2. BUSINESS COMBINATION

Summary

On August 6, 2018, our subsidiary, ANI Canada, acquired all the issued and outstanding equity interests of WellSpring, a Canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary adjustments. Pursuant to these customary adjustments, the total purchase consideration was $16.7 million. The consideration was paid entirely from cash on hand. In conjunction with the transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices, its current book of commercial business, as well as an organized workforce. Following the consummation of the transaction, WellSpring was merged into ANI Canada with the resulting entity’s name being ANI Pharmaceuticals Canada Inc.

We acquired WellSpring to provide an additional tech transfer site in order to accelerate the re-commercialization of the previously-approved ANDAs in our pipeline, to expand our contract manufacturing revenue base, and to broaden our manufacturing capabilities to three manufacturing facilities.

Transaction Costs

In conjunction with the acquisition, we incurred approximately $1.1 million in transaction costs, all of which were expensed in 2018.

Purchase Consideration and Net Assets Acquired

The business combination was accounted for using the acquisition method of accounting, with ANI as the accounting acquirer of WellSpring. The acquisition method requires that acquired assets and assumed liabilities be recorded at their fair values as of the acquisition date.

The following presents the final allocation of the purchase price to the assets acquired and liabilities assumed on August 6, 2018:


	(in thousands)
Total Purchase Consideration	$	16,687
Cash and cash equivalents		220
Accounts receivable		1,311
Inventories		2,197
Prepaid expenses and other current assets		361
Property and equipment		13,935
Goodwill		1,742
Total assets acquired		19,766
Accounts payable and other current liabilities		2,413
Deferred revenue		666
Total liabilties assumed		3,079
Net assets acquired	$	16,687

The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates.

Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill established as a result of the acquisition is not tax deductible in any taxing jurisdiction. There was no value ascribed to any separately identifiable intangible assets.

Legacy WellSpring operations generated $6.9 million of revenue and recorded a net loss of $5.2 million for the year ended December 31, 2019.

Pro Forma Condensed Combined Financial Information (unaudited)

The following unaudited pro forma condensed combined financial information summarizes the results of operations for the periods indicated as if the WellSpring acquisition had been completed as of January 1, 2017.


	Years Ended December 31,
(in thousands)	2018		2017(1)
Net revenues	$	208,213	$	188,758
Net income/(loss)	$	13,287	$	(3,102)

⁽¹⁾

Net loss for the year ended December 31, 2017 includes the impact to WellSpring of $4.4 million of related party debt forgiveness.