2.  Acquisition

On July 15, 2016, the Company acquired substantially all of the assets of Dejana. Total consideration was $186,127 including a preliminary estimated working capital adjustment of $3,989 and contingent consideration with an estimated fair value of $10,200.  Additionally, the Company has an accrued liability to the former owners of Dejana to true up the working capital of $5,514 which is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheet at September 30, 2016, which the Company expects to pay before the end of the year.  The acquisition was financed through exercising the accordion feature on the Company’s term loan for $130,000 less an original issue discount of $650 and $20,000 of short term revolver borrowings as discussed in Note 6 and through the use of $26,577 of on hand cash. The Company incurred $2,096 and $2,841 of transaction expenses related to this acquisition that are included in selling, general and administrative expense in the Consolidated Statements of Income in the three and nine months ended September  30, 2016, respectively. 

The Dejana purchase agreement includes contingent consideration in the form of an earn out capped at $26,000. Under the earn out agreement, the former owners of Dejana are entitled to receive payments contingent upon the revenue growth and financial performance of the acquired business for the years 2016, 2017 and 2018.  There is no requirement for continued employment related to the contingent consideration, and thus the earn out is recorded as a component of purchase price.    At September 30, 2016, the preliminary estimated fair value of the earn out consideration was $10,200.

The following table summarizes the preliminary allocation of the purchase price paid and the subsequent working capital adjustment to the fair value of the net assets acquired as of the acquisition date:

 The goodwill for the acquisition is a result of acquiring and retaining the existing workforces and expected synergies from integrating the operations into the Company.   Due to the limited amount of time since the acquisition of substantially all of the assets of Dejana, the initial purchase price allocation is preliminary as of September 30, 2016 as the Company has not completed its analysis of the fair value of inventories, property and equipment, intangible assets and income tax liabilities.  The Company expects to be able to deduct amortization of goodwill for income tax purposes over a fifteen-year period.

The acquisition was accounted for under the purchase method, and accordingly, the results of operations are included in the Company’s financial statements from the date of acquisition.   From the date of acquisition through September 30, 2016, the Dejana assets contributed $27,107 of revenues and ($2,342) of pre-tax operating losses.

The following unaudited pro forma information presents the combined results of operations of the Company and Dejana for the three and nine months ended September 30, 2016 as if the acquisition had occurred on January 1, 2016, with pro forma adjustments to give effect to amortization of intangible assets, depreciation of fixed assets, an increase in interest expense from the acquisition financing and certain other adjustments:

The unaudited pro forma information above includes the historical financial results of the Company and Dejana, adjusted to record depreciation and intangible asset amortization related to valuation of the acquired tangible and intangible assets at fair value and the addition of incremental costs related to debt to finance the acquisition, and the tax benefits related to the increased costs. This information is presented for information purposes only and is not necessarily indicative of what the Company’s results of operations would have been had the acquisition been in effect for the periods presented or future results.

The Company has a receivable for $1,158 included in Prepaid and other current assets on the Consolidated Balance Sheet at September 30, 2016 owed to the Company from the former owners of Dejana related to customer cash receipts being sent to the former owner’s bank account after the close of the transaction.