Acquisitions

9 Months Ended

Oct. 01, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

Acquisitions

On August 1, 2022, the Company acquired all of the shares of the FASA Group, the largest independent rendering company in Brazil, pursuant to a stock purchase agreement dated May 5, 2022 (the “FASA Acquisition”). The FASA Group, with its 14 rendering plants and an additional two plants under construction, will supplement the Company's global supply of waste fats, making it a leader in the supply of low-carbon waste fats and oils.

The Company initially paid approximately R$2.9 billion Brazilian Real in cash (approximately $562.6 million USD at the exchange rate in effect on the closing date of the acquisition) for all the shares of the FASA Group, subject to certain post closing adjustments and a contingent payment based on future earnings growth in accordance with the terms set forth in the stock purchase agreement. Under the stock purchase agreement, such contingent payment could range from R$0 to a maximum of R$1.0 billion if future earnings growth reaches certain levels over a three-year period. The Company has completed an analysis for this contingency and has recorded a liability of approximately R$867.5 million (approximately $168.1 million USD at the exchange rate in effect on the closing date of the acquisition) representing the present value of the maximum contingency under the income approach. The Company will analyze the contingency each quarter and any change will be booked through operating income including the accretion of the change in the long-term liability. The Company initially financed the FASA Acquisition by borrowing approximately $515.0 million of revolver borrowings under the Company's Amended Credit Agreement, with the remainder coming from cash on hand.

The following table summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed in the FASA Acquisition as of August 1, 2022 (unaudited) (in thousands):

Accounts receivable	$	108,495
Inventories	44,079
Other current assets	13,603
Property, plant and equipment	142,931
Identifiable intangible assets	161,182
Goodwill	400,504
Operating lease right-of-use assets	583
Other assets	51,161
Accounts payable	(18,052)
Current portion of long-term debt	(10,779)
Accrued expenses	(44,362)
Long-term debt, net of current portion	(41,926)
Long-term operating lease liabilities	(583)
Deferred tax liability	(79,691)
Other noncurrent liabilities	(503)
Non-controlling interests	(18,212)
Purchase price, net of cash acquired	$	708,430
Less hold-back	21,705
Less contingent consideration	168,128
Cash paid for acquisition, net of cash acquired	$	518,597

The $400.5 million of goodwill from the FASA Acquisition, arising from synergies expected to strengthen the Company's base business and expand its ability to provide additional carbon intensity feedstocks to fuel the growing demand for renewable diesel, was assigned to the Feed Ingredients segment and is expected to not be deductible for tax purposes. The identifiable intangible assets include $150.2 million in routes with a life of 12 years and $11.0 million in trade name with a life of 5 years for a total weighted average life of approximately 11.5 years. The Company is still assessing the provisional amounts recorded for assets acquired and liabilities assumed including possible future purchase price adjustments related to working capital and taxes, thus the final determination of the value of assets acquired and liabilities assumed may result in retrospective adjustments to the values presented in the above table with a corresponding adjustment to goodwill.

The amount of net sales and net loss from the FASA Acquisition included in the Company's consolidated statement of operations for both the three and nine months ended October 1, 2022 were $50.7 million and $(7.3) million, respectively. In addition, the Company incurred acquisition costs related to the FASA Acquisition for the three and nine months ended October 1, 2022 of approximately $0.3 million and $2.4 million, respectively.

On May 2, 2022, the Company acquired all of the shares of Valley Proteins, pursuant to a stock purchase agreement dated December 28, 2021 (the “Valley Acquisition”). The Valley Acquisition includes a network of 18 major rendering plants and used cooking oil facilities throughout the southern, southeast and mid-Atlantic regions of the U.S. The Company initially paid approximately $1.177 billion in cash for the Valley Acquisition, which is subject to various post-closing adjustments in accordance with the stock purchase agreement. During the third quarter of fiscal 2022, the Company made immaterial working capital adjustments and made a cash payment for a working capital purchase price adjustment per the stock purchase agreement of approximately $6.0 million with an offset to goodwill. The initial purchase price was financed by borrowing all of the Company's delayed draw term A-1 facility of $400.0 million and delayed draw term A-2 facility of $500.0 million, with the remainder coming through revolver borrowings under the Company's Amended Credit Agreement.

