v3.25.1
Note B - Acquisition of Kobelt Manufacturing Co., Ltd., Inc.
 9 Months Ended
Mar. 28, 2025
Notes to Financial Statements  
Business Combination [Text Block]

B.

Acquisition of Kobelt Manufacturing Co. Ltd.

 

On February 14, 2025, the Company completed the acquisition of 100% of the outstanding common stock of Kobelt Manufacturing Co. Ltd. (“Kobelt”). Based in Surrey, British Columbia, Kobelt is a Canadian manufacturer of controls, propulsion, steering, and braking systems to the marine, oil and gas, and industrial markets. This acquisition was pursuant to a Sale and Purchase Agreement (“Purchase Agreement”) entered into by Twin Disc Canada Holdings Ltd, a wholly-owned subsidiary of the Company, with the prior owners, on February 14, 2025.  Immediately following the acquisition, Kobelt and Twin Disc Canada Holdings Ltd amalgamated to continue as a wholly-owned subsidiary of the Company, retaining the Kobelt name.

 

Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $16,586 in cash at closing, which included a base payment plus adjustments for net cash, working capital, and earnout. This amount was subject to a final determination of working capital adjustments and earnout calculation. The transaction is considered a taxable stock acquisition.  

 

The Company, in part, financed the payment of the cash consideration through borrowings of $6,500 under a new credit agreement entered into on February 14, 2025 with BMO Harris Bank N.A. (the “Credit Agreement”). The Credit Agreement is further discussed in Note K, Debt.  

 

Kobelt brings a complementary range of products that enhance and diversify the Company's portfolio, reinforcing Twin Disc’s position as a global leader in power transmission solutions. Kobelt's in-house foundry and expertise in bronze die casting, precision machining, assembly and testing ensure complete quality control, which aligns perfectly with the Company's commitment to engineering excellence.

 

With over 60 years of experience designing and manufacturing high-quality products, Kobelt is a well-suited addition to the Twin Disc family. This acquisition opens new opportunities for growth and partnerships, leveraging the Company's global sales and service teams to drive even greater success.

 

Since the acquisition date, the Company included in its condensed consolidated statement of operations and comprehensive income (loss) net sales and earnings for Kobelt of $1,229 and ($160), respectively.  

 

Purchase Price Allocation

 

The acquisition of Kobelt met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business Combinations (“ASC 805”), with the Company identified as the legal and the accounting acquirer. The Company recognized approximately $0.7 million of acquisition-related costs which were expensed in the consolidated statement of operations for the quarter ended March 28, 2025.

 

The following table details the allocation of the purchase price of the assets acquired and liabilities assumed in connection with the acquisition of Kobelt.

 

Cash purchase price

 $16,586 

Earnout

  374 

Total consideration

 $16,960 

 

 

Assets acquired:

    

Cash

 $240 

Trade accounts receivable

  1,881 

Inventories

  5,984 

Other current assets

  290 

Property, plant and equipment

  5,031 

Intangible assets

  2,847 

Total assets acquired

 $16,273 

 

 

Liabilities assumed:

    

Accounts payable

 $924 

Accrued liabilities

  520 

Total liabilities assumed

 $1,444 

 

 

Total identified net assets acquired:

 $14,829 

Goodwill

  2,131 

Purchase price consideration

 $16,960 

 

 

Fair Value Estimate of Assets Acquired and Liabilities Assumed

 

The Company is continuing its review of the fair value estimate of assets acquired and liabilities assumed during the measurement period, which will conclude as soon as the necessary information regarding the facts and circumstances that existed as of the acquisition date is obtained, or otherwise not available. This measurement period will not exceed one year from the acquisition date. At the effective date of the acquisition, the assets acquired and liabilities assumed are required to be measured at fair value. The fair value estimates are pending completion of some elements, including the finalization of an independent appraisal and final review by the Company. Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, including changes to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments.

 

Upon the final determination of the fair value of assets acquired and liabilities assumed, the excess of the purchase price over such fair values is allocated to goodwill.

 

The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is reflected in these consolidated financial statements.

 

The following summarizes the preliminary estimate of fair value of the assets acquired and liabilities assumed at the acquisition date:

 

Assets acquired and liabilities assumed:

  

Cash

 $240  

Trade accounts receivable

  1,881 

(a)

Inventories

  5,984 

(b)

Other current assets

  290  

Property, plant and equipment

  5,031 

(c)

Intangible assets

  2,847 

(d)

Accounts payable

  (924) 

Accrued liabilities

  (520)

(e)

Total identified net assets acquired:

  14,829  

Goodwill

  2,131 

(f)

Purchase price consideration

 $16,960  

 

 

The following information provides further details about the preliminary estimated net step-up in fair value and/or the estimated fair value at the acquisition date for some key balance sheet items.

 

(a) Accounts receivable represent contractual amounts receivable from customers. The amounts approximate fair value.

 

 

(b)    Inventory consists of: 

Raw materials

 $4,622 

Work in progress at fair value

  520 

Finished goods at fair value

  842 

Inventories at fair value

  5,984 

Inventories at book value

  5,558 

Step-up

 $426 

 

 

(c)    The value of property, plant and equipment is estimated at:   

Dies, tools and fixtures

 $2,976 

Machinery and equipment

  1,718 

Other

  337 

Property, plant and equipment at fair value

  5,031 

Property, plant and equipment at book value

  2,156 

Step-up

 $2,875 

 

 

(d)   Intangible assets consist of: 

  

Estimated

fair value

  

Estimated average

useful lives

 

Tradename

  636   20 

Backlog

  21  

<1

 

Customer relationship

  1,201   15 

Computer Software - External

  71   5 

Developed technology

  918   20 
  $2,847     

 

(e) The amounts approximate fair value.

 

(f) The Company recorded goodwill of $2,131 associated with the acquisition. The fair value of the purchase price of the business exceeded the fair value of the identifiable assets acquired and liabilities assumed. The weighted average remaining useful life of the intangible assets included in the table above is approximately 17.4 years.