Quarterly report pursuant to Section 13 or 15(d)

Business Acquisitions and Divestitures

v3.21.2
Business Acquisitions and Divestitures
9 Months Ended
Jun. 30, 2021
Business Combinations [Abstract]  
Business Acquisitions Acquisitions and Divestitures
Acquisition of Milacron

Background

On November 21, 2019, the Company completed the acquisition of Milacron Holdings Corp. (“Milacron”), a global leader in highly engineered and customized systems in plastic technology and processing, through a merger of its wholly-owned subsidiary with and into Milacron, resulting in ownership of 100% of Milacron common stock that was issued and outstanding after the acquisition. The acquisition provides Hillenbrand with increased scale and meaningful product diversification, enhancing its ability to serve customers with expanded capabilities across the plastics value chain.

The results of Milacron are reported separately in its own reportable operating segment (Molding Technology Solutions).

Purchase price consideration

As a result of the acquisition, Milacron stockholders received $11.80 in cash per share and a fixed exchange ratio of 0.1612 shares of Hillenbrand common stock for each share of Milacron common stock they owned, with cash paid in lieu of fractional shares. In addition, concurrent with the closing of the acquisition, the Company made a cash payment of $772.9 to repay outstanding Milacron debt, including accrued interest. The Company funded the acquisition through a combination of cash on hand, new debt financing, and the issuance of common stock.

Pursuant to the Merger Agreement, certain of Milacron’s outstanding stock options, restricted stock awards, restricted stock unit awards, and performance stock unit awards immediately vested and converted into the right to receive $11.80 per share in cash and 0.1612 shares of Hillenbrand common stock per share. Additionally, certain of Milacron’s stock appreciation rights were canceled and converted into the right to receive a lump sum cash payment. The fair value of share-based equity awards was apportioned between purchase price consideration and immediate expense. The portion of the fair value of partially vested awards associated with pre-acquisition service of Milacron employees represented a component of the total purchase price consideration, while the remaining portion of the fair value was immediately recognized as expense within operating expenses on the Consolidated Statement of Operations during the nine months ended June 30, 2020.

The following table summarizes the aggregate purchase price consideration to acquire Milacron:
Cash consideration paid to Milacron stockholders $ 835.9 
Repayment of Milacron debt, including accrued interest 772.9 
Cash consideration paid to settle outstanding share-based equity awards 34.2 
Total cash consideration 1,643.0 
Fair value of Hillenbrand common stock issued to Milacron stockholders (1)
356.9 
Stock consideration issued to settle outstanding share-based equity awards (1)
14.4 
Total consideration transferred 2,014.3 
Portion of cash settlement of outstanding share-based equity awards recognized as expense (2)
(14.1)
Portion of stock settlement of outstanding share-based equity awards recognized as expense (2)
(5.9)
     Total purchase price consideration $ 1,994.3 
(1)The fair value of the 11.4 million shares of Hillenbrand’s common stock issued as of the acquisition date was determined based on a per share price of $31.26, which was the closing price of Hillenbrand’s common stock on November 20, 2019, the last trading day before the acquisition closed on November 21, 2019. This includes a nominal amount of cash paid in lieu of fractional shares. Additionally, 0.5 million shares of Hillenbrand’s common stock were issued to settle certain of Milacron’s outstanding share-based equity awards, as previously discussed.
(2)In total, $20.0 was immediately recognized as expense within operating expenses on the Consolidated Statements of Operations during the nine months ended June 30, 2020, which represents the portion of the fair value of outstanding share-based equity awards that was not associated with pre-acquisition service of Milacron employees, as previously discussed.
Purchase price allocation

The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. The purchase price was allocated to the assets acquired and liabilities assumed based on management’s estimate of the respective fair values at the date of acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the acquisition.  None of the goodwill is deductible for income tax purposes.

The following table summarizes the final (as of November 21, 2020) fair values of the assets acquired and liabilities assumed as of the acquisition date (November 21, 2019).
Assets acquired:
Cash and cash equivalents $ 125.8 
Trade receivables 133.1 
Inventories 287.7 
Prepaid expense and other current assets 69.2 
Property, plant, and equipment 233.9 
Operating lease right-of-use assets 41.3 
Identifiable intangible assets 815.0 
Goodwill 734.2 
Other long-term assets 21.0 
Total assets acquired 2,461.2 
Liabilities assumed:
Trade accounts payable 110.2 
Liabilities from long-term manufacturing contracts and advances 32.7 
Accrued compensation 20.8 
Other current liabilities 89.4 
Accrued pension and postretirement healthcare 29.4 
Deferred income taxes 139.0 
Operating lease liabilities - long-term 31.2 
Other long-term liabilities 14.2 
Total liabilities assumed 466.9 
Total purchase price consideration $ 1,994.3 

