Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS

v3.21.2
ACQUISITIONS
9 Months Ended
Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract]  
ACQUISITIONS ACQUISITIONS
 
Our acquisition strategy is primarily to acquire (i) well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheets at their estimated fair values, as of the acquisition date. For all acquisitions, the preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period as valuations are finalized. The Company has made adjustments to the preliminary valuations of the acquisition based on valuation analysis prepared by independent third-party valuation consultants. During the nine months ended September 30, 2021 our measurement period adjustments included reducing intangible assets by $1.0 million and increasing goodwill by the same amount. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense which is included in the income statement. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the consolidated statements of operations.
 
Acquisitions during the nine months ended September 30, 2021
 
On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $1.7 million, including $1.2 million in cash and common stock valued at approximately $0.5 million. Acquired goodwill of approximately $0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
 
On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $0.4 million. Acquired goodwill of approximately $0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
 
13.ACQUISITIONS, continued

On February 15, 2021, the Company purchased the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in Colorado (3) and Oklahoma (1). The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in cash and common stock valued at approximately $9.7 million. Acquired goodwill of approximately $11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
 
On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million. Acquired goodwill of approximately $5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
 
On March 12, 2021, the Company purchased the assets of Charcoir Corporation, which sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in cash and common stock valued at approximately $6.5 million. Acquired goodwill of approximately $6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand.
 
On March 15, 2021, the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including $5.4 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill of approximately $3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
 
On March 15, 2021, the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, Massachusetts. The total consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
 
On March 19, 2021, the Company purchased the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million. Acquired goodwill of approximately $8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer.

On April 19, 2021, the Company purchased the assets of Grow Depot LLC ("Down River Hydro"), a hydroponic and indoor gardening supply store in Brownstown, Michigan. The total consideration for the purchase of Down River Hydro was approximately $4.4 million, including approximately $3.2 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

On May 24, 2021, the Company purchased the assets of The Harvest Company ("Harvest"), a northern California-based hydroponic supply center and cultivation design innovator with stores in Redding and Trinity Counties. The total consideration for the purchase of Harvest was approximately $8.3 million, including approximately $5.6 million in cash and common stock valued at approximately $2.8 million. Acquired goodwill of approximately $4.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
 
On July 19, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene") an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon. The total consideration for the purchase was $11.7 million, including approximately $9.9 million in cash and common stock valued at approximately $1.8 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
13.ACQUISITIONS, continued

On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, a Northern California-based hydroponic garden center located in Mendocino, California. The purchase agreement was modified on July 19, 2021 to amend the purchase price. The total consideration for the purchase was $4.0 million in cash. This acquisition allows the Company to expand its footprint in the Northern California.

On August 24, 2021, the Company purchased the assets of Commercial Grow Supply, Inc. ("CGS"), a hydroponic superstore located in Santa Clarita, California. The total consideration for the purchase was $7.2 million, including approximately $6.0 million in cash and common stock valued at approximately $1.3 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

On August 23, 2021 the Company purchased the assets of Hoagtech Hydroponics, Inc. ("Hoagtech"), a Washington -based corporation consisting of a hydroponic and garden supply center serving the Bellingham, Washington area. The total consideration for the purchase was $3.9 million in cash. The Asset Purchase Agreement contains a contingent payment equal to $0.6 million to be settled in GrowGen common stock if this garden supply center reaches $8.0 million in revenue within a 12-month calendar period from the date of close. The Company used a third-party specialist to value this contingent consideration. The probability that the target will be reached was determined to be 5% which resulted in a value of approximately $29 thousand of contingent consideration which was offset against goodwill. This acquisition expands our footprint in the Pacific Northwest. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2021.

  Agron Aquarius Aqua Serene 55 Hydro Charcoir San Diego Hydro Mendocino Hoagtech
Inventory $ —  $ 957  $ 1,696  $ 780  $ 839  $ 1,400  753  751 
Prepaids and other current assets 29  12  29  534  36  37 
Furniture and equipment 46  63  500  50  —  315  160  144 
Liabilities —  —  —  —  —  —  —  — 
Operating lease right to use asset 98  108  1,177  861  —  1,079  408  1,569 
Operating lease liability (98) (108) (1,177) (861) —  (1,079) (408) (1,569)
Customer relationships 832  339  1,235  809  5,712  605  575  493 
Trade name 1,530  485  1,231  870  1,099  1,192  449  428 
Non-compete 139  —  11  26  — 
Intellectual property —  —  —  —  2,065  —  —  — 
Goodwill 8,673  1,702  6,976  3,915  6,119  5,728  2,056  2,076 
Total $ 11,249  $ 3,558  $ 11,651  $ 6,479  $ 16,368  $ 9,282  $ 4,000  $ 3,932 
 
CGS Grow Warehouse Grow Depot Maine Indoor Garden Down River Hydro Harvest Total
Inventory 875  $ 2,450  $ 326  $ 372  $ 824  $ 1,204  $ 13,227 
Prepaids and other current assets 30  —  724 
Furniture and equipment 100  250  25  94  50 100  1,897 
Liabilities —  (169) —  —  —  —  (169)
Operating lease right to use asset 746  641  92  137  273  3,782  10,971 
Operating lease liability (746) (641) (92) (137) (273) (3,782) (10,971)
Customer relationships 1,382  1,256  549  210  634  1,016  15,647 
Trade name 852  2,748  344  353  698  1,392  13,671 
Non-compete 11  94  36  16  —  350 
Intellectual property —  —  —  —  —  —  2,065 
Goodwill 4,027  11,120  866  661  2,126  4,606  60,651 
Total $ 7,248  $ 17,779  $ 2,149  $ 1,692  $ 4,351  $ 8,325  $ 108,063 
 
The table below represents the consideration paid for the net assets acquired in business combinations.
 
