Merger with Pioneer Surgical Technology, Inc. | 3 Months Ended |
Mar. 31, 2014 |
Business Combinations [Abstract] | ' |
Merger with Pioneer Surgical Technology, Inc. | ' |
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3. Merger with Pioneer Surgical Technology, Inc. |
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On July 16, 2013, the Company completed its acquisition of Pioneer. Under the terms of the merger agreement dated June 12, 2013, the Company acquired Pioneer for $126,307 in cash. The transaction was funded through a combination of cash on hand, a new credit facility and a concurrent private placement of convertible preferred equity. The Company obtained from Toronto-Dominion Bank, N.A., TD Securities “USA” LLC (“TD Bank”) and Regions Bank, a 5 year, $80,000 senior secured facility, which includes a $60,000 term loan and a $20,000 revolving credit facility, that matures on July 16, 2018 with a variable interest rate between 100 and 300 basis points in excess of the one month London Interbank Offered Rate (“LIBOR”). The $20,000 revolving credit facility replaced the Company’s previous $15,000 U.S. credit facility. |
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Additionally, the Company received $50,000 in gross proceeds from a private placement of convertible preferred equity to WSHP Biologics Holdings, LLC, an affiliate of Water Street Healthcare Partners, a leading healthcare-focused private equity firm (“Water Street”). The convertible preferred stock is convertible into shares of the Company’s common stock. The convertible preferred stock will also accrue dividends at a rate of 6% per year. In 2013, the Company capitalized $1,989 in financing costs associated with the preferred stock issuance and the debt issuance. |
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The Company has accounted for the acquisition of Pioneer under Accounting Standards Codification (“ASC”) 805, Business Combinations. Pioneer’s results of operations are included in the consolidated financial statements for periods ending after July 16, 2013, the acquisition date. |
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The purchase price was financed as follows: |
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Cash proceeds from term loan | | $ | 60,000 | |
Net cash proceeds from preferred share issuance | | | 48,710 | |
Cash from RTI Surgical | | | 17,597 | |
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Total purchase price | | $ | 126,307 | |
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The table below represents an allocation of the total consideration to Pioneer’s tangible and intangible assets and liabilities based on management’s preliminary estimate of their respective fair values as of July 16, 2013. |
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Inventories | | $ | 35,972 | |
Accounts receivable | | | 10,567 | |
Other current assets | | | 6,059 | |
Property, plant and equipment | | | 15,258 | |
Other assets | | | 13,260 | |
Current liabilities | | | (10,893 | ) |
Other long-term liabilities | | | (19,841 | ) |
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Net tangible assets acquired | | | 50,382 | |
Other intangible assets | | | 23,100 | |
Goodwill | | | 52,825 | |
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Total net assets acquired | | $ | 126,307 | |
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Total net assets acquired as of July 16, 2013 are all part of the Company’s only operating segment. Fair values are based on management’s preliminary estimates and assumptions including variations of the income approach, the cost approach and the market approach. |
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The Company believes that the acquisition of Pioneer offers the potential for substantial strategic and financial benefits. The transaction will enhance the Company’s existing core competency in biologics processing with the addition of Pioneer’s core competency in metals and synthetics. The Company believes the acquisition will enhance stockholder value through, among other things, enabling the Company to capitalize on the following strategic advantages and opportunities: |
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| • | | Diversification of its implant portfolio. | |
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| • | | Expansion of our direct distribution and marketing organizations. | |
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| • | | Enhancement of our current international business. | |
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| • | | Improvement of our margin profile and revenue growth opportunities. | |
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These potential benefits resulted in the Company paying a premium for Pioneer resulting in the recognition of goodwill. The $52,825 of goodwill was assigned to the Company’s only operating segment. |
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The fair value of receivables acquired is $10,567, with the gross contractual amount being $11,712, of which $1,145 was not expected to be collected. |
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The following unaudited pro forma information shows the results of the Company’s operations as though the acquisition had occurred as of the beginning of that period (in thousands, except per share data): |
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Months Ended |
| | March 31, 2013 | |
Revenues | | $ | 62,450 | |
Net income | | | 477 | |
Basic net income per share | | | 0.01 | |
Diluted net income per share | | | 0.01 | |
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The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the merger taken place as of the beginning of the periods presented, or the results that may occur in the future. |
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These amounts have been calculated to reflect the additional depreciation, amortization and interest expense that would have been incurred assuming the fair value of adjustments and borrowings occurred on January 1, 2013, together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies’ operating results. |
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The Company expects to complete its analysis of the purchase price allocation by the third quarter of 2014. |