Note 3 - Acquisitions

3 Months Ended

Mar. 31, 2016

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

(3)

Acquisitions

ExamWorks operates in a highly fragmented industry and has completed 57 acquisitions since July 14, 2008 through the date of this filing. 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 balance sheets. 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.

(

)

2015 Acquisitions

In 2015, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $75.7 million, composed of $76.8 million cash consideration less cash acquired of $1.1 million. In conjunction with the 2015 acquisitions, the Company incurred aggregate transaction costs of $882,000, of which $35,000 was incurred in the three months ended March 31, 2015. The Company did not incur any costs associated with the indicated acquisitions in the first quarter of 2016. 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 and service offerings of the Company.

Company Name	Form of acquisition	Date of acquisition
ReliableRS (United States)	Substantially all of the assets and assumed certain liabilities	January 2, 2015
Landmark Exams & Maven Exams (United States)	Substantially all of the assets and assumed certain liabilities	April 14, 2015
Karen Rucas & Associates (Canada)	Substantially all of the assets and assumed certain liabilities	July 13, 2015
First Choice (United States)	Substantially all of the assets and assumed certain liabilities	October 30, 2015
Argent (United Kingdom)	Substantially all of the assets and assumed certain liabilities	November 23, 2015

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

	Preliminary purchase price allocation December 31, 2015			Adjustments/ reclassifications			Preliminary purchase price allocation March 31 , 2016
Equipment and leasehold improvements	$	1,513		$	—		$	1,513
Customer relationships		28,530			—			28,530
Tradenames		1,965			—			1,965
Covenants not to compete		182			—			182
Goodwill		24,296			489			24,785
Net deferred tax liability associated with step-up in book basis		(18	)		—			(18	)
Assets acquired and liabilities assumed, net		18,931			(218	)		18,713
Totals	$	75,399		$	271		$	75,670

In 2016, the Company recorded adjustments to working capital resulting in an increase in total consideration paid of $271,000. Goodwill of $24.6 million and other intangible assets of $30.4 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)

2016

Acquisitions

In 2016, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $99.6 million, composed of $92.0 million cash consideration and $7.6 million of contingent consideration. In conjunction with the 2016 acquisitions, the Company incurred aggregate transaction costs of $446,000, of which $82,000 were incurred in the three months ended March 31, 2016. The Company did not incur any costs associated with the acquisitions in the first quarter of 2015. 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 and service offerings of the Company.

Company name	Form of acquisition	Date of acquisition
ABI (United States)	100% of the outstanding common stock	January 8, 2016
Advanced Medical Reviews (United States)	100% of the outstanding common stock	January 19, 2016

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

	Preliminary purchase price allocation March 31 , 201 6
Equipment and leasehold improvements	$	1,044
Customer relationships		32,201
Tradename		6,900
Goodwill		70,378
Net deferred tax liability associated with step-up in book basis		(15,104	)
Assets acquired and liabilities assumed, net		4,219
Total	$	99,638

None of the goodwill or other intangibles are currently 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 2016 acquisitions contributed $13.0 million in revenues and $231,000 in operating losses for the three months ended March 31, 2016.

(c)

Pro forma Financial Information

The following unaudited pro forma results of operations for the three months ended March 31, 2015 and 2016 assumes that the 2015 acquisitions were completed on January 1, 2014 and the 2016 acquisitions were completed on January 1, 2015.

For the three months ended March 31, 2015 and 2016, the pro forma results include adjustments to reflect interest and other expenses of $2.3 million and $128,000, 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 $5.1 million and $315,000 for the three months ended March 31, 2015 and 2016, respectively. Finally, adjustments of $948,000 and $1.2 million were made to reduce SGA expenses for the three months ended March 31, 2015 and 2016, respectively, principally related to certain salary and other personal expenses attributable to the previous owners and employees 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 March 31 ,
	2015		2016
	(In thousands, except per share data)
Pro forma revenues	$	224,914	$	228,389
Pro forma net income		139		3,812
Pro forma income per share: Basic	$	0.00	$	0.09
Pro forma income per share: Diluted	$	0.00	$	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.