Note 3 - Acquisitions

6 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

(3) Acquisitions

ExamWorks operates in a highly fragmented industry and has completed 48 acquisitions since July 14, 2008. A key component of ExamWorks’ acquisition strategy is growth through acquisitions that expand its geographic coverage, that provide new or complementary lines of business, expand its portfolio of services and that increase its market share.

The Company has accounted for all business combinations using the purchase method to record a new cost basis for the assets acquired and liabilities assumed. The Company recorded, based on a preliminary purchase price allocation, intangible assets representing client relationships, tradenames, covenants not to compete, technology and the excess of purchase price over the estimated fair value of the tangible assets acquired and liabilities assumed as goodwill in the accompanying consolidated financial statements. The goodwill is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence. The results of operations are reflected in the consolidated financial statements of the Company from the date of acquisition.

(a) 2013 Acquisitions

In 2013, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $7.3 million, comprised of $3.3 million cash consideration less cash acquired of $8,000, and $4.0 million of contingent consideration. In conjunction with these 2013 acquisitions, the Company incurred transaction costs of $108,000 of which $25,000 were incurred in each of the six months ended June 30, 2013 and 2014, respectively. There were no transaction costs incurred relating to the 2013 acquisitions in the three months ended June 30, 2013 and 2014. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions enhanced the service offerings of the Company.

Company name	Form of acquisition	Date of acquisition
AGS Risk Limited (United Kingdom)	Substantially all of the assets and assumed certain liabilities	December 10, 2013
Evaluation Resource Group (United States)	Substantially all of the assets and assumed certain liabilities	December 20, 2013

The preliminary allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation December 31, 2013		Adjustments/ reclassifications			Preliminary purchase price allocation June 30, 2014
Equipment and leasehold improvements		130		—			130
Customer relationships		3,141		—			3,141
Tradename		710		—			710
Goodwill		3,024		(309	)		2,715
Assets acquired and liabilities assumed, net		688		(64	)		624
Totals		7,693		(373	)		7,320

Goodwill of $2.7 million and other intangible assets of $3.9 million are expected to be deductible for U.S. federal income tax purposes. The Company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but the Company is waiting for additional information necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are subject to change. Such changes are not expected to be significant. The Company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

(b) 2014 Acquisitions

In 2014, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $193.2 million, comprised of $187.4 million cash consideration less cash acquired of $1.1 million, and $6.9 million of contingent consideration. In conjunction with these 2014 acquisitions, the Company incurred transaction costs of $1.5 million, of which $186,000 and $916,000 was incurred in the three and six months ended June 30, 2014, respectively. The Company incurred transaction costs of $167,000 in the three and six months ended June 30, 2013. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions enhanced and expanded the presence of the service offerings of the Company.

Company name	Form of acquisition	Date of acquisition
Newton Medical Group (United States)	Substantially all of the assets and assumed certain liabilities	January 13, 2014
Cheselden (United Kingdom)	100% of the outstanding share capital	January 16, 2014
G & L Intermediate Holdings ("Gould & Lamb") (United States)	100% of the outstanding common stock	February 3, 2014
Assess Medical Group Pty Ltd. (Australia)	100% of the outstanding common stock	February 14, 2014
Solomon Associates (United States)	Substantially all of the assets and assumed certain liabilities	May 30, 2014
Ability Services Network (United States)	100% of the outstanding common stock	June 6, 2014

The preliminary allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation June 30, 2014
Equipment and leasehold improvements	$	870
Customer relationships		47,307
Tradename		12,415
Covenants not to compete		620
Technology		1,870
Goodwill		135,830
Net deferred tax liability associated with step-up in book basis		(12,375	)
Assets acquired and liabilities assumed, net		6,661
Total	$	193,198

Goodwill of $114.8 million and other intangible assets of $35.9 million are expected to be deductible for U.S. federal income tax purposes. The Company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but the Company is waiting for additional information necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are subject to change. Such changes are not expected to be significant. The Company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date. The 2014 acquisitions contributed $13.3 million in revenues and $525,000 in operating losses, and $21.8 million in revenues and $183,000 in operating income for the three and six months ended June 30, 2014, respectively.

(c) Pro forma Financial Information

The following unaudited pro forma results of operations for the three and six months ended June 30, 2013 and 2014 assumes that the 2013 acquisitions were completed on January 1, 2012 and the 2014 acquisitions were completed on January 1, 2013.

For the three months ended June 30, 2013 and 2014, the pro forma results include adjustments to reflect reduced interest and other expenses of $789,000 and $489,000, respectively, associated with the funding of the acquisitions assuming that acquisition related debt was incurred as referenced above.  In addition, incremental depreciation and amortization expense was recorded as if the acquisitions had occurred on the dates referenced above and amounted to $4.3 million and $960,000 for the three months ended June 30, 2013 and 2014, respectively.  Finally, adjustments of $1.6 million and $1.5 million were made to reduce SGA expenses for the three months ended June 30, 2013 and 2014, respectively, principally related to certain salary and other personal expenses attributable to the previous owners of the acquired businesses.  These adjustments represent contractual reductions and are considered to be non-recurring and are not expected to have a continuing impact on the operations of the Company.

For the six months ended June 30, 2013 and 2014, the pro forma results include adjustments to reflect reduced interest and other expenses of $1.5 million and $56,000, respectively, associated with the funding of the acquisitions assuming that acquisition related debt was incurred as referenced above.  In addition, incremental depreciation and amortization expense was recorded as if the acquisitions had occurred on the dates referenced above and amounted to $8.6 million and $3.2 million for the six months ended June 30, 2013 and 2014, respectively.  Finally, adjustments of $3.0 million and $5.5 million were made to reduce SGA expenses for the six months ended June 30, 2013 and 2014, respectively, principally related to certain salary and other personal expenses attributable to the previous owners of the acquired businesses.  These adjustments represent contractual reductions and are considered to be non-recurring and are not expected to have a continuing impact on the operations of the Company.

	Three months ended June 30,					Six months ended June 30,
	2013			2014		2013			2014
	(In thousands, except per share data)
Pro forma revenues	$	178,827		$	203,334	$	348,401		$	389,496
Pro forma net income (loss)		(2,366	)		3,975		(6,268	)		3,695
Pro forma income (loss) per share: Basic	$	(0.07	)	$	0.10	$	(0.18	)	$	0.10
Pro forma income (loss) per share: Diluted	$	(0.07	)	$	0.10	$	(0.18	)	$	0.09

The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisitions been effective as of January 1 of the respective years or of future operations of the Company.