Business Combinations and Reverse Recapitalization
|9 Months Ended|
Sep. 30, 2022
|Business Combination and Asset Acquisition [Abstract]|
|Business Combinations and Reverse Recapitalization||
NOTE 4 – Business Combinations and Reverse Recapitalization
On July 15, 2022, the Company paid $230.5 million to acquire 100% of the ownership interest of INGENCO, pursuant to the Purchase and Sale Agreement dated April 26, 2022, and to retire INGENCO’s outstanding debt. At the acquisition date, INGENCO owned 14 LFG to renewable electricity facilities. INGENCO was purchased to increase the Company’s backlog of RNG development opportunities.
Total consideration was determined to be as follows:
The INGENCO acquisition represented the acquisition of a business and was accounted for using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill. Certain data to complete the purchase price allocation is not yet available, including, but not limited to, final appraisals of certain assets acquired and liabilities assumed. The Company will finalize the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate. The following table sets forth the preliminary allocation of the consideration.
Intangible assets acquired, and their related weighted-average amortization periods, are as follows:
The goodwill is primarily attributable to the expected synergies Archaea believes will be created as a result of the combined companies, the ability to enhance INGENCO’s current electric production facilities, and the ability to add RNG production facilities to existing INGENCO sites. Archaea expects a majority, if not all, of the goodwill to be assigned to the RNG reporting unit upon finalizing the purchase price allocation. For tax purposes, the INGENCO acquisition was a taxable asset acquisition, and as such, there are no deferred taxes recorded at the acquisition date.
Included in the consolidated statement of operations for both the three and nine months ended September 30, 2022 are revenues of $10.4 million and net income of $1.0 million related to INGENCO for the period from the acquisition date on July 15 through September 30, 2022. The Company also recognized transaction costs of $0.4 million and $3.1 million, mainly consisting of legal, consulting, and other professional fees, during the three and nine months ended September 30, 2022, respectively, related to the acquisition of INGENCO.
Formation of the Lightning JV
On May 5, 2022, the Company and Republic Services, Inc. (“Republic”) announced the formation of the Lightning JV to develop 39 RNG projects across the U.S. that will be located at various landfill sites owned or operated by Republic. The joint venture will develop and construct RNG facilities that will convert LFG into pipeline-quality RNG that can be used
for a variety of applications. The Company holds a 60% ownership interest in the Lightning JV, and the Company’s initial capital funding of $222.5 million was paid into the Lightning JV on July 5, 2022. Republic holds a 40% noncontrolling ownership interest in the Lightning JV and has contributed cash of $88.5 million and landfill gas rights recorded at an estimated fair value of $184.2 million. Republic’s noncontrolling interest estimated fair value was determined based on the fair value of their initial cash capital funding and landfill gas rights contribution. Concurrent with and utilizing the initial capital funding, the Lightning JV completed the acquisition of landfill gas rights and underlying assets at an additional Republic-owned landfill for $37.9 million, bringing the total number of RNG development projects within the Lightning JV to 40.
The Company has determined that the Lightning JV is a VIE and the Company is the primary beneficiary; therefore, the Company consolidates the Lightning JV. The assets of the Lightning JV cannot be used by the Company for general corporate purposes and are included in and disclosed parenthetically on the Company’s consolidated balance sheets. The Lightning JV’s creditors have no recourse to the Company’s assets or general credit, and the carrying amounts of liabilities related to the Lightning JV are included in and disclosed parenthetically on the Company’s consolidated balance sheets.
Included in the consolidated statement of operations for both the three and nine months ended September 30, 2022 are revenues of $0.1 million and net losses of $5.0 million related to the Lightning JV. The Company recognized transaction costs of $5.1 million and $5.5 million, mainly consisting of legal, consulting, and other professional fees, during the three and nine months ended September 30, 2022, respectively, related to the formation of the Lightning JV.
Legacy Archaea is considered the accounting acquirer of the Business Combinations because the Legacy Archaea Holders have the largest portion of the voting power of the Company and Legacy Archaea’s senior management comprise the majority of the executive management of the Company. Additionally, the Legacy Archaea Holders appointed the majority of board members exclusive of the independent board members. The Archaea Merger represents a reverse merger and is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, RAC is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Archaea Merger is treated as the equivalent of Legacy Archaea issuing shares for the net assets of RAC, accompanied by a recapitalization. The net assets of RAC were stated at historical cost, no goodwill or other intangible assets were recorded.
As discussed in “Note 1 - Organization and Description of Business,” Aria was acquired as part of the Business Combinations consummated on September 15, 2021 to complement the Company’s existing RNG assets and for its operational expertise in the renewable gas industry. The Aria Merger represented an acquisition of a business and was accounted for using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill.
As of June 30, 2022, the Company has completed the allocation of the consideration. During the six months ended June 30, 2022, the final consideration adjustment of $1.9 million was determined and received from the Aria Holders which had the effect of reducing goodwill. In addition, other purchase price adjustments of $2.5 million in the aggregate were recorded for the six months ended June 30, 2022 which had the effect of increasing goodwill.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef