Quarterly report pursuant to Section 13 or 15(d)

Acquisitions (Tables)

v3.22.2.2
Acquisitions (Tables)
 9 Months Ended
Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
The following table sets forth the final allocation of the total consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, as of the date of the acquisition, with the excess recorded to goodwill:
Purchase consideration:
Total purchase price, net of cash acquired of $8,831
 $ 227,053 
Fair value of noncontrolling interest
 142,717 
Total consideration
 $ 369,770 
Identifiable net assets acquired:
Account receivable, net
 $ 625 
Inventory(1)
62,937 
Prepaid expenses and other current assets
 4,800 
Property and equipment, net
 8,048 
Intangible assets, net(2)
73,209 
Operating lease right-of-use assets
 24,299 
Accounts payable
 (13,449)
Deferred revenue
 (141)
Income taxes payable
 (1,778)
Other current liabilities
 (2,533)
Operating lease liabilities
 (24,299)
Deferred income taxes, net
 (25,439)
Accrued liabilities, non-current
 (1,058)
Net assets acquired
 105,221 
Goodwill
 $ 264,549 
The purchase price allocation includes significant judgments, assumptions and estimates to determine the fair value of assets acquired and liabilities assumed. The valuations involving the most significant assumptions, estimates and judgment are:
(1)Inventory was adjusted by $15.1 million to step up inventory cost to estimated fair value. The fair value of the inventory was determined utilizing the net realizable value method, which was based on the expected selling price of the inventory to customers adjusted for related disposal costs and a profit allowance for the post-acquisition selling effort.
(2)The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:
Fair Value at Acquisition Date
Annual Amortization Expense
Estimated Useful
Life
Brand names
 $ 68,354  $ 6,835  10 years
Customer relationships
 4,855  1,214  4 years
Total $ 73,209 
The estimated fair values of assets acquired and liabilities assumed as of the date of the acquisition, are as follows:
Accounts receivable, net
 $ 68 
Inventory(1)
7,321 
Prepaid expenses and other current assets
 1,838 
Other assets
 15 
Intangible assets(2)
14,300 
Accounts payable
 (504)
Deferred income
 (164)
Accrued liabilities
 (1,794)
Assumed loan
 (1,312)
Sales and use tax liability
 (1,100)
Deferred income taxes, net
 (3,159)
Total net assets acquired
15,509 
Goodwill
 29,990 
Total purchase price, net of cash acquired of $605
 $ 45,499 
The cash purchase consideration is subject to working capital adjustments that will be concluded prior to October 14, 2022. The preliminary purchase price allocation includes significant judgments, assumptions and estimates to determine the fair value of assets acquired and liabilities assumed. The valuations involving the most significant assumptions, estimates and judgment are:
(1)Inventory was adjusted by $1.9 million to step up inventory cost to estimated fair value. The fair value of the inventory was determined utilizing the net realizable value method, which was based on the expected selling price of the inventory to customers adjusted for related disposal costs and a profit allowance for the post-acquisition selling effort.
(2)The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:

Fair Value at Acquisition Date
Estimated Useful Life
Brand name $ 11,800  10 years
Customer relationships 2,500  3 years
Total $ 14,300 
Schedule of Acquired Finite-Lived Intangible Assets The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:
Fair Value at Acquisition Date
Annual Amortization Expense
Estimated Useful
Life
Brand names
 $ 68,354  $ 6,835  10 years
Customer relationships
 4,855  1,214  4 years
Total $ 73,209 
The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:
Fair Value at Acquisition Date
Estimated Useful Life
Brand name $ 11,800  10 years
Customer relationships 2,500  3 years
Total $ 14,300 
The gross amounts and accumulated amortization of acquired identifiable intangible assets with finite useful lives as of September 30, 2022 and December 31, 2021, included in intangible assets, net in the accompanying condensed consolidated balance sheets, are as follows:
September 30, 2022 December 31, 2021
Useful life
Weighted
Average
Amortization
Period 2022
 2022
Weighted
Average
Amortization
Period 2021
 2021
Customer relationships
 4 years 2.5 years $ 20,910  2.5 years $ 24,516 
Brands
 10 years 8.4 years 82,746  8.9 years 100,315 
Website design and software system
 3 years 2.2 years 1,883 
Trademarks
 5 years 2.8 years 102  3.3 years 114 
Total intangible assets
 103,758  126,828 
Less accumulated amortization
 (25,691) (28,541)
Total intangible assets, net
 $ 78,067  $ 98,287 
Schedule of Condensed Income Statement The following amounts are included in the accompanying condensed consolidated statements of income for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net sales
 $ 55,324  $ 62,817  $ 158,150  $ 121,075 
Net income (loss)
 1,425  (3,005) (1,034) (6,434)
Schedule of Business Acquisition, Pro Forma Information
The unaudited pro forma financial information below is presented to illustrate the estimated effects of the acquisition of Culture Kings and the associated financing as if they had occurred on January 1, 2020:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net sales
 $ 155,822  $ 161,762  $ 462,612  $ 430,967 
Net income (loss) attributable to a.k.a. Brands Holding Corp.
 (114) 2,278  (2,801) 12,084 
Net income (loss) per share, basic and diluted
 $ 0.00  $ 0.03  $ (0.02) $ 0.14