| Acquisition of Magellan | 3. Acquisition of
Magellan
On March 24, 2016, we acquired all of the outstanding common
stock of Magellan Biosciences, Inc., and its wholly-owned
subsidiary Magellan Diagnostics, Inc. (collectively,
“Magellan”), for $67,874, utilizing the proceeds from a
$60,000 five-year term loan and cash and equivalents on hand. An
amount of the acquisition consideration totaling $2,383 remains
payable to the sellers, pending the realization of tax benefits for
certain net operating loss carryforwards in future tax returns. Of
this amount, a payment of approximately $650 is expected to be made
to the sellers during the fourth quarter of fiscal 2017. The
remaining amount is expected to be paid in 2018 upon filing of our
U.S. tax returns. Headquartered near Boston, Massachusetts,
Magellan is a leading manufacturer of FDA-cleared point-of-care
Since the consideration paid exceeded the fair value of the net
assets acquired, goodwill in the amount of $40,591 was originally
recorded in connection with this acquisition, none of which is
deductible for tax purposes. As of June 30, 2017, the goodwill
recorded in connection with the acquisition has been written down
to $33,963 (see Note 6 for a discussion of the $6,628 impairment
write-down). This goodwill results largely from the addition of
Magellan’s complementary customer base and distribution
channels, industry reputation in the U.S. as a leader in lead
testing, and management talent and workforce. Our Condensed
Consolidated Statement of Operations for the nine months ended
June 30, 2016 includes $1,105 of transaction costs related to
the Magellan acquisition, which are reflected as Operating
Expenses.
The Magellan results of operations, which are included in the
accompanying Condensed Consolidated Statements of Operations and
reported as part of the Diagnostics operating segment, include:
(i) $154 of cost of sales for both the
three and nine months ended June 30, 2016 related to the
roll-out
(ii) $675 and $2,062 of general and
administrative expenses for the three and nine months ended
June 30, 2017, respectively, related to the amortization of
specific identifiable intangible assets recorded on the opening
balance sheet including customer relationships, technology,
non-compete
The results of Magellan included in the Company’s
consolidated results for the three and nine months ended
June 30, 2017 and 2016 are as follows, reflecting the items
noted above, including the $6,628 goodwill impairment charge, and
excluding interest expense on the debt secured by Meridian in
connection with the transaction:
Three Months Ended June 30,
Nine Months Ended June 30,
2017 2016 2017 2016
Net Revenues $ 4,330 $ 4,752 $ 13,174 $ 4,752
Net Earnings $ (6,316 ) $ 231 $ (6,128 ) $ 231
The recognized amounts of identifiable assets acquired and
liabilities assumed in the acquisition of Magellan were as
follows:
March 24, 2016 (as initially reported) Measurement Period Adjustments March 24, 2016 (as adjusted)
Fair value of assets acquired -
Cash and equivalents $ 3,400 $
— $ 3,400
Accounts receivable 1,700
— 1,700
Inventories 1,400
— 1,400
Other current assets 300
— 300
Property, plant and equipment 2,800 (200 ) 2,600
Goodwill 42,800 (2,200 ) 40,600
Other intangible assets (estimated useful life):
Customer relationships (15 years) 12,600 300 12,900
Technology (10 years) 10,600 300 10,900
Non-compete 700
— 700
Trade names (approximate 9 year weighted average) 3,700 (700 ) 3,000
80,000 (2,500 ) 77,500
Fair value of liabilities assumed -
Accounts payable and accrued expenses 1,600 100 1,700
Deferred income tax liabilities 10,600 (2,700 ) 7,900
Total consideration (including $2,400 accrued to be paid; see
discussion above) $ 67,800 $ 100 $ 67,900
The consolidated pro forma results of the combined entities of
Meridian and Magellan, had the acquisition date been
October 1, 2015, are as follows for the periods indicated:
Three Months
Nine Months
Ended June 30,
Ended June 30,
2017 2016 2017 2016
Net Revenues $ 50,140 $ 50,665 $ 151,074 $ 156,722
Net Earnings $ 240 $ 8,827 $ 15,831 $ 26,891
These pro forma amounts have been calculated by including the
results of Magellan, and adjusting the combined results to give
effect to the following, as if the acquisition had been consummated
on October 1, 2015, together with the consequential tax
effects thereon:
(i) remove the effect of transaction
costs incurred by the Company ($1,105 in the nine months ended
June 30, 2016);
(ii) reflect adjustments to depreciation
and amortization expense to reflect the amount that would have been
charged in connection with the fair value adjustments to inventory,
property, plant and equipment, and identifiable intangible assets
($72 decrease in expense and $1,149 increase in expense in the
three and nine months ended June 30, 2016, respectively);
(iii) reflect adjustments to stock
compensation expense related to equity-based awards granted under
the Company’s 2012 Stock Incentive Plan to certain Magellan
employees in accordance with executed employment agreements, and to
certain Meridian employees to reward them for their efforts in
connection with the transaction (increases in expense of $6 and $95
in the three and nine months ended June 30, 2016,
respectively); and
(iv) reflect adjustments to interest
expense that would have been incurred on the Company’s
$60,000 term note ($52 decrease in expense and $800 increase in
expense in the three and nine months ended June 30, 2016,
respectively). |
