Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.20.4
Acquisitions
12 Months Ended
Dec. 31, 2020
Acquisitions [Abstract]  
Acquisitions

3.    Acquisition



Acquisition of Colonial Elegance



On October 22, 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance. Colonial Elegance, which is headquartered in Montreal, Canada, is a supplier and distributor of building products, including barn doors, closet doors, and stair parts, and its customers include various big box retailers in the United States and Canada.



The base purchase price for the acquisition was $38.8 million, substantially all of which was paid in cash by Renin at closing. In addition to the base purchase price, Renin acquired excess working capital held by Colonial Elegance above an agreed upon target working capital amount of $9.9 million for $4.3 million, which resulted in total purchase consideration of $43.1 million. BBX Capital made a $5.0 million capital contribution to Renin to partially fund the acquisition of Colonial Elegance, while the remainder of the acquisition was funded by Renin under its amended and restated credit facility with TD Bank described in Note 11. 



The consolidated net assets and results of operations of Colonial Elegance are included in the Company’s consolidated financial statements commencing on October 22, 2020 and resulted in the following impact to trade sales and income before income taxes from the acquisition date to December 31, 2020 (in thousands):





 

 

 



 

October 22, 2020



 

to December 31, 2020

Trade sales

 

$

12,393 

Income before income taxes

 

$

722 



Purchase Price Allocation



The Company accounted for the acquisition of Colonial Elegance using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed associated with an acquiree be recognized at their fair values at the acquisition date.



The following table summarizes the provisional purchase price allocation based on the Company’s preliminary valuation, including the fair values of the assets acquired and  liabilities assumed at the acquisition date (in thousands):







 

 

 



 

 

 

Cash

 

$

557 

Trade accounts receivable

 

 

10,278 

Trade inventory

 

 

11,970 

Property and equipment

 

 

819 

Identifiable intangible assets (1)

 

 

19,680 

Operating lease asset

 

 

2,213 

Other assets

 

 

651 

Total assets acquired

 

 

46,168 

Accounts payable

 

 

(5,619)

Other liabilities

 

 

(3,524)

Operating lease liability

 

 

(2,213)

Total liabilities assumed

 

 

(11,356)

Fair value of identifiable net assets

 

 

34,812 

Goodwill

 

 

8,277 

Purchase consideration

 

 

43,089 

Less: cash acquired

 

 

(557)

Less: consideration payable

 

 

(399)

Cash paid for acquisition less cash acquired

 

$

42,133 



 

 

 

Acquisition-related costs included in selling, general and administrative expenses

 

$

441 



(1)

Identifiable intangible assets were comprised of $3.7 million, $15.8 million and $0.2 million associated with Colonial Elegance’s trademark, customer relationships, and noncompetition agreements, respectively. The identifiable intangible assets are amortized over their expected useful lives of 5 years for noncompetition agreements and 13 years for trademarks and customer relationships.



The provisional fair values reported in the above table were estimated by the Company using available market information and appropriate valuation methods. As considerable judgment is involved in estimates of fair value, the provisional fair values presented above are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value amounts.



As management is still in the process of completing its valuation analysis, the Company’s accounting for the acquisition is not complete as of the date of this report. As a result, the amounts reported in the above table are provisional amounts that may be updated in subsequent periods to reflect the completion of the Company’s valuation analysis and any additional information obtained during the measurement period.



The following summarizes the Company’s methodologies for estimating the provisional fair value of certain assets and liabilities associated with Colonial Elegance:



Trade Receivables



Trade receivables were recorded at fair value using the cost approach. The inputs used were trade receivable balances, allowances, charge-offs, sales discounts and volume of returned merchandise.  The cost approach was used for the valuation of trade receivables due to their short maturities.



Trade Inventories



Raw materials were fair valued using the cost approach. Raw material items replaced on a regular basis were recorded at fair value based on historical costs. Finished goods inventory was recorded at fair value by adding a gross margin based on earnings before income taxes from building product distributors to the finished goods historical cost amounts in order to estimate a reasonable profit margin for selling finished goods.  



Identifiable Intangible Assets and Liabilities



The fair value of the acquired trademark was estimated using the relief-from-royalty method, a form of the income approach. Under this approach, the fair value was estimated by calculating the present value using a risk-adjusted discount rate of the expected future royalty payments that would have to be paid if the Colonial Elegance trademark was not owned. 



The fair value of the acquired customer relationships was estimated using the multi-period excess earnings method. The multi-period excess earnings method isolates the expected cash flows attributable to Colonial Elegance’s customer relationships and discounts these cash flows at a risk-adjusted discount rate.



Goodwill



The goodwill recognized in connection with the acquisition reflects the difference between the estimated fair value of the net assets acquired and the consideration paid by Renin to acquire Colonial Elegance. The goodwill recognized in the acquisition is deductible for income tax purposes.



Pro Forma Information (unaudited)



The following unaudited pro forma financial data presents the Company’s revenues and earnings for the years ended December 31, 2020 and 2019 as if the acquisition was completed on January 1, 2019 (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

Pro Forma

 

Actual



 

For the Years Ended December 31,

 

For the Years Ended December 31,



 

2020

 

2019

 

2020

 

 

2019

Trade sales

 

$

188,146 

 

 

226,033 

 

 

147,210 

 

 

180,319 

(Loss) income from continuing operations before income taxes

 

$

(55,619)

 

 

29,333 

 

 

(57,947)

 

 

28,985 

(Loss) income from continuing operations 

 

$

(45,035)

 

 

21,000 

 

 

(46,703)

 

 

20,651 

Net (loss) income attributable to shareholders

 

$

(40,306)

 

 

14,086 

 

 

(41,974)

 

 

13,737 



The unaudited pro forma financial data for the years ended December 31, 2020 and 2019 includes estimated interest expense of $1.5 million and $2.3 million, respectively, associated with borrowings used to fund the acquisition of Colonial Elegance.



The unaudited pro forma financial data reported in the above table does not purport to represent what the actual results of the Company’s operations would have been assuming that the acquisition date was January 1, 2019, nor does it purport to predict the Company’s results of operations for future periods.