  Agron Aquarius Aqua Serene 55 Hydro Charcoir San Diego Hydro Mendocino Hoagtech
Cash $ 5,973  $ 2,331  $ 9,860  $ 5,347  $ 9,902  $ 4,751  $ 4,000  $ 3,932 
Common stock 5,276  1,227  1,791  1,132  6,466  4,531  —  — 
Total $ 11,249  $ 3,558  $ 11,651  $ 6,479  $ 16,368  $ 9,282  $ 4,000  $ 3,932 
  

  CGS Grow Warehouse Grow
Depot Maine
Indoor Garden Down River Hydro Harvest Total
Cash 5,976  $ 8,100  $ 1,738  $ 1,165  $ 3,177  $ 5,561  $ 71,813 
Common stock 1,272  9,679  411  527  1,174  2,764  36,250 
Total $ 7,248  $ 17,779  $ 2,149  $ 1,692  $ 4,351  $ 8,325  $ 108,063 
  
The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement for the period ended September 30, 2021.

 
  Agron Aquarius Aqua Serene 55 Hydro Charcoir San Diego Hydro Mendocino Hoagtech
Acquisition date
3/19/2021 3/15/2021 7/19/21 3/15/2021 3/12/2021 2/22/2021 7/19/21 8/23/21
Revenue $ 10,587  $ 5,555  $ 1,590  $ 4,482  $ 4,048  $ 5,525  $ 1,085  $ 483 
Net Income $ 149  $ 1,145  $ 331  $ 393  $ 723  $ 839  $ 158  $ 36 
 
  CGS Grow Warehouse Grow Depot Maine Indoor Garden Down River Hydro Harvest Total
Acquisition date
8/24/21 2/15/2021 2/1/2021 1/25/2021 4/19/2021 5/24/21
Revenue $ 447  $ 10,153  $ 4,660  $ 4,508  $ 2,460  $ 4,444  $ 60,027 
Net Income $ (1) $ 1,812  $ 907  $ 520  $ 277  $ 756  $ 8,045 
 
13.ACQUISITIONS, continued

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire period for the three and nine months ended September 30, 2021 and 2020.
 
Three Months Ended Nine Months Ended
  September 30, 2021
(Unaudited)
September 30, 2021
(Unaudited)
Revenue $ 146,030  $ 361,937 
Net income $ 5,299  $ 23,276 


Three Months Ended Nine Months Ended
  September 30, 2020
(Unaudited)
September 30, 2020
(Unaudited)
Revenue $ 121,809  $ 222,193 
Net income $ 6,412  $ 15,681 
 
Acquisitions during the nine months ended September 30, 2020
 
On February 26, 2020, we acquired certain assets of Health & Harvest LLC in a transaction valued at approximately $2.85 million. Acquired goodwill of approximately $1.1 million represented the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

On June 16, 2020, we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $2.0 million. Acquired goodwill of approximately $1.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company's existing working capital.

On August 10, 2020, we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1.0 million. Acquired goodwill of approximately $0.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2020.
 
  Emerald City Garden H2O Hydroponics LLC Health & Harvest LLC Total
Inventory $ 150  $ 498  $ 1,054  $ 1,702 
Prepaids and other current assets —  — 
Furniture and equipment 10  50  51  111 
Right to use asset 140  906  324  1,370 
Lease liability (140) (906) (324) (1,370)
Customer relationships 212  150  255  617 
Trade name —  234  357  591 
Non-compete 14  43  63 
Goodwill 614  1,008  1,130  2,752 
Total $ 1,000  $ 1,987  $ 2,853  $ 5,840 
 
The table below represents the consideration paid for the net assets acquired in business combinations.
 
  Emerald City Garden H2O Hydroponics LLC Health & Harvest LLC Total
Cash $ 1,000  $ 1,282  $ 1,750  $ 4,032 
Common stock —  705  1,103  1,808 
Total $ 1,000  $ 1,987  $ 2,853  $ 5,840 
 
The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement from the date of acquisition to the nine months ended September 30, 2020.
 
  Emerald City Gardens H2O Hydroponics LLC Health & Harvest LLC Total
Acquisition date 8/10/20 6/26/20 2/26/2020
Revenue $ 472  $ 2,769  $ 5,887  $ 9,128 
Earnings $ 74  $ 504  $ 831  $ 1,409 


The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire period for the nine months ended September 30, 2019.
 
Pro forma consolidated income statement:
 
Three Months Ended Nine Months Ended
  September 30, 2019
(Unaudited)
September 30, 2019
(Unaudited)
Revenue $ 24,651  $ 61,176 
Earnings $ 1,220  $ 2,603