Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.19.1
Acquisitions
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Acquisitions ACQUISITIONS:
In January 2019, Quanta acquired an electric power specialty contracting business that provides aerial power line and construction support services and is located in the United States. The consideration for this acquisition was $50.9 million in cash. The results of the acquired business have generally been included in Quanta’s Electric Power Infrastructure Services segment and consolidated financial statements beginning on the acquisition date.
During the year ended December 31, 2018, Quanta acquired an electrical infrastructure services business specializing in substation construction and relay services, a postsecondary educational institution that provides pre-apprenticeship training and programs for experienced linemen and two communications infrastructure services businesses, all of which are located in the United States. The aggregate consideration for these acquisitions was $106.8 million paid or payable in cash, subject to certain adjustments, and 679,668 shares of Quanta common stock, which had a fair value of approximately $22.9 million as of the respective acquisition dates. Additionally, the acquisitions of the postsecondary educational institution and one of the communications infrastructure services businesses include the potential payment of up to $18.0 million of contingent consideration, payable if the acquired businesses achieve certain performance objectives over five-year and three-year post-acquisition periods. Based on the estimated fair value of the contingent consideration, Quanta recorded $16.5 million of liabilities as of the respective acquisition dates. The results of the acquired businesses have generally been included in Quanta’s Electric Power Infrastructure Services segment and have been included in Quanta’s consolidated financial statements beginning on the respective acquisition dates.
Quanta is in the process of finalizing its assessments of the fair values of the acquired assets and assumed liabilities related to businesses acquired subsequent to March 31, 2018, and further adjustments to the purchase price allocations may occur. As of March 31, 2019, the estimated fair values of the net assets acquired were preliminary, with possible updates primarily related to certain tax estimates. The aggregate purchase consideration of the businesses acquired subsequent to March 31, 2018 through March 31, 2019 was allocated to acquired assets and assumed liabilities, which resulted in an allocation of $43.6 million to net tangible assets, $39.9 million to identifiable intangible assets and $34.3 million to goodwill.
The following table summarizes the aggregate consideration paid or payable as of March 31, 2019 for the 2019 acquisitions and 2018 acquisitions 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 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 (in thousands).
 
 
2019
 
2018
Consideration:
 
 
 
 
Cash paid or payable
 
$
50,907

 
$
106,804

Value of Quanta common stock issued
 

 
22,882

Contingent consideration
 

 
16,471

Fair value of total consideration transferred or estimated to be transferred
 
$
50,907

 
$
146,157

 
 
 
 
 
Accounts receivable
 
$
7,912

 
$
18,405

Contract assets
 

 
1,905

Other current assets
 
6,142

 
8,484

Property and equipment
 
19,371

 
23,674

Other assets
 
5

 
576

Identifiable intangible assets
 
7,337

 
52,364

Contract liabilities
 

 
(175
)
Other current liabilities
 
(5,899
)
 
(11,205
)
Deferred tax liabilities, net
 
(5,870
)
 
(4,208
)
Total identifiable net assets
 
28,998

 
89,820

Goodwill
 
21,909

 
56,337

 
 
$
50,907

 
$
146,157


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 2019 and 2018 acquisitions strategically expanded Quanta’s domestic electric power and communications service offerings, which Quanta believes contributes to the recognition of the goodwill. No goodwill is expected to be deductible for income tax purposes related to the 2019 acquisition, and $20.1 million is expected to be deductible for income tax purposes related to the 2018 acquisitions.
The following table summarizes the estimated fair values of identifiable intangible assets for the 2019 acquisition as of the acquisition date and the related weighted average amortization periods by type (in thousands, except for weighted average amortization periods, which are in years).    
 
 
Estimated Fair Value
 
Weighted Average Amortization Period in Years
Customer relationships
 
$
3,996

 
5.0
Backlog
 
1,058

 
1.0
Trade names
 
908

 
15.0
Non-compete agreements
 
1,375

 
3.0
Total intangible assets subject to amortization related to the 2019 acquisition
 
$
7,337

 
5.3


The following unaudited supplemental pro forma results of operations 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
 
 
March 31,
 
 
2019
 
2018
Revenues
 
$
2,811,139

 
$
2,454,974

Gross profit
 
$
364,779

 
$
313,628

Selling, general and administrative expenses
 
$
232,361

 
$
220,234

Amortization of intangible assets
 
$
12,868

 
$
12,982

Net income
 
$
121,021

 
$
41,715

Net income attributable to common stock
 
$
120,474

 
$
40,718

 
 
 
 
 
Earnings per share:

 
 
 
 
Basic
 
$
0.83

 
$
0.26

Diluted
 
$
0.82

 
$
0.26



The pro forma combined results of operations for the three months ended March 31, 2019 and 2018 were prepared by adjusting the historical results of Quanta to include the historical results of the 2019 acquisition as if it occurred January 1, 2018 and the historical results of the 2018 acquisitions as if they occurred January 1, 2017. 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; 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 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 approximately $7.4 million and a loss before income taxes of approximately $1.0 million, which included $2.4 million of acquisition-related costs, were included in Quanta’s consolidated results of operations for the three months ended March 31, 2019 related to the 2019 acquisition. Revenues of approximately $8.1 million and a loss before income taxes of approximately $5.3 million, which included $5.6 million of acquisition-related costs, were included in Quanta’s consolidated results of operations for the three months ended March 31, 2018 related to the 2018 acquisitions.