The following table summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed in the Valley Acquisition as of May 2, 2022 (unaudited) (in thousands):

Accounts receivable	$	68,558
Inventories	58,246
Other current assets	13,825
Property, plant and equipment	409,405
Identifiable intangible assets	389,200
Goodwill	355,141
Operating lease right-of-use assets	16,380
Other assets	14,164
Accounts payable	(47,615)
Current portion of long-term debt	(2,043)
Current operating lease liabilities	(4,779)
Accrued expenses	(61,802)
Long-term debt, net of current portion	(5,995)
Long-term operating lease liabilities	(11,601)
Other noncurrent liabilities	(19,436)
Purchase price, net of cash acquired	$	1,171,648

The $355.1 million of goodwill from the Valley Acquisition, arising from synergies expected to strengthen the Company's base business and expand its ability to provide additional carbon intensity feedstocks to fuel the growing demand for renewable diesel, was assigned to the Feed Ingredients segment and is expected to be deductible for tax purposes. The identifiable intangible assets include $292.1 million in routes with a life of 15 years and $97.1 million in permits with a life of 15 years for a total weighted average life of approximately 15 years. The Company is still assessing the provisional amounts recorded for assets acquired and liabilities assumed including possible future purchase price adjustments related to tax benefits, thus the final determination of the value of assets acquired and liabilities assumed may result in retrospective adjustments to the values presented in the above table with a corresponding adjustment to goodwill.

The amount of net sales and net loss from the Valley Acquisition included in the Company's consolidated statement of operations for the three and nine months ended October 1, 2022 were $235.4 million and $399.7 million and $(15.4) million and $(14.9) million, respectively. In addition, the Company incurred acquisition costs related to the Valley Acquisition for the three and nine months ended October 1, 2022 of approximately $0.1 million and $5.0 million, respectively.

As a result of the Valley Acquisition and the FASA Acquisition, effective May 2, 2022 and August 1, 2022, respectively, the Company began including the operations of the Valley Acquisition and the FASA Acquisition in the Company's consolidated financial statements. The following table presents selected pro forma information, for comparative purposes, assuming the Valley Acquisition and FASA Acquisition had occurred on January 3, 2021 for the periods presented (unaudited) (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net sales	$	1,779,227	$	1,457,148	$	5,291,788	$	4,244,997
Net income	194,188		140,342		564,833		476,100

The Company notes that pro forma results of operations for the acquisitions discussed below have not been presented because the effect of each acquisition individually or in the aggregate is not deemed material to revenues, total assets and net income of the Company for any period presented.

On February 25, 2022, a wholly-owned international subsidiary of the Company acquired all of the shares of Group Op de Beeck, a Belgium digester, organic and industrial waste processing company, that is now included in our Fuel Ingredients segment, for an initially estimated purchase price of approximately $91.7 million, plus or minus various closing adjustments in accordance with the stock purchase agreement. Initially, the Company paid approximately $71.3 million in cash consideration. In the second quarter of fiscal 2022, the Company paid an additional $4.2 million for purchase price adjustments related to working capital and estimated future construction costs for a total purchase price of approximately $75.5 million. The Company recorded assets and liabilities consisting of property, plant and equipment of approximately $28.1 million, intangible assets of approximately $27.2 million, goodwill of approximately $29.6 million and other net liabilities of approximately $(9.4) million including working capital and net debt. The Company is still assessing the provisional amounts recorded for assets acquired and liabilities assumed including possible future purchase price adjustments, thus the final determination of the value of assets acquired and liabilities assumed may result in retrospective adjustments to the values presented with a corresponding adjustment to goodwill The Company does not expect material changes to these pending amounts. The identifiable intangibles have a weighted average life of 15 years.

Additionally, the Company completed other immaterial acquisitions in the first nine months of fiscal 2022.

The Company incurred acquisition costs of approximately $4.5 million and $13.6 million for the three and nine months ended October 1, 2022, respectively related to the above disclosed acquisitions, including the Valley Acquisition, the FASA Acquisition, Group Op de Beeck, the recently announced Gelnex acquisiton and potential future acquisitions that have yet to close.