Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.21.2
Acquisitions
9 Months Ended
Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract]  
Acquisitions ACQUISITIONS:
On October 13, 2021, Quanta completed the acquisition of Blattner, a large utility-scale renewable energy infrastructure solutions provider in North America. The consideration for this transaction consisted of approximately $2.29 billion paid in cash on the date of acquisition and 3.3 million shares of Quanta common stock, which had a fair value of $345.4 million as of the date of the acquisition. The final amount of consideration for this acquisition remains subject to certain post-closing adjustments, including with respect to net working capital. Additionally, pursuant to the terms of the agreement and plan of merger, the former owners of Blattner are eligible for the potential payment of up to $300 million of contingent consideration, payable to the extent the acquired business achieves certain financial performance objectives over a three-year period beginning in January 2022. Blattner’s results will be included in Quanta’s consolidated financial statements beginning on the acquisition date. Quanta is in the process of performing procedures to determine the fair value of assets acquired and liabilities assumed related to the acquisition of Blattner, including the fair value assessment of contingent consideration, and will include the preliminary purchase price allocation in its Annual Report on Form 10-K for the year ended December 31, 2021. See Note 6 for additional information regarding the financing of this acquisition.
In addition, in October 2021, Quanta acquired a business located in the United States that provides electric power construction and related services. The aggregate consideration for this acquisition included approximately $50.0 million paid or
payable in cash, subject to certain adjustments, and the issuance of 42,748 shares of common stock, which had a fair value of approximately $4.0 million at the acquisition date.
During the nine months ended September 30, 2021, Quanta acquired a communications services business located in the United States that performs data center connection services; a business located in the United States that designs, develops and holds a certification for the manufacture of personal protective breathing equipment and related monitoring devices primarily used in the refining and petrochemical industries, including in connection with catalyst services; a business located in Canada that provides front-end land services for infrastructure development projects in Canada and the United States; and a business located in the United States that primarily provides horizontal directional drilling services. The aggregate consideration for these acquisitions was $59.2 million paid or payable in cash (subject to certain adjustments) and 32,822 shares of Quanta common stock, which had a fair value of $2.5 million as of the applicable acquisition date.
During the year ended December 31, 2020, Quanta acquired a contractor located in the United States that provides electric power distribution, transmission and substation maintenance and construction, directional boring and emergency restoration services; a professional engineering business located in the United States that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies, as well as permitting and utility locating services; a business located in the United States that provides aviation services primarily for the utility industry; an electric power infrastructure business located in the United States that primarily provides underground conduit services; a business located in the United States that specializes in the deployment of short- and long-haul fiber optic cable and utilities; an industrial services business located in Canada that performs catalyst handling services, including changeover and shutdown maintenance, for customers in the refining and chemical industries; and a business located in the United States that provides heavy, civil, industrial and energy related services and specializes in the construction and maintenance of pipelines and metering stations. The aggregate consideration for these acquisitions was $359.6 million paid or payable in cash (subject to certain adjustments) and 1,334,469 shares of Quanta common stock, which had a fair value of $57.1 million as of the respective acquisition dates. Additionally, one of the acquisitions includes the potential payment of up to approximately $6.9 million of contingent consideration, payable if the acquired business achieves certain performance objectives over a five-year post-acquisition period. Based on the estimated fair value of the contingent consideration, Quanta recorded a $2.3 million liability as of the acquisition date.
The results of the businesses acquired as of or prior to September 30, 2021 have been included in Quanta’s consolidated financial statements beginning on the respective acquisition dates, with the results of the manufacturing business, the industrial services business and the business specializing in construction and maintenance of pipelines and metering stations generally included in the Underground Utility and Infrastructure Solutions segment and the results of the remaining businesses generally included in the Electric Power Infrastructure Solutions segment.
The following table summarizes the aggregate consideration paid or payable as of September 30, 2021 for the acquisitions completed in the nine months ended September 30, 2021 and the year ended December 31, 2020 and presents the allocation of these amounts to net tangible and identifiable intangible assets based on their estimated fair values as of the respective acquisition dates, inclusive of any purchase price adjustments. These allocations require significant use of estimates and are based on information that was available to management at the time these condensed consolidated financial statements were prepared. Quanta uses a variety of information to estimate fair values, including quoted market prices, carrying amounts and valuation techniques such as discounted cash flows. When deemed appropriate, third-party appraisal firms are engaged to assist in fair value determination of fixed assets, intangible assets and certain other assets and liabilities.
Quanta is finalizing its fair value assessments for the acquired assets and assumed liabilities related to businesses acquired subsequent to September 30, 2020, and further adjustments to the purchase price allocations may occur. As of September 30, 2021, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to tax estimates and inventory. Consideration amounts are also subject to the finalization of closing working capital adjustments. The aggregate consideration paid or payable for businesses acquired between September 30, 2020 and September 30, 2021 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $136.4 million to net tangible assets, $37.6 million to identifiable intangible assets and $35.3 million to goodwill. The following table summarizes the fair value of
total consideration transferred or estimated to be transferred and the fair value of assets acquired and liabilities assumed as of September 30, 2021 for acquisitions completed in the year-to-date periods shown below (in thousands).
September 30, 2021 December 31, 2020
Consideration:
Cash paid or payable $ 59,226  $ 359,624 
Value of Quanta common stock issued 2,479  57,119 
Contingent consideration —  2,250 
Fair value of total consideration transferred or estimated to be transferred $ 61,705  $ 418,993 
Accounts receivable $ 10,678  $ 74,492 
Contract assets 2,048  8,919 
Other current assets 7,189  53,302 
Property and equipment 5,651  143,276 
Other assets 216  14 
Identifiable intangible assets 18,506  96,827 
Contract liabilities (16) (3,750)
Other current liabilities (10,371) (35,112)
Deferred tax liabilities, net (2,093) (3,185)
Total identifiable net assets 31,808  334,783 
Goodwill 29,897  84,210 
Fair value of net assets acquired $ 61,705  $ 418,993 
Goodwill represents the amount by which the purchase price for an acquired business exceeds the net fair value of the assets acquired and liabilities assumed. The acquisitions completed in the nine months ended September 30, 2021 and the year ended December 31, 2020 strategically expanded Quanta’s domestic and international underground utility and infrastructure solutions and domestic electric power infrastructure solutions, which Quanta believes contributes to the recognition of goodwill. Approximately $13.3 million and $72.6 million of goodwill is expected to be deductible for income tax purposes related to acquisitions completed in the nine months ended September 30, 2021 and the year ended December 31, 2020.
Quanta’s intangible assets include customer relationships; backlog; trade names; non-compete agreements; patented rights, developed technology, and process certifications; and curriculum, all of which are subject to amortization, as well as an engineering license, which is not subject to amortization. The following table summarizes the estimated fair values of identifiable intangible assets for the acquisitions completed in the nine months ended September 30, 2021 as of the acquisition
date and the related weighted average amortization periods by asset type (in thousands, except for weighted average amortization periods, which are in years).    
Estimated Fair Value Weighted Average Amortization Period in Years
Customer relationships $ 3,063  5.6
Backlog 3,811  1.3
Trade names 1,110  14.4
Non-compete agreements 1,494  5.0
Patented rights, developed technology, and process certifications 9,028  3.5
Total intangible assets subject to amortization $ 18,506  4.2
The significant estimates used by management in determining the fair value of customer relationship intangible assets include future revenues, discount rates and customer attrition rates. The following table includes the discount rates and customer attrition rates used to determine the fair value of customer relationship intangible assets for businesses acquired during the nine months ended September 30, 2021 and the year ended December 31, 2020 as of the respective acquisition dates:
  2021 2020
Range Weighted Average Range Weighted Average
Discount rates
22% to 25%
22%
19% to 25%
20%
Customer attrition rates
20% to 30%
23%
10% to 43%
13%
The following unaudited supplemental pro forma results of operations for Quanta, which incorporate the acquisitions completed in the three and nine months ended September 30, 2021 and 2020, have been provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following pro forma financial information because of future events and transactions, as well as other factors (in thousands, except per share amounts).
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues $ 3,357,877  $ 3,069,921  $ 9,090,656  $ 8,519,226 
Gross profit $ 535,935  $ 520,866  $ 1,367,256  $ 1,254,826 
Selling, general and administrative expenses $ (275,363) $ (256,608) $ (794,249) $ (740,564)
Amortization of intangible assets $ (22,836) $ (22,843) $ (68,167) $ (69,742)
Net income $ 175,865  $ 166,326  $ 387,713  $ 287,171 
Net income attributable to common stock $ 174,832  $ 165,539  $ 383,184  $ 282,718 
Earnings per share attributable to common stock:
Basic $ 1.25  $ 1.17  $ 2.73  $ 1.98 
Diluted $ 1.21  $ 1.14  $ 2.65  $ 1.94 
The pro forma combined results of operations for the three and nine months ended September 30, 2021 and 2020 were prepared by adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2021 as if they occurred January 1, 2020. The pro forma combined results of operations for the three and nine months ended September 30, 2020 were prepared by also adjusting the historical results of Quanta to include the historical results of the acquisitions completed in 2020 as if they occurred January 1, 2019. These pro forma combined historical results were adjusted for the following: a reduction of interest expense as a result of the repayment of outstanding indebtedness of the acquired businesses; an increase in interest expense as a result of the cash consideration paid; an increase in amortization expense due to the incremental intangible assets recorded; elimination of inter-company sales; changes in depreciation expense to adjust acquired property and equipment to the acquisition date fair value and to conform with Quanta’s accounting policies; an increase in the
number of outstanding shares of Quanta common stock; and reclassifications to conform the acquired businesses’ presentation to Quanta’s accounting policies. The pro forma combined results of operations do not include any adjustments to eliminate the impact of acquisition-related costs or any cost savings or other synergies that resulted or may result from the acquisitions. As noted above, the pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.
Revenues of $13.4 million and a loss before income taxes of $0.3 million, which included $2.0 million of acquisition-related costs, related to the acquisitions completed in 2021 are included in Quanta’s condensed consolidated results of operations for the three months ended September 30, 2021. Revenues of $14.6 million and a loss before income taxes of $0.2 million, which included $2.4 million of acquisition-related costs, related to the acquisitions completed in 2021 are included in Quanta’s condensed consolidated results of operations for the nine months ended September 30, 2021. Revenues of $55.2 million and income before income taxes of $1.0 million, which included $10.6 million acquisition-related costs, related to the acquisitions completed in 2020 are included in Quanta’s condensed consolidated results of operations for the three months ended September 30, 2020. Revenues of $63.0 million and income before income taxes of $1.0 million, which included $11.4 million of acquisition-related costs, related to the acquisitions completed in 2020 are included in Quanta’s condensed consolidated results of operations for the nine months ended September 30, 2020.