Note 3 - Acquisitions |
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Business Combination Disclosure [Text Block] |
Note 3. Acquisitions:We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and the results of operations of each acquired business are included in our consolidated statements of comprehensive income from their respective dates of acquisition. Acquisition costs are recorded in selling, general and administrative expenses as incurred. Space Import-Export, Srl On
July 1, 2016 Bio-Techne acquired all the outstanding stock of Space Import-Export, Srl (Space) of Milan, Italy for the equivalent of approximately $9 million. Space is a long and trusted partner of Bio-Techne, distributing its products since 1985 and creating a very effective and visible presence in the Italian market. The acquisition resulted in goodwill as we expect strategic benefits from expected revenue growth from increased market penetration from future customers. The goodwill is not deductible for income tax purposes. The business became part of the Company’s Biotechnology reportable segment in the
first quarter of 2017.
Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize these by the filing of the 2017 Form 10 -K when our valuation models for acquired intangible assets are completed, including the determination of related estimated useful lives. Amounts for intangible assets, and related deferred tax liabilities, and goodwill remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed in each acquisition, pending final valuation of intangible assets, are as follows (in thousands):
Advanced Cell Diagnostics (ACD) On August 1, 2016, Bio-Techne acquired all of the outstanding stock of ACD for approximately $250 million, plus contingent consideration of up to $75 million as follows:
If the revenue hurdle related to the 2016 calendar year is not met, the $25 million can be earned if the calendar year 2017 revenue hurdle is met. If the 2016 revenue hurdle is met, and calendar year 2017 revenues exceed $40 million but are less than $45 million, a reduced earn-out payment will be made for calendar year 2017, calculated on a sliding scale. Changes to this estimate as of December 31, 2016 are discussed in Note 4.
The goodwill recorded as a result of the ACD acquisition represents the strategic benefits of growing the Company's product portfolio and the expected revenue growth from increased market penetration from future products and customers. The goodwill is not deductible for income tax purposes.
The business became part of the Company’s Biotechnology reportable segment in the
first quarter of 2017.
Certain estimated values are not yet finalized and are subject to change, which could be significant. The Company will finalize the amounts recognized as information necessary to complete the analysis is obtained. The Company expects to finalize these by the filing of the 2017 Form 10 -K when our valuation models for acquired intangible assets are completed, including the determination of related estimated useful lives. Amounts for inventory, intangible assets, deferred tax assets and liabilities, and goodwill remain subject to change. The following table (in thousands) summarizes the value of ACD assets acquired and liabilities assumed as of the acquisition date. Also summarized in the table, subsequent to the acquisition, net adjustments of
$7.0 million have been made to the preliminary purchase price allocation of deferred taxes based on updated estimates, with a corresponding adjustment to goodwill. Additionally, we made a $0.7 million working capital adjustment payment made during the
second quarter.
Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisitions based on management's assessment. The purchase price allocated to developed technology, trade names, and customer relationships was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. Amortization expense related to trade names, and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The preliminary amortization periods for intangible assets acquired in fiscal 2017 are estimated to be 15 years for developed technology, 7.5 years for trade names, 10 years for customer relationships, and 2 years for non-competes. The deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized upon the sale of acquired inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes.As previously disclosed, ACD was acquired on
August 1, 2016. The unaudited pro forma financial information below summarizes the combined results of operations for Bio-Techne and ACD as though the companies were combined as of the beginning fiscal 2016. The pro forma financial information for all periods presented includes the purchase accounting effects resulting from these acquisitions except for the increase in inventory to fair value and the fair value adjustments to contingent consideration as these are not expected to have a continuing impact on cost of goods sold or selling, general and administrative expense, respectively. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2016.
Prior Year Acquisitions During the six months ended December 31, 2016, we made certain purchase accounting for the acquisition of Zephyrus Biosciences, Inc. (Zephyrus), which was acquired in March 2016 for which purchase accounting was still open as of June 30, 2016. Further information regarding this acquisition can be found under the caption “Note 2: Acquisitions” in the Notes to Consolidated Financial Statements appearing in the 2016 Form 10 -K. The adjustments recorded during six months ended December 31, 2016 included a $3.0 million increase to the contingent consideration liability resulting from the finalization of the valuation model, a $0.9 million increase to intangible assets resulting valuation model adjustments, and a $0.3 million increase to net deferred tax assets. A corresponding $1.8 million increase was recorded to goodwill from the preliminary amount recorded as of June 30, 2016. The Company will finalize the purchase accounting for this acquisition during the third quarter when our valuation models for acquired intangible assets are completed, including the determination of related estimated useful lives. Amounts for intangible assets, related deferred tax liabilities, and goodwill remain subject to change. |