|9 Months Ended|
Sep. 30, 2021
NOTE 2. ACQUISITIONS
On May 30, 2021, Clarus, through Oscar Aluminium Pty Ltd (the “Buyer”), an indirect wholly-owned Australian subsidiary of the Company, entered into a Share Sale and Purchase Agreement (the “Purchase Agreement”) to acquire Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On July 1, 2021, the transactions contemplated by the Purchase Agreement were consummated. All United States dollar amounts contained herein are based on the exchange rates in effect for Australian dollars ($AUD) and the market value of the Company’s common stock at the time of closing of the acquisition of Rhino-Rack (the “Rhino-Rack Acquisition”).
Under the terms of the Purchase Agreement, the Buyer acquired Rhino-Rack for an aggregate purchase price of approximately $AUD 269,097 (approximately $202,038), subject to a post-closing adjustment. The purchase price was comprised of approximately $AUD 190,650 (approximately $143,140) cash, 2,315,121 shares of the Company’s common stock valued at $55,333, and additional contingent consideration described below. The shares of the Company’s common stock issued are subject to a lock-up agreement restricting sales for 180 days from the closing of the Acquisition. The Purchase Agreement also provides for the payment of additional contingent consideration up to approximately $AUD 10,000 (approximately $7,508) if certain future net sales thresholds are met (the “Contingent Consideration”). The Company estimated the fair value of the Contingent Consideration to be approximately $AUD 4,747 (approximately $3,565).
The acquisition was accounted for as a business combination. Acquisition-related costs for the Rhino-Rack Acquisition, which were included in transaction costs during the three and nine months ended September 30, 2021 were $7,866 and $8,643, respectively. The Company believes the acquisition of Rhino-Rack is expected to provide the Company with a greater combined global revenue base, increased gross margins, profitability and free cash flows, and access to increased liquidity to further acquire and grow businesses.
On September 30, 2020, Sierra entered into an Asset Purchase Agreement (the “Barnes Asset Purchase Agreement”) to acquire certain assets and assume certain liabilities constituting the Barnes business (“Barnes”). Pursuant to the Barnes Asset Purchase Agreement, the purchase price to be paid for Barnes is $30,500. On October 2, 2020, Sierra completed the acquisition of Barnes. The acquisition was accounted for as a business combination.
The Company believes the acquisition of Barnes is expected to provide the Company with a greater combined global revenue base, increased gross margins, profitability and free cash flows, and access to increased liquidity to further acquire and grow businesses.
The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is allocated to assets acquired and liabilities assumed which have been estimated at their fair values. The fair value estimates for the purchase price allocation for Rhino-Rack are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the Rhino-Rack Acquisition are subject to change and the final purchase price allocation could be different from the amounts presented below. We expect to finalize the valuation as soon as practicable, but not later than one year from the date of the Rhino-Rack Acquisition. The fair value measurements for the acquisition of Barnes have been completed. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for Rhino-Rack is included in the Rhino-Rack segment and goodwill for Barnes is included in the Sierra segment. The goodwill consists largely of the synergies expected from combining operations of both acquisitions.
The estimated fair value of inventory was recorded at expected sales price less cost to sell plus a reasonable profit margin for selling efforts.
In connection with the acquisitions, the Company acquired exclusive rights to Rhino-Rack’s and Barnes’ trademarks, customer relationships, and product technologies. The amounts assigned to each class of intangible asset, other than goodwill acquired, and the related average useful lives are as follows:
Although the Company is electing to treat the acquisition of Rhino-Rack as a purchase of assets for tax purposes, from an income tax perspective, there is no tax deduction provided for intangibles in Australia. As a result, deferred tax liabilities have been set up for the finite and indefinite-lived assets. From a capital base perspective, deferred tax assets established through purchase accounting have been fully offset by a corresponding valuation allowance. Furthermore, the full amount of goodwill of $85,127 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and the Rhino-Rack sellers prior to the acquisition. Rhino-Rack revenue and operating income are included in the Rhino-Rack segment. Total revenue of $19,625 and net income of $5,453 of Rhino-Rack were included in the Company’s condensed consolidated statements of comprehensive income (loss) from the date of acquisition to September 30, 2021.
The acquisition of Barnes is treated as a purchase of assets for tax purposes. As such, the basis in the assets of Barnes is equal for both book and tax, which results in no initial recognition of deferred tax assets or liabilities. Furthermore, the full amount of goodwill recorded of $8,625 is expected to be deductible for tax purposes. No pre-existing relationships existed between the Company and the Barnes sellers prior to the acquisition. Barnes revenue and operating income were included in the Sierra segment.
The following unaudited pro forma results are based on the individual historical results of the Company, Rhino-Rack and Barnes, with adjustments to give effect as if the acquisitions and borrowings used to finance the acquisitions had occurred on January 1, 2020 for Rhino-Rack and January 1, 2019 for Barnes, after giving effect to certain adjustments, including the amortization of intangible assets, depreciation of fixed assets, interest expense and taxes and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase.
The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transactions been consummated as of January 1, 2020 for Rhino-Rack or January 1, 2019 for Barnes. Furthermore, such pro forma information is not necessarily indicative of future operating results of the combined companies and should not be construed as representative of the operating results of the combined companies for any future dates or periods.
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