Business Acquisitions and Investments

9 Months Ended

Sep. 30, 2023

Business Acquisitions and Investments [Abstract]

Business Acquisitions and Investments

Note 3.   Business Acquisitions and Investments

2023 Increase in Equity Investment

Investment in Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd.

In April 2014, we formed Foshan GWO YNG SMP Vehicle Climate Control & Cooling Products Co. Ltd. (“Gwo Yng”), a 50/50 joint venture with Gwo Yng Enterprise Co., Ltd., a China-based manufacturer of air conditioner accumulators, filter driers, hose assemblies and switches.  We acquired our 50% interest in the joint venture for approximately $14 million.  In March 2018, we acquired an additional 15% equity interest in the joint venture for RMB 26,475,583 (approximately $4.2 million), thereby increasing our equity interest in the joint venture to 65%.  While we increased our equity interest in the joint venture to 65%, the minority shareholder maintained substantive participating rights that allowed it to participate in certain significant financial and operating decisions that occur in the ordinary course of business.  As a result, we continued to account for our investment in the joint venture under the equity method of accounting.

In July 2023, we acquired an additional 15% equity interest in the joint venture for RMB 27,378,290 (approximately $4 million), thereby increasing our equity interest in Gwo Yng to 80%.  In connection with the transaction, we amended and restated the charter documents of Gwo Yng to remove all minority shareholder substantive participating rights, giving SMP control of Gwo Yng.  As a result, as of the closing date of the transaction, Gwo Yng will be accounted for as a business combination achieved in stages (“a step acquisition”).  Accordingly, commencing on the closing of the transaction, we will report the results of Gwo Yng on a consolidated basis with the minority ownership interest reported as a noncontrolling interest.

The following table summarizes the allocation of the total step acquisition purchase consideration to the identifiable assets acquired and liabilities assumed based on their fair values (in thousands):

Total purchase consideration (1)				$	21,725
Assets acquired and liabilities assumed:
Cash and cash equivalents	$	6,779
Receivables		5,912
Inventory		5,945
Other current assets		528
Property, plant and equipment, net		2,924
Operating lease right-of-use assets		4,372
Intangible assets (2)		532
Goodwill		2,208
Long term investments and other assets		7,257
Current liabilities		(6,004	)
Noncurrent operating lease liabilities		(3,455	)
Subtotal					26,998
Fair value of acquired noncontrolling interest					(5,273	)
Total purchase consideration allocated to net assets acquired				$	21,725

(1) Total purchase consideration is the sum of the fair value of the previously held equity investment interest in Gwo Yng of $17.7 million and the cash paid of $4 million for the acquisition of the additional 15% equity ownership interest.

(2) Intangible assets consists of customer relationships of $0.4 million and capitalized software of $0.1 million.

Intangible assets of $0.4 million consisting of customer relationships will be amortized on a straight-line basis over the estimated useful life of 10 years.  Goodwill of $2.2 million was allocated to the Temperature Control and Engineered Solutions segments in the amounts of $1.7 million and $0.5 million, respectively.  The goodwill reflects relationships, business specific knowledge and the replacement cost of an assembled workforce associated with personal reputations.

Revenues from Gwo Yng included in our consolidated statement of operations from the closing date of our 15% equity increase in July 2023 through September 30, 2023 were not material.

2022 Increase in Equity Investment

Investment in Foshan Che Yijia New Energy Technology Co., Ltd.

In August 2019, we acquired an approximate 29% minority interest in Foshan Che Yijia New Energy Technology Co., Ltd. (“CYJ”) for approximately $5.1 million. CYJ is a manufacturer of automotive electric air conditioning compressors and is located in China. We determined that due to a lack of a voting majority and other qualitative factors, we do not control the operations of CYJ and accordingly, our investment in CYJ would be accounted for under the equity method of accounting.

In October 2022, we acquired an additional 3.55% equity interest in CYJ for RMB 1.7 million (approximately $242,000), increasing our minority ownership interest in CYJ from an approximate interest of 29% to 33%. The additional acquired ownership interest in CYJ was paid for in cash funded by borrowings under our Credit Agreement with JPMorgan Chase Bank, N.A., as agent.  We will continue to account for our minority interest in CYJ using the equity method of accounting.

2022 Business Acquisitions

Acquisition of Capital Stock of Kade Trading GmbH (“Kade”)

In October 2022, we acquired 100% of the capital stock of Kade Trading GmbH (“Kade”) headquartered in Glinde, Germany for Euros 2.7 million (approximately $2.7 million) plus a Euros 0.5 million (approximately $0.5 million) earn-out based upon Kade’s performance in 2024 and 2025.  Kade is a supplier across Europe of mobile temperature control components to commercial vehicle, passenger car and specialty equipment markets and has been a distributor of products from our joint ventures including electric compressors, hose assemblies and receiver dryers, with annual sales of approximately $6 million. The acquired Kade business, reported as part of our Engineered Solutions segment, was paid for with cash.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values (in thousands):

Purchase price				$	3,176
Assets acquired and liabilities assumed:
Receivables	$	790
Inventory		829
Other current assets (1)		1,003
Property, plant and equipment, net		63
Operating lease right-of-use assets		401
Intangible assets		2,395
Goodwill		766
Current liabilities		(1,977	)
Noncurrent operating lease liabilities		(328	)
Deferred income taxes		(766	)
Net assets acquired				$	3,176

(1)
The other current assets balance includes $1 million of cash acquired.

Intangible assets acquired of $2.4 million consist of customer relationships that will be amortized on a straight-line basis over the estimated useful life of 15 years.

Incremental revenues from the acquired Kade business included in our consolidated statement of operations for the three months and nine months ended September 30, 2023 were $1.6 million and $5 million, respectively.