Acquisitions
Magnum Energy
On May 29, 2014, we completed the acquisition of all of the outstanding shares of Magnum Energy for $60.0 million in cash, subject to working capital and other adjustments. Magnum Energy is a supplier of pure sine, low-frequency inverters and inverter/chargers based in Everett, Washington. Magnum Energy products are used in recreational vehicles and the solar/off-grid applications market. Magnum Energy will be integrated into our controls segment. The allocation of purchase price related to this acquisition is preliminary, and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets. The final allocation of the purchase price to the assets acquired and liabilities assumed will be completed when the final valuations are completed and estimates of the fair value of liabilities assumed are finalized. The majority of the purchase price was allocated to intangible assets, including goodwill.
The preliminary goodwill recognized as a result of this acquisition was approximately $12.2 million, which represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. In accordance with the terms of the agreement to purchase Magnum Energy, we have treated this acquisition as an asset purchase as allowed under U.S. tax rules, and therefore all of the goodwill recorded is expected to be deductible for tax purposes.
In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and weighted average lives:
|
| | | | | |
| Acquisition Date Fair Value | | Weighted Average Lives (years) |
Acquired definite-lived intangible assets: | | | |
Completed technologies | $ | 28,810 |
| | 12 |
Customer relationships | 11,670 |
| | 7 |
Trademark | 1,850 |
| | 12 |
| $ | 42,330 |
| | 11 |
The completed technologies and trademarks were valued using the income approach (the multi-period excess earnings method and the relief-from-royalty method, respectively). The customer relationships were valued using the cost approach. These valuation methods incorporate assumptions including future earnings related to completed technologies, expected discounted future cash flows resulting from the future estimated after-tax royalty payments avoided as a result of owning the trademarks, and the estimated cost of replacement of existing customer relationships. The fair value of these assets is considered to be a Level 3 fair value measurement.
Wabash Technologies
On January 2, 2014, we completed the acquisition of all the outstanding shares of Wabash Technologies from an affiliate of Sun Capital Partners, Inc. for $59.6 million in cash. Wabash Technologies develops, manufactures, and sells a broad range of custom-designed sensors and has operations in the U.S., Mexico, and the United Kingdom. We acquired Wabash Technologies in order to complement our existing magnetic speed and position sensors product portfolio and to provide new capabilities in throttle position and transmission range sensing, while enabling additional entry points into the heavy vehicle and off-road end-market. Wabash Technologies will be integrated into our sensors segment. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
|
| | | | |
Net working capital | | $ | 10,349 |
|
Property, plant and equipment | | 17,210 |
|
Other intangible assets | | 21,500 |
|
Goodwill | | 19,056 |
|
Deferred income tax liabilities | | (8,967 | ) |
Other long term liabilities | | (867 | ) |
Fair value of net assets acquired, excluding cash and cash equivalents | | 58,281 |
|
Cash and cash equivalents | | 1,304 |
|
Fair value of net assets acquired | | $ | 59,585 |
|
The allocation of purchase price is preliminary and is based on management’s judgments after evaluating several factors, including preliminary valuation assessments of tangible and intangible assets, and preliminary estimates of the fair value of liabilities assumed. The final allocation of the purchase price to the assets acquired and liabilities assumed will be completed when the final valuations are completed and estimates of the fair value of liabilities assumed are finalized. The preliminary goodwill of $19.1 million represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for tax purposes.
In connection with the allocation of purchase price to the assets acquired and liabilities assumed, we identified certain definite-lived intangible assets. The following table presents the acquired intangible assets, their estimated fair values, and weighted average lives:
|
| | | | | |
| Acquisition Date Fair Value | | Weighted Average Lives (years) |
Acquired definite-lived intangible assets: | | | |
Completed technologies | $ | 13,600 |
| | 9 |
Customer relationships | 7,900 |
| | 7 |
| $ | 21,500 |
| | 8 |
The definite-lived intangible assets were valued using the income approach. We used the relief-from-royalty method to value completed technologies and the multi-period excess earnings method to value customer relationships. These valuation methods incorporate assumptions including expected discounted future cash flows resulting from either the future estimated after-tax royalty payments avoided as a result of owning the completed technologies or the future earnings related to existing customer relationships. The fair value of these assets is considered to be a Level 3 fair value measurement.
The valuation of certain tangible assets acquired were determined using cost and market approaches. For personal property, we primarily used the cost approach to develop the estimated reproduction or replacement cost. For real property, we used a market approach based on the use of appraisals and input from market participants. The fair value of these assets is considered to be a Level 3 fair value measurement.
Net revenue for Wabash Technologies included in our condensed consolidated statements of operations for the six months ended June 30, 2014 was $42.6 million. Net income for Wabash Technologies included in our condensed consolidated statements of operations for the six months ended June 30, 2014 was immaterial to our consolidated results. Proforma Information
Had the Magnum Energy and Wabash Technologies acquisitions closed at the beginning of 2013, Net revenue and Net income would not have been materially different from the amounts reported for the three and six months ended June 30, 2014 and June 30, 2013. 
