Business Context and Reporting Period
Liquidity Services, Inc. filed this Form 8-K on September 22, 2015, to report the entry into a material definitive agreement. The Company, a Delaware corporation, announced the sale of all assets of its Jacobs Trading, LLC subsidiary to Tanager Acquisitions, LLC.
Key Financial Metrics and Transaction Details
- Transaction Value: Approximately $17 million total consideration.
- Consideration Structure: Approximately $13 million payable via a five-year note, subject to closing adjustments.
- Earn-outs: Up to $2 million in cash for 2019 targets and up to $2 million in cash for 2020 targets.
- Tax Benefits: The sale enables the utilization of approximately $127 million in tax losses.
- Cash Impact: Anticipated near-term cash benefit of approximately $35 million from tax refunds.
- Future Tax Benefit: Approximately $31 million in tax loss carry forward generating an estimated $13 million benefit against future earnings.
- Income Statement Impact: Expected approximately $29 million credit to income tax expense for fiscal year 2015.
Material Changes and Background
This divestment follows the termination of the legacy Jacobs Trading Wal-Mart contract, which materially reduced the scope of the Jacobs Trading Business. The transaction represents a strategic exit from this specific subsidiary to realize tax benefits and streamline operations.
Outlook, Risks, and Related Party Information
- Closing Timeline: The transaction is expected to complete by September 30, 2015, subject to customary closing conditions.
- Related Party: The Buyer, Tanager Acquisitions, LLC, is beneficially owned by Mr. Irwin Jacobs. Mr. Jacobs served as an independent consultant advisor to the Company from the 2011 acquisition of Jacobs Trading until December 2014.
- Risks: Final consideration is subject to closing adjustments and the achievement of future earn-out targets in 2019 and 2020.
Investor Verification Checklist
- Verify the satisfaction of customary closing conditions to confirm the transaction completes by September 30, 2015.
- Confirm the final closing adjustments to the $13 million note consideration.
- Monitor the realization of the $35 million tax refund and the $29 million income tax expense credit in fiscal 2015 financial statements.
- Review the performance metrics required to achieve the $4 million in potential earn-out payments.