NOTE 6 — ACQUISITIONS
Acquisition of Brightstar Europe Limited
In September 2012, the Company acquired Brightstar Corp.’s ("Brightstar") fifty percent ownership interest in Brightstar Europe Limited (“BEL”), which was a consolidated joint venture between Tech Data and Brightstar. The terms of the agreement included a payment of $165.9 million in cash for Brightstar's equity in BEL (reflected as “noncontrolling interest” within the Company’s consolidated balance sheet) and the repayment of all loans advanced by Brightstar to BEL. Upon the closing of the transaction, the Company recorded a decrease of approximately $85.9 million to additional paid-in capital within shareholders’ equity, comprised of a purchase price premium of approximately $85.0 million paid to Brightstar for its share of BEL and approximately $0.9 million of direct costs incurred with the transaction (based on the foreign currency exchange rates on the date of acquisition). The acquisition of Brightstar's fifty percent interest in BEL, the repayment of all loans advanced by Brightstar to BEL and transaction costs were funded with the Company’s available cash.
Acquisition of SDG
On November 1, 2012, the Company acquired several distribution companies of Specialist Distribution Group, the distribution arm of Specialist Computer Holdings PLC (“SCH”), a privately-held IT services company headquartered in the United Kingdom, for a purchase price, which was finalized during the first quarter of fiscal 2014, of approximately $358 million. The Company used the proceeds from the $350 million of Senior Notes issued in September 2012 and available cash to fund the acquisition. The acquired distribution companies are Specialist Distribution Group (SDG) Limited; ETC Metrologie SARL; Best’Ware France SA; ETC Africa SAS and SDG BV (collectively “SDG”). SDG is a leading distributor of value and broadline IT products in the UK, France and the Netherlands. Management believes the acquisition of SDG supports the Company’s diversification strategy by strengthening its European value and broadline IT offerings in key markets and expanding the Company’s vendor and customer portfolios, while leveraging the Company’s existing pan-European infrastructure. Simultaneously with the acquisition of SDG, the Company entered into a preferred supplier agreement whereby SCH, through its IT reseller business, will have annual purchase commitments through Tech Data for a period of five years, which the Company estimated would add incremental annual sales of approximately $500 million. In November 2013, the preferred supplier agreement was amended to extend the term of the agreement from five years to six years, expiring in January 2019. In connection with this amendment, while we expect the total sales during the extended term to be higher than originally forecast, we expect the incremental sales to be approximately $450 million to $475 million annually over six years versus the original forecast of $500 million annually over five years. SDG's results of operations are included in the Company's consolidated financial statements subsequent to the date of acquisition.
The Company has accounted for the SDG acquisition as a business combination and allocated the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands, translated using the foreign currency exchange rates on the date of acquisition): |
| | | |
Cash | $ | 65,000 |
|
Accounts receivable | 260,800 |
|
Inventories | 126,100 |
|
Tangible assets (includes property and equipment, deferred tax assets and other assets) | 6,200 |
|
Goodwill | 122,600 |
|
Identifiable intangible assets | 134,300 |
|
Accounts payable | (265,200 | ) |
Liabilities (includes accrued expenses, deferred tax liability and other liabilities) | (91,800 | ) |
| $ | 358,000 |
|
The allocation of identifiable intangible assets is comprised of approximately $103.1 million related to customer and vendor relationship assets with an estimated useful life of ten years and approximately $31.2 million related to the preferred supplier agreement to be amortized over the five year life of the agreement. In November 2013, the preferred supplier agreement was amended to extend the term of the agreement from five years to six years, expiring in January 2019.
The goodwill related to the acquisition is largely attributable to strategic factors previously discussed, as well as the growth potential of SDG’s value and broadline businesses. Approximately $35.0 million of the total identified intangible assets and goodwill are expected to be deductible for tax purposes.
Included within the Company’s Consolidated Statement of Income are estimated net sales of $617.4 million from SDG from the acquisition date of November 1, 2012 through the Company’s fiscal year ended January 31, 2013. The operating income of SDG for the same period was immaterial to the Company's operating results for the fiscal year ended January 31, 2013.
The following table presents unaudited supplemental proforma information as if the SDG acquisition and the execution of the related preferred supplier agreement had both occurred at the beginning of fiscal 2012. The proforma results include business combination accounting effects from the acquisition including amortization of acquired intangible assets and interest expense associated with the issuance of our senior notes due in September 2017 used to fund the acquisition. Fiscal 2012 proforma net income also includes the effect of expected acquisition related costs of approximately $14.6 million associated with acquisition and integration related activities. This proforma information does not reflect any impact from business synergies that may be achieved by the combined business, and is presented for comparative purposes only. It is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated on the date indicated or that may result in the future:
|
| | | | | | | | | |
| | Fiscal Year Ended January 31, | |
| | 2013 | | 2012 | |
| | (In thousands, unaudited) | |
| | | |
Net sales | | | | | |
As reported | | $ | 25,358,329 |
| | $ | 25,647,313 |
| (1) |
Proforma | | $ | 27,099,438 |
| | $ | 28,105,768 |
| |
| | | | | |
Net income attributable to shareholders of Tech Data Corporation | | | | | |
As reported | | $ | 176,255 |
| | $ | 190,750 |
| (1) |
Proforma | | $ | 188,265 |
| | $ | 185,860 |
| |
(1) As restated
Other Acquisitions
During fiscal 2012, the Company acquired two businesses in the European technology distribution marketplace; (i) the distribution business of Mensch und Maschine Software SE, a leading value-added distributor in the design software market in several European countries and (ii) an additional value-added specialty software distributor in Belgium. These acquisitions, while not material to the Company's consolidated financial results, strengthen the Company's position as Autodesk, Inc.'s leading value-added distributor by establishing a presence in Benelux and Romania, extending the Company's product portfolio to include the Autodesk, Inc. software for the manufacturing industry in Italy, France, UK and Poland and adding a number of highly skilled and qualified professionals, while leveraging the Company's existing logistics infrastructure in Europe.
Proforma Financial Information
Proforma information for the Company’s acquisitions during fiscal 2012 has not been presented as these acquisitions were not material, either individually or in the aggregate, to the Company’s consolidated financial position or results of operations.
