Business Context and Reporting Period
Installed Building Products, Inc. filed this Form 8-K on January 5, 2017, to report the consummation of a previously announced acquisition. The Company acquired 100% of the outstanding shares of Trilok Industries, Inc. and the Alpha Companies (Alpha Insulation & Waterproofing, Inc. and Alpha Insulation & Waterproofing Company), collectively known as the "Alpha Companies."
The Alpha Companies, founded in 1982 and headquartered in Atlanta, Georgia, operate nine branch locations across Georgia, Florida, Texas, Tennessee, and North Carolina. They provide waterproofing, insulation, fireproofing, and fire stopping services for large commercial projects.
Key Financial Metrics and Transaction Details
- Total Purchase Price: $92,120,000.
- Payment Structure:
- Stock Consideration: $9,212,000 paid via issuance of 282,577 shares of common stock.
- Cash Consideration: $81,908,000 paid in cash.
- Holdback Amount: $1,000,000 retained in escrow for working capital adjustments.
- Debt Assumption/Payment: The Company paid off existing indebtedness of the Alpha Companies not exceeding $350,000.
- Financing: The Company drew down $92,500,000 from its Delayed Draw Term Loan (DDTL) to fund the transaction. Following this draw, approximately $105,000,000 remained outstanding under the DDTL.
- Earnout Provision: Potential additional cash payment equal to three times the amount by which the Alpha Companies' fiscal year 2016 EBITDA exceeds $15,655,477.
Material Changes
The primary material change is the expansion of the Company's footprint and product offerings through the acquisition of the Alpha Companies. This transaction adds nine new branch locations and capabilities in waterproofing and fireproofing to the Company's existing portfolio. Additionally, the Company's debt load increased by $92,500,000 due to the drawdown on its credit facility to finance the acquisition.
Outlook, Risks, and Contingencies
Future Financial Statements: The financial statements of the acquired businesses and unaudited pro forma financial information are not included in this filing. They are scheduled to be filed by amendment within 71 days of the report date.
Contingencies: The final purchase price is subject to adjustment based on the Holdback Amount for cash and net working capital. Furthermore, the Company faces a contingent liability regarding the earnout payment, which depends on the Alpha Companies' EBITDA performance for the fiscal year ended December 31, 2016.
Investor Verification Checklist
- Verify the final adjusted purchase price once the Holdback Amount is released or adjusted.
- Confirm the actual EBITDA of the Alpha Companies for fiscal year 2016 to determine if the earnout payment is triggered and its magnitude.
- Review the upcoming amendment to this Form 8-K (due within 71 days) for the acquired companies' financial statements and pro forma impact on Installed Building Products' balance sheet.
- Monitor the Company's liquidity and debt covenants following the $92.5 million drawdown on the Delayed Draw Term Loan.