Quarterly report pursuant to Section 13 or 15(d)

Note 3 - Business Combinations and Acquisitions

v3.21.2
Note 3 - Business Combinations and Acquisitions
9 Months Ended
Sep. 30, 2021
Notes to Financial Statements  
Business Combination Disclosure [Text Block]

3. BUSINESS COMBINATIONS AND ACQUISITIONS

 

Acquisition of gaBRIEL Performance Products

 

On January 15, 2021, we completed the acquisition of Gabriel Performance Products, a North American specialty chemical manufacturer of specialty additives and epoxy curing agents for the coatings, adhesives, sealants and composite end-markets (“Gabriel Acquisition”), from funds affiliated with Audax Private Equity in an all-cash transaction of approximately $251 million, subject to customary closing adjustments. The purchase price was funded from available liquidity, and the acquired business is being integrated into our Advanced Materials segment. Transaction costs related to this acquisition were approximately nil and $2 million, respectively, for the three and nine months ended September 30, 2021 and were recorded in other operating income, net in our condensed consolidated statements of operations.

 

We accounted for the Gabriel Acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The preliminary allocation of acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):

 

Fair value of assets acquired and liabilities assumed:

       

Cash paid for the Gabriel Acquisition

  $ 251  
         

Cash

  $ 9  

Accounts receivable

    13  

Inventories

    26  

Property, plant and equipment

    23  

Intangible assets

    16  

Goodwill

    174  

Accounts payable

    (7 )

Accrued liabilities

    (2 )

Deferred income taxes

    (1 )

Total fair value of net assets acquired

  $ 251  

 

The acquisition cost allocation is preliminary pending final determination of the fair value of assets acquired and liabilities assumed, including final valuation of certain liabilities, property, plant and equipment, intangible assets, leases and deferred taxes. Intangible assets acquired included in this preliminary allocation consist primarily of trademarks, technology and trade secrets. The applicable amortization periods are still being assessed. For purposes of this preliminary allocation of fair value, we have assigned any excess of the acquisition cost over the estimated preliminary fair value to goodwill. The estimated goodwill recognized is attributable primarily to projected future profitable growth in our Advanced Materials specialty portfolio and synergies. We expect that a portion of the estimated goodwill arising from the acquisition will be deductible for income tax purposes, but the amount is still being assessed. It is possible that material changes to this preliminary allocation of acquisition cost could occur.

 

The acquired business had revenues and net income of $81 million and $14 million, respectively, for the period from the date of acquisition to September 30, 2021.

 

Acquisition of CVC Thermoset Specialties

On May 18, 2020, we completed our acquisition of CVC Thermoset Specialties, a North American specialty chemical manufacturer serving the industrial composites, adhesives and coatings markets (“CVC Thermoset Specialties Acquisition”). We acquired the business for $304 million from Emerald Performance Materials LLC, which is majority owned by affiliates of American Securities LLC, in an all-cash transaction funded from available liquidity. The acquired business was integrated into our Advanced Materials segment. 

 

We accounted for the CVC Thermoset Specialties Acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The allocation of acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):

 

Fair value of assets acquired and liabilities assumed:

       

Cash paid for the CVC Thermoset Specialties Acquisition

  $ 304  
         

Accounts receivable

  $ 12  

Inventories

    37  

Property, plant and equipment

    67  

Intangible assets

    117  

Goodwill

    120  

Accounts payable

    (7 )

Accrued liabilities

    (1 )

Deferred income taxes

    (41 )

Total fair value of net assets acquired

  $ 304  

Intangible assets acquired consist primarily of trademarks, trade secrets and customer relationships, which are predominantly being amortized over a period of 20 years. The goodwill recognized is attributable primarily to projected future profitable growth in our Advanced Materials specialty portfolio and synergies. None of the goodwill arising from the acquisition is deductible for income tax purposes. 

 

Acquisition of Icynene-Lapolla

On February 20, 2020, we completed our acquisition of Icynene-Lapolla, a leading North American manufacturer and distributor of spray polyurethane foam insulation systems for residential and commercial applications (“Icynene-Lapolla Acquisition”). We acquired the business from an affiliate of FFL Partners, LLC for $353 million in an all-cash transaction funded from available liquidity. The acquired business was integrated into our Polyurethanes segment. 

 

We accounted for the Icynene-Lapolla Acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The allocation of acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):

Fair value of assets acquired and liabilities assumed:

       

Cash paid for the Icynene-Lapolla Acquisition

  $ 353  
         

Cash

  $ 7  

Accounts receivable

    36  

Inventories

    32  

Prepaid expenses and other current assets

    2  

Property, plant and equipment

    9  

Intangible assets

    130  

Goodwill

    167  

Other noncurrent assets

    4  

Accounts payable

    (14 )

Accrued liabilities

    (11 )

Deferred income taxes

    (9 )

Total fair value of net assets acquired

  $ 353  

As a result of the final valuation of the assets and liabilities, reallocations were made during the first quarter of 2021 in certain current asset and liability, property, plant and equipment, intangible asset, goodwill, other noncurrent assets and deferred tax balances. Intangible assets acquired consist primarily of trademarks, trade secrets and customer relationships, which are predominantly being amortized over a period of 10 years. The goodwill recognized is attributable primarily to projected future profitable growth, penetration into downstream markets and synergies. None of the goodwill arising from the acquisition is deductible for income tax purposes. 

PRO FORMA INFORMATION FOR ACQUISITIONS

 

If the Gabriel Acquisition, the CVC Thermoset Specialties Acquisition and the Icynene-Lapolla Acquisition were to have occurred on January 1, 2020, the following estimated pro forma revenues, net (loss) income, net (loss) income attributable to Huntsman Corporation and Huntsman International would have been reported (dollars in millions):

   

Three months

   

Nine months

 
   

ended

   

ended

 
   

September 30,

   

September 30,

 
   

2020(1)

   

2021(1)

   

2020

 

Revenues

  $ 1,536     $ 6,150     $ 4,487  

Net income

    55       485       696  

Net income attributable to Huntsman Corporation

    46       436       681  

 

   

Three months

   

Nine months

 
   

ended

   

ended

 
   

September 30,

   

September 30,

 
   

2020(1)

   

2021(1)

      2020  

Revenues

  $ 1,536     $ 6,150     $ 4,487  

Net income

    56       488       696  

Net income attributable to Huntsman International

    47       439       681  

 


(1)

Includes pro forma information for the Gabriel Acquisition only.