the adjusted recognition of $92.6 million in goodwill and $115.3 million in intangible assets. The intangible assets acquired consist of customer relationships valued at $85.3 million with estimated lives of 15 years and the trade name valued at $30.0 million with an indefinite life. The goodwill is attributable to the workforce of Bradley and the strategic platform adjacency that will allow Watts to extend its product offerings as a result of the acquisition. For tax purposes, the Company accounted for the transaction as an asset acquisition and therefore the intangibles and goodwill are deductible for tax purposes resulting in future tax benefits.

The following table summarizes the value of the assets and liabilities acquired (in millions):

Cash	$	9.2
Trade accounts receivable		23.5
Inventories, net		38.4
Prepaid expenses and other current assets		3.5
Property, plant and equipment		47.2
Intangible assets		115.3
Goodwill		92.6
Accounts payable		(8.2)
Employee benefits, other		(4.9)
Other current liabilities		(8.4)
Other noncurrent liabilities		(0.5)
Purchase price	$	307.7

Supplemental pro-forma information (unaudited)

Had the Company completed the acquisition of Bradley at the beginning of 2023, net sales, net income and earnings per share would have been as follows:

	Third Quarter Ended				Nine Months Ended
	September 29,		September 24,		September 29,		September 24,
	2024		2023		2024		2023
	(Amounts in millions, except per share information)				(Amounts in millions, except per share information)
Net sales	$	543.6	$	557.6	$	1,711.8	$	1,664.5
Net income	$	69.1	$	67.1	$	223.6	$	209.1
Net income per share:
Basic EPS	$	2.07	$	2.00	$	6.68	$	6.25
Diluted EPS	$	2.06	$	2.00	$	6.67	$	6.23

Net income for the third quarter and nine months ended September 24, 2023 was adjusted to include $1.8 million and $5.7 million, respectively, of net interest expense related to the financing, $1.1 million and $3.2 million, respectively, of net amortization expense resulting from the estimated allocation of purchase price to amortizable tangible and intangible assets, and $0.6 million and $1.6 million, respectively, of income tax expense to align the effective tax rate. Net income was adjusted to exclude net acquisition-related charges of $2.2 million and $6.2 million for the third quarters and nine months ended September 24, 2023, respectively. The pro-forma financial information excludes adjustments for estimated cost synergies or other effects of the integration of Bradley. Net income for the third quarter and nine months ended September 29, 2024 included $7.8 million pre-tax gain from settlement of Bradley’s Pension Plan, and for the nine months ended September 29, 2024 included $4.8 million of acquisition-related and purchase accounting charges.

Enware

On March 31, 2023, the Company completed the acquisition of the primary business assets of Enware Australia Pty Ltd (“Enware”) in an all-cash transaction. Enware is based near Sydney, Australia, and has been a leading supplier for specialty plumbing and safety equipment used in the Australian institutional and commercial end markets since 1937. The acquisition of Enware aligns with the Company’s strategy to expand geographically into countries with mature and enforced plumbing codes. Enware is expected to enhance the Company’s product offering and channel access into the Australian marketplace. The acquisition of Enware was deemed not to be material to the Company’s consolidated financial statements.