Note 3 - Acquisition
|12 Months Ended|
Dec. 31, 2022
|Notes to Financial Statements|
|Business Combination Disclosure [Text Block]||
Acquisition of Colonial Elegance
On October 22, 2020, Renin acquired substantially all of the assets and assumed certain of the liabilities of Colonial Elegance, Inc (“Colonial Elegance”), a supplier and distributor of building products that was headquartered in Montreal, Canada. Colonial Elegance’s products included barn doors, closet doors, and stair parts, and its customers included various big box retailers in the United States and Canada.
The base purchase price for the acquisition was $38.8 million. In addition to the base purchase price, Renin acquired excess working capital for $4.3 million, which resulted in total purchase consideration of $43.1 million. Renin paid substantially all of the purchase consideration in cash at closing, which was funded by Renin with proceeds from its amended and restated credit facility with TD Bank and a $5.0 million capital contribution from BBX Capital.
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):
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 fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
The fair values reported in the above table were estimated by the Company using available market information and applicable valuation methods. As considerable judgment is involved in estimates of fair value, the 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 would have a material effect on the estimated fair value amounts.
The following summarizes the Company’s methodologies for estimating the fair value of certain assets and liabilities associated with Colonial Elegance:
Trade Accounts Receivables
Trade accounts 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 accounts receivables due to their short maturities.
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.
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 year ended December 31, 2020 as if the acquisition was completed on January 1, 2019 (in thousands):
The unaudited pro forma financial data for the year ended December 31, 2020 includes estimated interest expense of $1.5 million associated with borrowings used to fund the acquisition of Colonial Elegance.
The 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.
Acquisition of The Altman Companies
In November 2018, BBX Capital Real Estate acquired a 50% equity interest in the Altman Companies. Pursuant to the operating agreement of the Altman Companies, BBXRE also agreed to acquire an additional 40% equity interest in the Altman Companies from Mr. Altman in January 2023 for a purchase price of $9.4 million, subject to certain adjustments (including reimbursements for predevelopment expenditures incurred at the time of the acquisition), at which time BBXRE would also acquire control and decision-making authority for all significant operating and financing decisions related to the Altman Companies as of and subsequent to the acquisition. Further, Mr. Altman also had the right, at his option or in other predefined circumstances, to require BBXRE to purchase his remaining 10% equity interest in the Altman Companies for $2.4 million, at which time Mr. Altman would no longer serve as an employee of the Altman Companies and no longer have an equity interest in the Altman Companies. However, irrespective of BBXRE’s acquisition of additional equity interests in the Altman Companies, Mr. Altman is entitled to retain his membership interests, including his decision-making rights, in the managing member of all development joint ventures that were originated prior to BBXRE’s acquisition of such equity interests in the Altman Companies from Mr. Altman.
On January 31, 2023 (the “Acquisition Date”), BBXRE closed on the acquisition of the additional 40% equity interests in the Altman Companies for $8.1 million, reflecting the base purchase price of $9.4 million, an additional $0.1 million of reimbursements for predevelopment expenditures incurred at the time of the acquisition, and a downward adjustment of $1.4 million to reflect an estimated working capital deficit calculated pursuant to the terms of the operating agreement. Pursuant to the terms of the operating agreement, the final working capital adjustment amount will be determined by BBXRE and Mr. Altman following the closing and may result in the payment of additional consideration to Mr. Altman or a refund to BBXRE.
In connection with the acquisition of the 40% interest from Mr. Altman, BBXRE acquired the remaining 10% equity interest owned by Mr. Altman. Pursuant to the terms of the modified arrangement for the acquisition of the remaining 10% equity interest, the parties agreed that Mr. Altman will remain employed by the Altman Companies and that the remaining $2.4 million payment for the interest will be deferred until the earlier of (i) the termination of Mr. Altman’s employment from the Altman Companies or (ii) November 30, 2028 (the “Final Payment Date”). In addition, the parties agreed to the following terms related to new development projects commencing subsequent to the Acquisition Date:
As a result of the transaction, BBXRE is now entitled to nominate all members of the executive committee responsible for the management of the Altman Companies (although BBXRE has continued to nominate Mr. Altman as a member of the committee) and is deemed to have acquired control and decision-making authority for all significant operating and financing decisions related to the Altman Companies. Further, BBXRE will have decision-making authority for all significant operating and financing decisions for any development joint venture that is sponsored and formed by the Altman Companies subsequent to the Acquisition Date. However, as discussed above, Mr. Altman has retained his membership interests, including his decision-making rights, in the managing member of all development joint ventures that were originated prior to the Acquisition Date.
Accounting for BBXRE’s Investment in the Altman Companies and Related Investments
Through the Acquisition Date, the Company accounted for its investment in the Altman Companies under the equity method of accounting, as BBXRE and Mr. Altman jointly managed the Altman Companies and shared decision-making authority for all significant operating and financing decisions through such date. Further, the Company has accounted for its investments in the managing member of development joint ventures that were originated prior to the Acquisition Date under the equity method of accounting, as BBXRE and Mr. Altman similarly shared decision-making authority for all significant operating and financing decisions related to the managing member of such joint ventures.
As a result of BBXRE’s acquisition of control and decision-making authority over the Altman Companies, the Company will now consolidate the Altman Companies in its financial statements as of the Acquisition Date 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. As a result, during the three months ended March 31, 2023, the Company will remeasure the carrying value of its current equity interests in the Altman Companies at fair value as of the Acquisition Date, with any resulting remeasurement adjustment recognized in the Company’s statement of operations and comprehensive income.
Further, as a result of the acquisition, the Company expects that it will also consolidate the managing member of any new development joint ventures that are sponsored and formed by the Altman Companies commencing as of and subsequent to the Acquisition Date. Further, while Joel Altman will generally retain his decision-making rights in the managing member of development joint ventures that were originated prior to the Acquisition Date, the Company is continuing to evaluate its accounting for its investments in such joint ventures as of and subsequent to the Acquisition Date under the applicable accounting guidance.
In addition, the Altman Companies owns 60% of the membership interests in Altman-Glenewinkel Construction (“AGC”), which generates revenues from the performance of general contractor services to joint ventures that are formed to invest in development projects originated by the Altman Companies. Pursuant to the operating agreement of AGC, the Altman Companies may acquire the 40% membership interests in AGC that are not owned by the Altman Companies for a purchase price based on formulas set forth in the operating agreement, including a purchase price in one formula that is primarily calculated based on AGC’s working capital balance and a percentage of expected profits from current construction projects and is not calculated based on the estimated fair value of such interests. As a result of BBXRE’s acquisition of control and decision-making authority over the Altman Companies and its ability to acquire the remaining 40% membership interests in AGC for an amount that is not calculated based on the estimated fair value of such interests, the Company is also continuing to evaluate the accounting for the Altman Companies’ investment in AGC as of Acquisition Date.
The initial accounting for BBXRE's acquisition of financial control of the Altman Companies was incomplete at the time the financial statements for the year ended December 31, 2022 were available to be issued due to the timing of the acquisition and the Company is therefore unable to disclose certain information required by ASC 805, including pro forma information. However, during the three months ended March 31, 2023, the Company expects to recognize goodwill based on the difference between (i) the fair values of the identifiable assets and liabilities of the Altman Companies at the Acquisition Date and (ii) the aggregate of the consideration transferred (measured in accordance with the acquisition method of accounting) and the fair values of the Company’s current equity interest and any noncontrolling interests in the Altman Companies at the acquisition date.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
No definition available.