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Note 2 - Acquisitions and Divestitures

12 Months Ended

Dec. 31, 2020

Business Combination Disclosure [Text Block]

2. 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 3 (see Note 13) 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.

Artegraft Biologic Grafts

On June 22, 2020, we entered into an Asset Purchase Agreement (Artegraft APA) to acquire the biologic graft business from Artegraft, Inc., who subsequent to the closing changed their name to Accidentals, Inc, (Artegraft, Inc.). Under the terms of the Artegraft APA, we agreed to pay Artegraft, Inc. a total of up to $90.0 million for the purchase of substantially all of its assets related to its business of the manufacturing, marketing, sale and distribution of its bovine carotid artery grafts (Products) other than specifically identified excluded assets. The acquired assets included inventory, accounts receivable, machinery and equipment, intellectual property, permits and approvals, data and records, and customer and supplier information. At closing, $72.5 million of the purchase price was paid to Artegraft, Inc. and other parties as specified in the Artegraft APA, including $7.5 million into an escrow account. The escrow amount is to be held until December 31, 2021 to cover any potential claims against LeMaitre or Artegraft, Inc., after which it will be released to Artegraft, Inc. by mutual consent of the parties.

Three earn-out payments of $5,833,333 each are potentially due to Artegraft, Inc. under the Artegraft APA depending on the achievement of specified revenue targets, as follows:

●

$5.8 million upon final determination that 20,000 units of Product have been sold to third parties from January 1, 2021 to December 31, 2021;

●

$5.8 million upon final determination that 24,000 units of Product have been sold to third parties from January 1, 2022 to December 31, 2022; and

●

$5.8 million upon final determination that 28,800 units of Product have been sold to third parties from January 1, 2023 to December 31, 2023.

The Artegraft APA includes a catch-up feature on the earn-outs such that, at the end of the three-year period, if the sum of the unit sales for all three years is greater than or equal to 58,240 unit sales (80% of the combined individual-year targets), Artegraft, Inc. will receive a “catch-up payment” in an amount equal to (a) $17,500,000 times a fraction, the numerator of which is the aggregate number of unit sales for the three-year period, and the denominator of which is 72,800 less (b) any individual-year earn-out previously paid. We recorded this liability at a fair value of $0.4 million to reflect management’s estimate of the likelihood of achieving these targets at the time of the closing of the acquisition, as well as the time value of money until payment. This amount will be remeasured each quarter during the earn-out period, with any adjustments recorded in income from operations.

On the date of acquisition, the Company allocated the consideration given to the individual assets acquired and the liabilities assumed based on a preliminary estimate of their fair values. During the three months ended September 30, 2020, the Company obtained and considered additional information related to the assets acquired and liabilities assumed, and recorded measurement period adjustments to the allocation of the purchase price. The following table summarizes the purchase price allocation:

	Allocated
	Fair Value
	(in thousands)
Inventory	$	3,859
Accounts receivable		1,789
Equipment and supplies		1,140
Accounts payable and other		(53	)
Intangible assets		39,056
Goodwill		27,115

Purchase price	$	72,906

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 15 years.

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

	Allocated		Estimated
	Fair Value		Useful Life (Years)
	(in thousands)
Customer relationships	$	20,310	15.0
Intellectual property		16,449	10.0
Non-compete agreement		104	5.0
Tradenames		2,193	10.0

Total intangible assets	$	39,056

The weighted-average amortization period of the acquired intangible assets was 12.6 years.

The results of operations of the Artegraft biologic graft business have been included in the results of operations of LeMaitre since the date of acquisition of June 22, 2020. Revenues since the acquisition date through December 31, 2020 were $11.1 million. The following unaudited pro forma financial information presents the results of operations for the years ended December 31, 2020 and 2019 as if the acquisition had occurred at the beginning of 2019. The pro forma financial information presents historical operating results for the combined entities with adjustments for amortization expense, interest, management fees and related tax effects. This information has been prepared for comparative purposes only and is not indicative of what actual results would have been if the acquisitions had taken place at the beginning of fiscal 2019, or of future results.

	Unaudited Pro Forma Financial Information
	Year ended
	December 31,
	2020		2019
	($ in thousands)

Net sales	$	137,450	$	131,915

Net income		20,041		15,045

Net income per share
Basic	$	0.99	$	0.76
Diluted	$	0.98	$	0.74

CardioCel and VascuCel Biologic Patches

On October 11, 2019 (the Closing Date), we entered into an Asset Purchase Agreement (APA) to acquire the biologic patch business assets and a related technology license from Anteris Technologies Ltd. and various of its subsidiaries (Anteris). The biologic patch business consists of the CardioCel and VascuCel product lines, which are manufactured in a manner intended to reduce the risk of calcification. The products are sold worldwide. On the same date, the parties entered into a Transition Services Agreement (TSA) under which Anteris will manufacture and supply LeMaitre with inventory for a period of up to three years, unless extended in writing by both parties. Revenues from the acquisition date through December 31, 2019 were $1.4 million.

Under the APA we agreed to pay Anteris a total of up to $15.3 million for the purchase of substantially all of its biologic patch business assets, other than specifically identified Excluded Assets, plus $8.0 million for the technology licenses. The acquired assets (in combination with the license) included inventory, intellectual property, permits and approvals, data and records, and customer and supplier information, as well as a small amount of machinery and equipment. At closing, $14.2 million of the purchase price was paid to Anteris. Shortly thereafter another $0.3 million was paid in connection with delivery of audited financial statements of the acquired business to LeMaitre. Additional payments of $0.7 million are due within 15 days of the first and third anniversaries of the closing date; the first such payment was made in October 2020. Additional contingent consideration was or may be payable as follows:

●

$2.0 million (the Third Holdback) within 15 days following LeMaitre’s receipt of a CE mark on all acquired products;

●

$2.5 million if revenues in the first 12-month period following the Closing Date exceed $20 million, OR, $1.2 million if revenues in the first 12-month period following the Closing Date exceed $15 million (this milestone was not met and accordingly no payment was made);

●

$2.5 million if revenues in the second 12-month period following the Closing Date exceed $30 million, OR, $1.2 million if revenues in the second 12-month period following the Closing Date exceed $22.5 million; and

●

$0.5 million if by the first anniversary of the Closing Date Anteris extends the shelf life of the products from 36 months to at least 60 months (this milestone was not met and accordingly no payment was made).

This contingent consideration of $7.5 million was initially valued in total at $2.3 million and is being re-measured each reporting period until the payment requirement ends, with any adjustments reported in income from operations.

During the quarter ended September 30, 2020, we recorded a $1.3 million adjustment to goodwill with an offsetting adjustment to deferred income taxes to reflect the difference between book basis and tax basis of the technology license. The following table summarizes the purchase price allocation:

	Allocated
	Fair Value
	(in thousands)
Inventory and other	$	1,343
Intangible assets		8,725
Goodwill		7,344

Purchase price	$	17,412

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 15 years.

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

			Weighted
	*Allocated*		*Average*
	*Fair Value*		*Useful Life (Years)*
	(in thousands)
Customer relationships	$	5,562	12.0
Intellectual property		2,335	8.0
Non-compete agreement		361	5.0
Tradenames		467	8.0

Total intangible assets	$	8,725

The weighted-average amortization period of the acquired intangible assets was 10.4 years.

Tru-Incise Valve Cutter

On July 12, 2019, we entered into an agreement with UreSil, LLC, an Illinois limited liability company, to purchase the remaining assets of their Tru-Incise valve cutter business, including distribution rights in the United States. We also entered into a transition services agreement under which UreSil, LLC would continue to manufacture the acquired products for us for a specified time, until we had transferred the manufacturing process to our Burlington, Massachusetts facilities. Revenues from the acquisition date through December 31, 2019 were $0.8 million.

The purchase price for the acquired assets, which included inventory, machinery and equipment, intellectual property, and customer and supplier information, was $8.0 million. Of this amount, $6.8 million was paid at closing, with three follow-on payments $0.4 million each due on the first, second and third anniversaries of the closing date. The deferred amounts totaling $1.2 million were recorded at an acquisition-date fair value of $1.1 million using a discount rate of 4.19% to reflect the time value of money between the acquisition date and the payment due dates. There are no contingencies associated with these holdback payments, although they may be reduced for certain post-closing claims. The first payment was made without adjustment in July 2020.

The following table summarizes the preliminary purchase price allocation:

	Allocated
	Fair Value
	(in thousands)
Inventory	$	276
Equipmentand supplies		70
Intangible assets		4,844
Goodwill		2,748

Purchase price	$	7,938

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 15 years.

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

			Weighted
	*Allocated*		*Average*
	*Fair Value*		*Useful Life (Years)*
	(in thousands)
Customer relationships	$	3,945	13.0
Intellectual property		563	7.0
Non-compete agreement		233	5.0
Tradenames		103	7.0

Total intangible assets	$	4,844

The weighted-average amortization period of the acquired intangible assets was 11.8 years.

Cardial

On October 22, 2018, we acquired the business assets of Cardial, located in Saint-Etienne, France. The Cardial business consists of the manufacturing of polyester vascular grafts, valvulotomes, surgical glue and original equipment manufacturing (OEM) services.

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) was due in two installments, half to be paid twelve months after the closing date, and half eighteen months after the closing date, subject to possible reductions depending upon the results of a reconciliation of the value of inventory transferred, as outlined in the agreement, or for certain post-closing claims. The first of these two payments was not required to be made based on the inventory reconciliation results. The second payment was made in April 2020, in a reduced amount based on the inventory reconciliation results, as well as other post-closing claims.

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

			Weighted
	*Allocated*		*Average*
	*Fair Value*		*Useful Life (Years)*
	(in thousands)
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

On September 20, 2018, we entered into an agreement to acquire the assets of the embolectomy catheter business of Applied Medical Resources Corporation (Applied). The embolectomy catheter business consists of several embolectomy and thrombectomy catheter product lines which are sold worldwide. On the same date, we entered into a transition services agreement under which Applied would supply us with inventory for a period of twelve months, unless extended in writing by both parties. The TSA was not extended.

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, $11.0 million was paid at closing, another $2.0 million was paid 12 months following the closing date and the final $1.2 million was paid 24 months following the closing date, in a slightly reduced amount. The deferred amounts totaling $3.2 million were recorded at an acquisition-date fair value of $3.0 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 purchase price allocation. The purchase accounting is complete:

	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 15 years.

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

			Weighted
	*Allocated*		*Average*
	*Fair Value*		*Useful Life (Years)*
	(in thousands)
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

On April 5, 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 (TSA) 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 TSA, we 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 were sold to the buyer, we amortized 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 retained.