Intangible assets identified

The purchase price allocation included $815.0 of acquired identifiable intangible assets. The fair value of the identifiable intangible assets were estimated using the income approach through a discounted cash flow analysis with cash flow projections. The cash flows were based on estimates used to price the Milacron acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return to the Company’s pricing model and the weighted-average cost of capital. Definite-lived intangible assets are being amortized over the estimated useful life on a straight-line basis.  The determination of the useful lives was based upon various industry studies, historical acquisition experience, economic factors, and future cash flows of the Company post-acquisition of Milacron.  In addition, Hillenbrand reviewed certain technological trends and considered the relative stability in the current Milacron customer base.

The amounts allocated to intangible assets are as follows:
Gross Carrying Amount Weighted-Average Useful Life
Customer relationships $ 560.0  19 years
Trade names 150.0  Indefinite
Technology, including patents 95.0  10 years
Backlog 10.0  3 months
    Total $ 815.0 

The Company is required to provide additional disclosures about fair value measurements as part of the Consolidated Financial Statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). The working capital assets and liabilities, as well as the property, plant, and equipment acquired, were valued using Level 2 inputs which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill and identifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). Significant increases (decreases) in any of those unobservable inputs, as of the date of the acquisition, in isolation would result in a significantly lower (higher) fair value measurement.  Management used a third-party valuation firm to assist in the determination of the purchase accounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversaw the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.

Impact on results of operations

The results of Milacron’s operations have been included in Hillenbrand’s Consolidated Financial Statements since the November 21, 2019 acquisition date, within the Molding Technology Solutions reportable operating segment. The following table provides the results of operations for Milacron included in Hillenbrand’s Consolidated Statements of Operations.
Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
Net revenue $ 243.8  $ 186.3  $ 735.7  $ 518.6 
Income (loss) before income taxes 30.9  12.0  93.3  (17.5)

In connection with the acquisition of Milacron, the Company incurred a total of $5.1 and $17.4 and $5.0 and $62.7 of business acquisition and integration costs during the three and nine months ended June 30, 2021 and 2020, respectively, which were recorded within operating expenses in the Consolidated Statements of Operations.

Supplemental Pro Forma Information

The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Milacron acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that Hillenbrand believes are reasonable under the circumstances.

The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the Milacron acquisition had occurred on October 1, 2019, to give effect to certain events that Hillenbrand believes to be directly attributable to the Milacron acquisition. These pro forma adjustments primarily include:

an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets;
an adjustment to interest expense to reflect the additional borrowings of Hillenbrand and the repayment of Milacron’s historical debt in conjunction with the acquisition;
an adjustment to remove business acquisition and integration costs, inventory step-up costs, and backlog amortization as these costs are non-recurring in nature and will not have a continuing effect on Hillenbrand’s results; and
the related income tax effects of the adjustments noted above.
The supplemental pro forma financial information for the periods presented is as follows:
Three Months Ended
June 30,
Nine Months Ended
June 30,
2021 2020 2021 2020
Net revenue $ 695.1  $ 607.5  $ 2,109.9  $ 1,939.0 
Net income (loss) attributable to Hillenbrand 40.4  30.4  194.9  (0.7)
Net income (loss) attributable to Hillenbrand — per share of common stock:
Basic earnings (loss) per share $ 0.54  $ 0.40  $ 2.59  $ (0.01)
Diluted earnings (loss) per share $ 0.53  $ 0.40  $ 2.57  $ (0.01)

Assets and liabilities held for sale

During the fourth quarter of 2020, the Company announced that it had initiated a plan to divest the TerraSource Global and flow control businesses, which includes the Red Valve business (“Red Valve”) and Abel Pump business (“ABEL”), which operated within the Advanced Process Solutions reportable operating segment, as these businesses were no longer considered a strategic fit with the Company’s long-term growth plan and operational objectives. As discussed below, the Company completed the sale of Red Valve on December 31, 2020, and ABEL on March 10, 2021. The Company still intends to divest the TerraSource Global business in the near term. As of September 30, 2020, the Company determined that these businesses met the criteria to be classified as held for sale, and therefore reclassified the related assets and liabilities as held for sale on the Consolidated Balance Sheets. As of June 30, 2021, the TerraSource Global business continues to be classified as held for sale.

