
5.	Acquisitions

IP Cleaning S.p.A.

On April 6, 2017, we acquired 100 percent of the outstanding capital stock of IP Cleaning S.p.A. and its subsidiaries ("IPC Group") for a purchase price of $353,769, net of cash acquired of $10,652. The primary seller was Ambienta SGR S.p.A., a European private equity fund. IPC Group, based in Italy, is a designer and manufacturer of innovative professional cleaning equipment, cleaning tools and supplies. The acquisition strengthens our presence and market share in Europe and will allow us to better leverage our EMEA cost structure. We funded the acquisition of IPC Group, along with related fees, including refinancing of existing debt, with funds raised through borrowings under a senior secured credit facility in an aggregate principal amount of $420,000. Further details regarding our acquisition financing arrangements are discussed in Note 9.

The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:



ASSETS
Restricted Cash	538
Receivables	40,067
Inventories	54,222
Other Current Assets	4,362
Assets Held for Sale	2,247
Property, Plant and Equipment	62,845
Intangible Assets Subject to Amortization:
Trade Name	29,963
Customer Lists	115,571
Noncompete Agreements	3,210
Other Assets	4,168
Total Identifiable Assets Acquired	317,193
LIABILITIES
Accounts Payable	31,529
Accrued Expenses	15,756
Deferred Income Taxes	58,573
Other Liabilities	6,967
Total Identifiable Liabilities Assumed	112,825
Net Identifiable Assets Acquired	204,368
Noncontrolling Interest	(3,312		)
Goodwill	152,713
Total Estimated Purchase Price, net of Cash Acquired	$	353,769

The acquired assets, liabilities and operating results have been included in our Condensed Consolidated Financial Statements from the date of acquisition. During the three and six months ended June 30, 2017, we included Net Sales of $59,074 and a net loss of $5,187 from IPC Group in our Condensed Consolidated Statements of Operations. The net loss includes a $4,470 fair value adjustment, net of tax, to the acquired inventory of IPC Group. In addition, costs of $4,684, net of tax, associated with the acquisition of the IPC Group were expensed as incurred in the Condensed Consolidated Statements of Operations. The preliminary gross amount of the accounts receivable acquired is $43,785, of which $3,718 is expected to be uncollectible.

The fair value measurement was preliminary at June 30, 2017. During the measurement period, the Company expects to record adjustments relating to the finalization of Intangible Assets, Inventories, Restricted Cash and Property, Plant and Equipment valuations, and various income tax matters, amongst others. We expect the fair value measurement process to be completed as soon as possible, but no later than one year from the acquisition date.

Goodwill was calculated as the difference between the acquisition date fair value of the total purchase price consideration and the fair value of the net identifiable assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in an estimated purchase price in excess of the fair value of identifiable net assets acquired.

The estimated purchase price also included the fair value of other assets that were not identifiable and not separately recognizable under accounting rules (i.e. assembled workforce) or these assets were of immaterial value. In addition, there is a going concern element that represents our ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. Based on preliminary fair value measurement of the assets acquired and liabilities assumed, we allocated $152,713 to goodwill for the expected synergies from combining IPC Group with our existing business. None of the goodwill is expected to be deductible for income tax purposes. The assignment of Goodwill to reporting units is not complete, pending finalization of the valuation measurements.

The fair value of acquired identifiable intangible assets was primarily determined using discounted expected cash flows. The fair value of acquired identifiable tangible assets was primarily determined using the cost or market approach. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy.

The preliminary fair value of the acquired intangible assets is $148,744. The expected lives of the acquired amortizable intangible assets are approximately 15 years for Customer Lists, 11 years for Trade Names and two years for Non-Compete Agreements and all are being amortized on a straight-line basis, pending finalization of fair value.

The following unaudited pro forma financial information presents the combined results of operations of Tennant Company as if the acquisition of IPC Group had occurred as of January 1, 2017 and 2016. The unaudited pro forma financial information is presented for informational purposes only. It is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year, nor does it attempt to project the future results of operations of the combined company.

Pro Forma Financial Information (Unaudited)

	Three Months Ended					Six Months Ended
(In thousands, except per share data)	June 30					June 30
	2017			2016		2017			2016
Net Sales
Pro forma	$	270,791		$	269,689	$	517,163		$	497,896
As reported	270,791			216,828		461,850			396,692

Net Earnings (Loss) Attributable to Tennant Company
Pro forma	$	10,308		$	13,577	$	10,260		$	15,889
As reported	(2,591		)	15,328		(6,548		)	19,767

Net Earnings (Loss) Attributable to Tennant Company per Share
Pro forma	$	0.58		$	0.76	$	0.58		$	0.88
As reported	(0.15		)	0.85		(0.37		)	1.10

The unaudited pro forma financial information is based on certain assumptions which we believe are reasonable, directly attributable to the transaction, factually supportable and do not reflect any cost savings, operating synergies or revenue enhancements that we may achieve, nor the costs necessary to achieve those cost savings, operating synergies, revenue enhancements or integration efforts.

The unaudited pro forma financial information above gives effect to the following:


•	Incremental amortization and depreciation expense related to the estimated fair value of the identifiable intangible assets and property, plant and equipment from the preliminary purchase price allocation.


•	Exclusion of the purchase accounting impact of the inventory step up reported in cost of sales for the sale of acquired inventory of $6,199.


•	Incremental interest expense related to additional debt used to finance the acquisition.


•	Exclusion of non-recurring acquisition-related transaction and financing costs.


•	Pro forma adjustments tax affected based on the jurisdiction where the costs were incurred.

Other Acquisitions

On July 28, 2016, pursuant to an asset purchase agreement and real estate purchase agreement with Crawford Laboratories, Inc. and affiliates thereof ("Sellers"), we acquired selected assets and liabilities of the Seller's commercial floor coatings business, including the Florock^®Polymer Flooring brand ("Florock"). Florock manufactures commercial floor coatings systems in Chicago, IL. The purchase price was $11,843, including working capital and other adjustments, and is comprised of $10,965 paid at closing, with the remaining $878 paid in two installments. We paid the first installment of $575 on October 14, 2016. The remaining amount was paid during the 2017 first quarter.

On September 1, 2016, we acquired selected assets and liabilities of Dofesa Barrido Mecanizado ("Dofesa") which was our largest distributor in Mexico over many decades. The operations are based in Aguascalientes, Mexico, and their addition allows us to expand our sales and service network in an important market. The purchase price was $5,000 less assumed liabilities of $3,448, subject to customary working capital adjustments. The net purchase price of $1,552 is comprised of $1,202 paid at closing, and a value added tax of $191, with the remaining $350 subject to working capital adjustments. The working capital adjustment is not yet finalized, but we do not expect to pay additional cash beyond the cash already paid.

The acquisitions have been accounted for as business combinations and the results of their operations have been included in the Condensed Consolidated Financial Statements since their respective dates of acquisition. The impact of the incremental revenue and earnings recorded as a result of the acquisitions are not material to our Condensed Consolidated Financial Statements. The purchase price allocation for the Florock acquisition is complete. The purchase price allocation for the Dofesa acquisition is complete except for a preliminary valuation of Intangible Assets and finalization of the working capital adjustment. We expect our valuation will be complete in the third quarter of 2017.

The preliminary components of the purchase price of the business combinations described above have been allocated as follows:



Current Assets	$	5,949
Property, Plant and Equipment, net	4,112
Identified Intangible Assets	6,055
Goodwill	1,739
Other Assets	7
Total Assets Acquired	17,862
Current Liabilities	4,764
Other Liabilities	53
Total Liabilities Assumed	4,817
Net Assets Acquired	$	13,045