Acquisitions and Joint Venture Activities

6 Months Ended

Jun. 30, 2019

Acquisitions and Joint Venture Activities

The Merger

On April 1, 2018, the Company completed the Merger with Almost Family. At the effective time of the Merger on April 1, 2018, each outstanding share of common stock of Almost Family, other than certain canceled shares, was converted into the right to receive 0.9150 shares of the Company’s common stock and cash in lieu of any fractional shares of any Company common stock that Almost Family shareholders would otherwise have been entitled to receive. As a result, the Company issued approximately 12.8 million shares of its common stock to former stockholders of Almost Family, while also converting outstanding employee share awards, which resulted in total merger consideration of approximately $795.4 million.

The Company was determined to be the accounting acquirer in the Merger. The Company's final valuation analysis of identifiable assets and liabilities assumed for the Merger in accordance with the requirements of ASC Topic 805, Business Combinations, are presented in the table below (amounts in thousands):



Merger consideration
Stock	$	795,412
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	16,547
Patient accounts receivable	88,234
Prepaid income taxes	47
Prepaid expenses and other current assets	11,490
Property and equipment	11,144
Trade names	76,090
Certificates of needs/licenses	76,505
Customer relationships	13,970
Assets held for sale	2,500
Deferred income taxes	4,821
Accounts payable	(43,027		)
Accrued other liabilities	(57,243		)
Seller notes payable	(12,145		)
NCI - Redeemable	(8,034		)
Long term income taxes payable	(3,786		)
Line of credit	(106,800		)
NCI - Nonredeemable	(36,609		)
Other assets and (liabilities), net	(178		)
Total identifiable assets and liabilities	33,526
Goodwill	$	761,886

Acquisitions

The Company acquired the majority-ownership of ten home health agencies and five hospice agencies during the six months ended June 30, 2019. The total aggregate purchase price for these transactions was $23.5 million, of which $20.4 million was paid in cash. The purchase prices were determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future cash flows.

Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.

The following table summarizes the aggregate consideration paid for the acquisitions and the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the six months ended June 30, 2019:



Consideration
Cash	$	20,431
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade name	3,480
Certificates of need/licenses	2,864
Other assets and (liabilities), net	(3,021		)
Total identifiable assets	3,323
Noncontrolling interest	6,990
Goodwill, including noncontrolling interest of $5,359	$	24,098

Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method.

The other identifiable assets include customer relationships that are amortized over 20.0 years. Customer relationships were valued using the multi-period excess earnings method. Noncontrolling interest is valued at fair value.

Joint Venture Activities

During the six months ended June 30, 2019, the Company acquired the minority ownership interests associated with certain agencies previously operated within three of its equity joint ventures, whereby such agencies became wholly-owned subsidiaries of the Company. The total consideration for the purchase of such ownership interests was $18.7 million, which was paid in cash. These transactions were accounted for as equity transactions.

During the six months ended June 30, 2019, the Company sold minority ownership interests associated with two home health agencies. The total consideration for the sale of such ownership interests was $3.5 million. The transaction was accounted for as an equity transaction.