Acquisition and Divestitures
|9 Months Ended|
Sep. 30, 2021
|Business Combination and Asset Acquisition [Abstract]|
|Acquisition and Divestitures||Acquisitions and Divestitures
HAECO Special Services, LLC
On March 1, 2021, we acquired HAECO Special Services, LLC ("HSS") from HAECO Airframe Services, LLC, a division of HAECO Americas ("HAECO") for the purchase price of $14.8 million, subject to post-closing and working capital adjustments. HSS is a leading provider of fully integrated maintenance, repair and overhaul ("MRO") support solutions for military and government aircraft. HSS provides scheduled depot maintenance, contract field deployment and unscheduled drop-in maintenance for a United States Department of Defense ("DoD") contract specifically for the sustainment of the U.S. Air Force ("USAF") KC-10 fleet. The acquisition was not significant to our consolidated financial statements. HSS operating results are included in
our Federal and Defense segment in the accompanying unaudited consolidated financial statements beginning on the acquisition date of March 1, 2021.
The allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed is preliminary until we obtain final information regarding their fair values. Based on preliminary estimates, we allocated approximately $7.5 million to the fair value of net tangible assets (including $9.2 million of accounts receivable) and $7.3 million to customer relationship intangible asset, which is being amortized over approximately 4 years from the acquisition date.
Global Parts Group, Inc.
On July 26, 2021, we acquired Global Parts Group, Inc. ("Global Parts"), a privately owned company with operations in Augusta, Kansas. Global Parts provides distribution and MRO services for business and general aviation ("B&GA") aircraft families. The acquisition expands our existing B&GA focus and further diversifies our existing product and platform offerings to include additional airframe components, while expanding our customer base of regional and global B&GA customers. Global Parts will operate as a subsidiary of VSE Aviation, Inc. under our Aviation segment.
The initial cash purchase price for Global Parts was approximately $38 million, subject to certain post-closing and working capital adjustments, which was funded using our existing bank revolving loan. We may also be required to make earn-out payments of up to $2 million should Global Parts meet certain revenue targets during the first twelve months following the acquisition and a certain milestone event on or before March 2023. See Note (9) "Fair Value Measurements," for additional information regarding the contingent consideration obligation.
We are in the process of finalizing our valuation and the allocation of the total consideration for the acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed is preliminary until we obtain final information regarding their fair values. The fair values assigned to our Global Parts earn-out obligation and intangible assets acquired were based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations that utilized established valuation techniques. The total preliminary estimated purchase price has been allocated to assets acquired (including identifiable intangible assets and goodwill) and liabilities assumed, as follows (in thousands):
The estimated value attributed to the customer relationship intangible asset is being amortized on a straight-line basis using a useful life of 10 years. None of the value attributed to goodwill and customer relationships is deductible for income tax purposes. The preliminary amount of goodwill recorded for our Global Parts acquisition reflects the strategic advantage of expanding our supply chain management capabilities through the diversification our existing product and platform offerings to new customers.
We incurred approximately $532 thousand of acquisition-related expenses associated with our Global Parts acquisition during the nine months ended September 30, 2021, which are included in selling, general and administrative expenses.
Global Parts' results of operations are included in our Aviation segment in the accompanying unaudited consolidated financial statements beginning on the acquisition date of July 26, 2021. Had the acquisition occurred as of January 1, 2020, revenue and net income (loss) from consolidated operations, and basic and diluted earnings (loss) per share on a pro forma basis for the three and nine months ended September 30, 2021 and 2020 would not have been materially different than our reported amounts.
Prime Turbines Sale
In January 2020, VSE’s subsidiary VSE Aviation, Inc. entered into two definitive agreements to sell (1) Prime Turbines LLC ("Prime Turbines") and (2) certain related inventory assets to PTB Holdings USA, LLC ("PTB"). The transaction was completed on February 26, 2020 with cash proceeds of $20.0 million, including final working capital adjustments, and a note receivable of $8.3 million received as consideration. As a result of the sale of the business and inventory, we derecognized the assets and liabilities of Prime Turbines and recorded a $7.5 million loss in the first quarter of 2020 which was reflected within loss on sale of a business entity and certain assets in the consolidated statements of income. As of September 30, 2021 and December 31, 2020, the total outstanding balance of the note receivable from PTB was $5.0 million and $6.1 million, respectively, which represent the present value of the consideration to be received with an imputed interest rate discount, of which $1.5 million and $1.4 million were current as of September 30, 2021 and December 31, 2020, respectively. The note receivable balance is included in other assets and other current assets in our consolidated balance sheets.
CT Aerospace Asset SaleIn June 2020, VSE's subsidiary VSE Aviation, Inc. entered into an asset purchase agreement to sell CT Aerospace, LLC ("CT Aerospace") inventory and certain assets to Legacy Turbines, LLC ("Legacy Turbines") for $6.9 million, with a note receivable received as consideration. As a result of the sale, we recorded a $678 thousand loss in the second quarter of 2020. As of September 30, 2021 and December 31, 2020, the total outstanding balance of the note receivable from Legacy Turbines was $6.1 million and $6.4 million, respectively, net of a variable discount of $275 thousand, of which $1.7 million and $1.3 million were current as of September 30, 2021 and December 31, 2020, respectively. The note receivable balance is included in other assets and other current assets in our consolidated balance sheet.
The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef