Acquisition

On February 13, 2014 (Acquisition Date), we acquired DVS primarily to broaden our addressable single-cell biology market opportunity and complement our existing product offerings. DVS develops, manufactures, markets, and sells high-parameter single-cell protein analysis systems and related reagents and data analysis tools. DVS’s principal market is the life sciences research market consisting of drug development companies, government research centers, and universities worldwide.

The contractual price for the acquisition was $207.5 million, subject to certain adjustments as specified in the merger agreement. The measurement period for the acquisition ended February 12, 2015. The aggregate purchase price was $199.9 million, as detailed in the table below (in thousands):



	Estimated Fair Value
Cash	$	126,048
Issued 1,759,007 shares of Fluidigm common stock⁽²⁾	76,805
Acquisition consideration paid at Acquisition Date	202,853
Accelerated stock compensation⁽¹⁾	(6,690		)
Estimated fair value of vested Fluidigm equivalent stock options ⁽²⁾	4,039
Working capital adjustment	(269		)
Aggregate purchase price	$	199,933

(1)

As a part of the acquisition, we accelerated vesting of certain DVS stock options and shares of restricted stock, and incurred a $6.7 million expense, based upon the per share consideration paid to holders of shares of DVS common stock as of February 13, 2014. This expense is accounted for as a separate transaction and reflected in the acquisition-related expenses line of the consolidated statements of operations.

(2)

In conjunction with the acquisition, we assumed all outstanding DVS stock options and unvested shares of restricted stock and converted, as of the Acquisition Date, the unvested stock options outstanding under the DVS stock option plan into unvested stock options to purchase approximately 143,000 shares of Fluidigm common stock and the unvested DVS restricted stock into approximately 186,000 shares of restricted Fluidigm common stock, retaining the original vesting schedules. These restricted shares have been included in the "Issuance of common stock upon purchase of DVS" line item in the Consolidated Statement of Stockholders' Equity. The fair value of all converted share-based awards was $14.6 million, of which $4.0 million was attributed to the pre-combination service period and was included in the calculation of the purchase price. The remaining fair value will be recognized over the awards’ remaining vesting periods subsequent to the acquisition. The fair value of the Fluidigm equivalent share-based awards as of the Acquisition Date was estimated using the Black-Scholes valuation model.

Approximately 885,000 shares of Fluidigm common stock, with a fair value of $38.6 million, representing 50.3030% of the shares otherwise payable to the former stockholders of DVS, were deposited into escrow (Escrowed Shares). These Escrowed Shares comprised a portion of the merger consideration and were held in escrow to secure indemnification obligations under the merger agreement. Under the terms of the merger agreement, fifty percent (50.0%) of the aggregate shares subject to the indemnification escrow were eligible for release on March 13, 2015 (Initial Release Date), and the balance of the shares were subject to release on August 13, 2015, provided that in each case shares would have continued to be held in escrow in amounts that we reasonably determined in good faith to be necessary to satisfy any claims for which we had delivered a notice of claim which had not been fully resolved between us and the representative of the former stockholders of DVS (Stockholder Representative). Prior to the Initial Release Date, we submitted escrow claim notices under the terms of the merger agreement. On April 9, 2015, the Stockholder Representative provided notices objecting to our claims. In July 2015, we entered into a settlement agreement with the Stockholder Representative regarding the claims (Settlement Agreement). Pursuant to the terms of the Settlement Agreement, the parties agreed to release approximately 80% of the Escrowed Shares to the former stockholders of DVS, and the remaining approximately 20% of the Escrowed Shares, or 170,107 shares, to us, which were canceled and returned to the status of authorized and unissued shares. Additionally, the parties agreed to, among other things, release various claims and waive certain rights with respect to the merger agreement. On the settlement date, the 170,107 shares had a value of approximately $4.0 million, which was recorded as gain on escrow settlement during the quarter ended September 30, 2015.

The results of DVS's operations have been included in the consolidated financial statements since the date of acquisition, including $20.7 million in revenue for the year ended December 31, 2014.

Net Assets Acquired

The transaction has been accounted for using the acquisition method of accounting which requires that assets acquired and liabilities assumed be recognized at their fair values as of the Acquisition Date. The following table summarizes the assets acquired and liabilities assumed as of the Acquisition Date (in thousands):



	Allocation of Purchase Price
Cash and cash equivalents	$	8,405
Accounts receivable, net	7,698
Inventories	3,489
Prepaid expenses and other current assets	1,482
Property and equipment, net	1,202
Developed technology	112,000
Goodwill	104,108
Other non-current assets	88
Total assets acquired	238,472
Accounts payable	(1,114		)
Accrued compensation and related benefits	(761		)
Other accrued liabilities	(1,204		)
Deferred revenue, current	(1,844		)
Tax payable	(45		)
Deferred tax liability	(31,942		)
Deferred revenue, non-current	(1,629		)
Net assets acquired	$	199,933

The $104.2 million of goodwill recognized as part of the transaction is attributable primarily to expected synergies and other benefits from the acquisition, including expansion of our addressable market from the single-cell genomics market to the larger single-cell biology market and the ability to leverage our larger global commercial sales organization and infrastructure to expand awareness of DVS's products and technology. Goodwill is not deductible for income tax purposes. The only change to goodwill between the Acquisition Date and December 31, 2014 was an adjustment of $0.1 million to the deferred taxes liability resulting from the final tax analysis during the measurement period. There were no changes in goodwill between December 31, 2015 and December 31, 2016.

Goodwill is tested for impairment annually during the fourth quarter unless a triggering event requires an expedited analysis. During the fourth quarters of 2016 and 2015, we completed our annual impairment assessments and we concluded that goodwill was not impaired in any of these years.

Acquisition Costs

Acquisition-related expenses were $10.7 million in 2014 and primarily included accelerated vesting of certain DVS restricted stock and options, and consulting, legal, and investment banking fees. These costs are included within the acquisition-related expenses line of the consolidated statements of operations. No such costs were incurred in 2016 or 2015.

Unaudited Pro Forma Results

The unaudited financial information in the table below summarizes our results of operations combined with DVS's as though the companies were combined as of the beginning of each of the years presented. The unaudited pro forma information does not necessarily reflect the actual results of operations had the acquisition been consummated at the beginning of the fiscal reporting periods indicated nor is it indicative of future operating results.



(in thousands)	Year Ended December 31
	2014			2013
Pro forma total revenue	$	120,245		$	98,459
Pro forma net loss	$	(55,249	)	$	(37,906	)

The unaudited pro forma financial information for the year ended December 31, 2014 includes adjustments related to stock-based compensation, amortization of developed technology, interest expense, and deferred tax liability of $1.4 million, $1.4 million, $1.0 million, and $371,000, respectively, and includes non-recurring adjustments representing the total acquisition-related expenses discussed above. The unaudited pro forma financial information for the year ended December 31, 2013 includes adjustments related to stock-based compensation, amortization of developed technology, interest expense, and deferred tax liability of $9.2 million, $11.2 million, $5.8 million, and $3.0 million, respectively.