Acquisitions and Divestitures

Acquisitions are accounted for using the acquisition method and the acquired businesses’ results have been included in the accompanying consolidated financial statements from their respective dates of acquisition. In each case for the acquisitions disclosed below, pro forma information assuming the acquisition had occurred at the beginning of the earliest period presented is

not

included as the impact is immaterial.

Our acquisitions have historically been made at prices above the fair value of the acquired identifiable assets, resulting in goodwill, due to expectations of synergies that will be realized by combining businesses. These synergies include the use of our existing sales channel to expand sales of the acquired businesses’ products, consolidation of manufacturing facilities, and the leveraging of our existing administrative infrastructure.

The fair market valuations associated with these transactions fall within Level

(see Note

) of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value. The fair value measurements were calculated using unobservable inputs, primarily using the income approach, specifically the discounted cash flow method. The amount and timing of future cash flows within our analysis was based on our due diligence models, most recent operational budgets, long range strategic plans and other estimates.

Cardial

October 22, 2018,

through a newly created subsidiary LeMaitre Cardial SAS, we entered into an agreement to acquire the business assets of Cardial, a company located in Saint-Etienne, France and formerly owned by Becton, Dickinson and Company. The Cardial business consists of the manufacturing of polyester vascular grafts, valvulotomes and surgical glue. On the same date, the parties entered into a separate agreement notarial deed under which LeMaitre Cardial SAS purchased the building and land previously owned by Cardial. Revenues from the acquisition date through

December 31, 2018

were

$1.1

million.

The purchase price for the acquired assets, including the land and building, inventory, machinery and equipment, intellectual property, permits and approvals, data and records, and customer and supplier information, was

€2.0

million (

$2.3

million). At closing,

€1.1

million (

$1.3

million) was paid in cash, and

€0.5

million (

$0.5

million) of liabilities were assumed by LeMaitre Cardial SAS. Another

€0.4

million (

$0.4

million) is due in

two

installments, half to be paid

twelve

months after the closing date, and half

eighteen

months after the closing date. There are

contingencies associated with these holdback payments, although they

may

be reduced depending upon the results of a reconciliation of the value of inventory transferred, as outlined in the agreement.

The following table summarizes the preliminary purchase price allocation:

	Allocated
	Fair Value
	(in thousands)
Inventory	€	2,419
Land and building		750
Equipment and supplies		94
Intangible assets		623
Bargain purchase gain		(1,946	)

Purchase price	€	1,940

The bargain purchase gain was recorded to reflect the excess of the net assets acquired over the purchase price. We recorded deferred taxes on this gain of

€0.5

million (

$0.6

million), resulting in a net gain of

€1.4

million (

$1.6

million).

The following table reflects the preliminary allocation of purchase consideration to the acquired intangible assets and related estimated useful lives:

	Allocated Fair Value		Weighted Average Useful Life
	(in thousands)		(in years)
Customer relationships	€	250		16.0
Intellectual property		237		5.0
Non-compete agreement		46		5.0
Tradenames		90		5.0

Total intangible assets	€	623

The weighted-average amortization period of the acquired intangible assets was

9.4

years.

Applied Medical

September 20, 2018,

we entered into an agreement to acquire the assets of the embolectomy catheter business of Applied Medical Resources Corporation (Applied). The clot management business consists of several embolectomy and thrombectomy catheter product lines which are sold worldwide (approximately

60%

in the U.S. and

40%

outside the U.S.). On the same date, we entered into a transition services agreement under which Applied will manufacture and supply us with inventory for a period of

twelve

months, unless extended in writing by both parties. Revenues from the acquisition date through

December 31, 2018

were

$0.8

million.

The purchase price for the acquired assets, which included inventory, machinery and equipment, intellectual property, permits and approvals, data and records, and customer and supplier information, was

$14.2

million. Of this amount,

$11

million was paid at closing, with another

million due

months following the closing date, and the final

$1.2

million due

months following the closing date. The deferred amounts totaling

$3.2

million were recorded at an acquisition-date fair value of

$3.043

million using a discount rate of

3.75%

to reflect the time value of money between the acquisition date and the payment due dates.

The following table summarizes the preliminary purchase price allocation:

	Allocated
	Fair Value
	(in thousands)
Inventory	$	739
Equipment and supplies		416
Intangible assets		6,527
Goodwill		6,361

Purchase price	$	14,043

The goodwill results from expected synergies of combining the acquired products and customer information to our existing operations, and is deductible for tax purposes over

years.

The following table reflects the preliminary allocation of purchase consideration to the acquired intangible assets and related estimated useful lives:

	Allocated Fair Value		Weighted Average Useful Life
	(in thousands)		(in years)
Customer relationships	$	4,475		16.0
Intellectual property		1,316		7.0
Non-compete agreement		530		5.0
Tradenames		206		7.0

Total intangible assets	$	6,527

The weighted-average amortization period of the acquired intangible assets was

13.0

years.

Reddick Divestiture

April

2018,

we entered into an asset purchase agreement with Specialty Surgical Instrumentation, Inc. to sell the inventory, intellectual property and other assets associated exclusively with our Reddick cholangiogram catheter and Reddick-Saye screw product lines for

$7.4

million. Concurrent with this divestiture we entered into a transition services agreement under which we will continue to manufacture and supply these products to the buyer for a period of up to

two

years unless extended by both parties, as well as a balloon supply agreement under which we will supply balloons, a component of the cholangiogram catheters, to the buyer for a period of up to

six

years unless extended by both parties. We recorded a gain in connection with these agreements of

$5.9

million. The following table summarizes the allocation of consideration received:

	Allocated
	Fair Value
	(in thousands)
Inventory	$	308
Deferred revenue - transition services agreement		1,081
Goodwill		135
Gain on divestiture		5,876

Consideration received	$	7,400

Under the terms of the transition services agreement, we have agreed to manufacture the Reddick products for the buyer at prices at or in some cases below our cost. We allocated a portion of the consideration received to this agreement to reflect it at fair value and recorded it as deferred revenue. As the products are sold to the buyer, we amortize a portion of the deferred revenue to adjust the gross margin on the sale to fair value on a specific identification basis. Additionally, as the Reddick product lines that were divested constituted a business, we allocated a portion of our goodwill to this divestiture based on the fair value of the business sold in relation to the fair value of the business that will be retained.

RestoreFlow Allografts

November

10,

2016,

we entered into an agreement to acquire the assets of Restore Flow Allografts, LLC, a provider of human vascular tissue processing and cryopreservation services, for an initial purchase price of

$12

million, with

three

additional payments of up to

million each (

million in total), depending upon the satisfaction of certain contingencies. One payment of

million was due

not

later than

days following the expiration of the

month period following the closing date, subject to reductions as specified in the agreement for each calendar month that certain retained employees were

not

employed by us due to resignation without good reason, or termination for cause, both as defined in the agreement. The portion of this payment that was to be paid to retained employees and that was contingent on their continued employment, estimated at

$0.9

million, was being accounted for as post-combination compensation expense rather than purchase consideration. The remaining

$1.1

million that was payable to non-employee investors but that was also contingent on the continued employment of the retained employees had been accounted for as contingent purchase consideration, at an acquisition-date fair value of

$0.9

million. In

May 2018

we paid this

million liability as the contingency was met.

There were also

two

potential earn-out payments under the agreement. The

first

earn-out was calculated at

50%

of the amount by which net revenue in the

first

months following the closing exceeded

million, with such payout

not

to exceed

million. The

second

earn-out was calculated at

50%

of the amount by which net revenue in the

second

months following the closing exceeded

million, with such payout

not

to exceed

million. These earn-outs were accounted for as contingent consideration, at an acquisition-date fair value of

$0.1

million for the

two

earn-outs combined. This valuation was derived by utilizing an option pricing model technique incorporating, among other inputs, management’s forecasts of future revenues, the expected volatility of revenues, and an estimated weighted average cost of capital of

14.1%

to account for the risk of achievement of the revenue forecasts as well as the time value of money between acquisition date and the payment date. These milestones were

not

met, and accordingly

amount was paid out.

The RestoreFlow business derives revenue from human tissue preservation services, in particular the processing and cryopreservation of veins and arteries. By federal law, human tissues cannot be bought or sold. Therefore, the tissues we obtain and preserve are

not

held as inventory, and the costs we incur to procure and process vascular tissues are instead accumulated and deferred. Revenues are recognized for the provision of cryopreservation services rather than product sales.

The acquired assets included intellectual property, permits and approvals, data and records, equipment and furnishings, accounts receivable, inventory, literature, and customer and supplier information. We also assumed certain accounts payable. We accounted for the acquisition as a business combination.

The following table summarizes the final purchase price allocation:

	Allocated Fair Value
	(in thousands)
Accounts receivable	$	394
Deferred cryopreservation costs		2,583
Equipment and supplies		125
Accounts payable		(286	)
Intangible assets		4,544
Goodwill		5,599
Purchase price	$	12,959

The goodwill is deductible for tax purposes over

years.

The following table reflects the allocation of purchase consideration to the acquired intangible assets and related estimated useful lives:

	Allocated Fair Value		Weighted Average Useful Life
	(in thousands)		(in years)
Non-compete agreements	$	180		5.0
Tradename		271		9.0
Procurement contracts		617		9.0
Technology		2,793		10.5
Customer relationships		683		12.5
Total intangible assets	$	4,544

The weighted-average amortization period of the acquired intangible assets was

10.3

years.

ProCol Biologic Graft

March

18,

2016,

we acquired the ProCol biologic vascular graft (“ProCol”) business for

$2.7

million from Hancock Jaffe Laboratories, Inc. (HJL) and CryoLife, Inc. (CRY). HJL was the owner and manufacturer of ProCol and CRY was the exclusive distributor of the ProCol graft. CRY also owned an option to purchase the ProCol business, which we acquired from CRY. We bought finished goods inventory and other ProCol related assets from CRY for

$2.0

million, which was paid in full at closing. We bought other ProCol assets from HJL for

$0.7

million,

50%

of which was paid at closing, with the remainder paid at subsequent dates as specified in the agreement. Additional consideration is payable to HJL for a

three

-year period following the closing, calculated at

10%

of ProCol revenues. This additional consideration was initially valued at

$0.3

million and is being re-measured each reporting period until the payment requirement ends, with any adjustments reported in income from operations. For the years ended

December

31,

2018,

2017

and

2016,

the amount of the adjustment was

not

material to our financial statements.

Assets acquired included inventory, intellectual property and a related license, the ProCol trade name, customer lists, non-compete agreements and certain equipment and supplies. We did

not

assume any liabilities. We accounted for the acquisition as a business combination.

The following table summarizes the purchase price allocation:

	Allocated
	Fair Value
	(in thousands)
Inventory	$	2,080
Manufacturing equipment and supplies		25
Intangible assets		620
Goodwill		318

Purchase price	$	3,043

The goodwill is deductible for tax purposes over

years.

The following table reflects the allocation of the acquired intangible assets and related estimated useful lives:

	Allocated Fair Value		Weighted Average Useful Life
	(in thousands)		(in years)
Non-compete agreement	$	84		5.0
Tradename		109		9.5
Technology		277		9.0
Customer relationships		150		9.0

Total intangible assets	$	620

The weighted-average amortization period of the acquired intangible assets was

8.6

years.