The following is a summary of the major categories of assets and liabilities that have been classified as held for sale on the Consolidated Balance Sheets:

June 30,
2021
September 30,
2020
Trade receivables, net $ 6.3  $ 19.8 
Inventories 12.5  22.0 
Property, plant and equipment, net (1)
12.1  18.1 
Operating lease right-of-use assets, net 2.0  4.3 
Intangible assets, net 49.5  133.6 
Goodwill 12.4  19.5 
Other assets 2.5  9.4 
Valuation allowance on disposal group (2)
(35.9) (45.4)
Total assets held for sale $ 61.4  $ 181.3 
 
Trade accounts payable $ 4.0  $ 7.3 
Liabilities from long-term manufacturing contracts and advances 5.9  4.9 
Operating lease liabilities 2.2  4.5 
Deferred income taxes 5.0  8.8 
Other liabilities 2.1  7.0 
Total liabilities held for sale $ 19.2  $ 32.5 
(1)Total assets held for sale in this table include certain parcels of real estate that are also classified as held for sale on the Company’s Consolidated Balance Sheets as of June 30, 2021 and September 30, 2020.
(2)The Company adjusted the carrying value to fair value less costs to sell for certain assets held for sale during the year ended September 30, 2020. There was no adjustment recognized for the three and nine months ended June 30, 2021.

The Company determined that the exit from these businesses does not represent a strategic shift that had or will have a major effect on its Consolidated Results of Operations, and therefore these businesses were not classified as discontinued operations. The results of operations up to the respective dates of sale for these businesses are included within the Advanced Process Solutions reportable operating segment for all periods presented in this quarterly report.
Divestiture of Flow Control Businesses

On December 31, 2020, the Company completed the divestiture of Red Valve to DeZURIK, Inc. in a transaction valued at $63.0. The sale included cash proceeds received at closing of $59.4, including working capital adjustments, and a $5.0 note receivable, included within other long-term assets on the Consolidated Balance Sheet. The sale follows the Company’s previously announced intent to exit Red Valve, and Red Valve was classified as held for sale at September 30, 2020.

As a result of the Red Valve sale, the Company recorded a pre-tax gain of $31.6 in the Consolidated Statement of Operations during the nine months ended June 30, 2021. The related tax effect resulted in tax expense of $3.8 and was included within income tax expense in the Consolidated Statement of Operations during the nine months ended June 30, 2021. The Company incurred $2.9 of transaction costs associated with the sale during the nine months ended June 30, 2021, which were recorded within operating expenses in the Consolidated Statement of Operations.

On March 10, 2021, the Company completed the divestiture of ABEL to IDEX Corporation, in a transaction valued at $103.5, subject to customary post-closing adjustments. The sale included cash proceeds received at closing of $106.3, including working capital adjustments. The sale follows the Company's previously announced intent to exit ABEL, and ABEL was classified as held for sale at September 30, 2020.

As a result of the ABEL sale, the Company recorded a pre-tax gain after post-closing adjustments of $34.2 in the Consolidated Statement of Operations during the nine months ended June 30, 2021. The related tax effect resulted in tax expense of $6.9 and was included within income tax expense in the Consolidated Statement of Operations during the nine months ended June 30, 2021. The Company incurred $3.9 of transaction costs associated with the sale during the nine months ended June 30, 2021, which were recorded within operating expenses in the Consolidated Statement of Operations.

Divestiture of Cimcool

On March 30, 2020, the Company completed the sale of its Cimcool business (“Cimcool”), which represented the former Fluids Technologies reportable segment of Milacron before its acquisition by the Company, to DuBois Chemicals, Inc. The sale resulted in cash proceeds received of $222.4, net of cash divested.

As a result of the Cimcool sale, the Company recorded a pre-tax loss of $3.0, using Level 2 nonrecurring fair value measurements, within other (expense) income, net in the Consolidated Statement of Operations during the nine months ended June 30, 2020. The related tax effect resulted in tax expense of $13.0 and was included within income tax expense in the Consolidated Statement of Operations during the nine months ended June 30, 2020. The Company incurred $0.4 and $4.2 of transaction costs associated with the sale during the three and nine months ended June 30, 2020, respectively, which were recorded within operating expenses in the Consolidated Statement of Operations.

The Company determined that the sale of Cimcool did not represent a strategic shift that had or will have a major effect on its consolidated results of operations, and therefore Cimcool was not classified as a discontinued operation. Cimcool’s results of operations were included within the Molding Technology Solutions reportable operating segment until the completion of the sale on March 30, 2020.

Sale of Molding Technology Solutions facility

In December 2019, the Company completed the sale of a Molding Technology Solutions manufacturing facility located in Germany. As a result of the sale, the Company received net cash proceeds of $13.1. There was no material impact to the Consolidated Statement of Operations during the nine months ended June 30, 2020, resulting from the sale of the facility.