Acquisitions and Divestitures

6 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses, assets and product lines and believes that capex-like, tuck-in acquisitions present a key opportunity within its overall growth strategy. Divestitures support the Company’s strategy of focusing on core business operations and delivering on long-term operational goals.

2023 Acquisitions and Divestitures

On March 31, 2023, the Company completed its divestiture of its blood filter and water filter product lines that are sold into renal and other medical applications (the “Filtration Business”) to Medica USA Inc., a subsidiary of Medica S.p.A. (“Medica”), for $67 in cash at closing. The Company recognized a loss on sale of $2,857, which is included in Other operating expense on the Consolidated Statements of Operations during the three months ended March 31, 2023. The Filtration Business was included in the Integrated Solutions and Services segment and was determined by management not to be core to the Company’s long-term business strategy or operations. The sale of the Filtration Business does not represent a strategic shift that will have a major effect on the Company’s operations and financial results and is, therefore, not classified as discontinued operations in accordance with ASU 2014-08. The Company entered into a supply agreement with Medica under which the Company will purchase water filters used by its customers in the Company’s dialysis water systems.

On February 28, 2023, the Company completed its acquisition of the Texas-based industrial water service business accounts and deionization and carbon tank assets of Kemco Systems (“Kemco”) for $900 in cash at closing. This acquisition expands the Company’s service and aftermarket business in the Texas market while strengthening the Company’s ability to better support and service its industrial customers in the region. The acquisition did not meet the definition of a business under ASC 805, and as such was accounted for as an asset acquisition. The acquired business is included within the Integrated Solutions and Services segment.

On February 14, 2023, the Company entered into a definitive agreement to divest its carbon reactivation and slurry operations (the “Carbon Business”) to Desotec US LLC, a subsidiary of Desotec N.V. (“Desotec”). The sale of the Carbon Business will allow the Company to focus on its core service business, which includes carbon services and the sale of high-quality activated carbon. At the closing of the transaction, the Company will enter into a supply agreement with Desotec under which the Company will purchase reactivated carbon to continue to service its customers. During the three months ended March 31, 2023, the assets and liabilities of the Carbon Business met the accounting criteria to be classified as held for sale on the Consolidated Balance Sheets. As part of the required evaluation under the held for sale guidance, the Company determined that the approximate fair value less costs to sell the operations exceeded the carrying value of the net assets and as such, no impairment charge was recorded. As of March 31, 2023, the transaction had not closed and is expected to close in the third quarter of 2023. Gross proceeds upon closing of the transaction are anticipated to be $100,000 and the Company expects to record a gain on sale. The Carbon Business is included in the Integrated Solutions and Services segment.

The following represents the carrying value of the assets and liabilities within the disposal group at March 31, 2023:


Inventories, net	$	11,622
Current assets held for sale	11,622
Property, plant, and equipment, net	6,744
Operating lease right-of-use assets, net	2,312
Goodwill	7,830
Intangible assets, net	12,847
Non-current assets held for sale	29,733
Total assets held for sale	$	41,355
Accrued expenses and other liabilities	487
Current liabilities held for sale	487
Obligation under operating leases	2,703
Non-current liabilities held for sale	2,703
Total liabilities held for sale	$	3,190

2022 Acquisitions

On July 15, 2022, the Company completed the acquisition of Epicor, Inc. (“Epicor”) for $4,339 cash paid at closing. During the three months ended December 31, 2022, the Company paid cash of $38 to the seller as a result of net working capital adjustments. Epicor has supplied specialty resins for power steam system treatment for fifty years. The resins provide a cost-effective and efficient method for creating and maintaining a continual supply of ultra-pure water for power plants. Epicor is included within the Integrated Solutions and Services segment.

On July 1, 2022, the Company completed the acquisition of Smith Engineering, Inc. (“Smith Engineering”) for $18,878 cash paid at closing, of which $2,895 was paid into an escrow account. Smith Engineering is a leader in the design, manufacturing, and service of custom high purity water treatment equipment serving the biotech/pharmaceutical, data center, food and beverage, healthcare, medical device, and microelectronics markets. With over 1,200 customers in North America, Smith Engineering offers a variety of water treatment products and services, including filtration, UV, reverse osmosis, and deionization. Smith Engineering is included within the Integrated Solutions and Services segment.

The acquisition of Smith Engineering has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. Due to the nature of the net assets acquired, at March 31, 2023, the valuation process to determine fair values is not complete and further adjustments are expected in the remainder of fiscal year 2023. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price allocation adjustments will be recorded during the measurement period, but no later than one year from the date of the acquisition.

The preliminary fair value of assets acquired and liabilities assumed were as follows:


Receivables, net	$	2,501
Inventories, net	1,345
Other current assets	937
Property, plant, and equipment, net	532
Goodwill	7,820
Intangible assets, net	9,815
Other non-current assets	796
Total assets acquired	$	23,746
Current liabilities	(1,834)
Non-current liabilities	(3,034)
Total liabilities assumed	$	(4,868)
Net assets acquired	$	18,878

On December 20, 2021, the Company and its indirect wholly-owned subsidiaries Evoqua Water Technologies LLC (“EWT LLC”) and Evoqua Water Technologies Ltd. (together with EWT LLC, the “Buyer”) entered into an Asset Purchase Agreement (the “Agreement”) with Cantel Medical LLC, Mar Cor Purification, Inc., and certain of their affiliates (collectively, the “Sellers”), each wholly-owned subsidiaries of Steris plc, pursuant to which the Buyer agreed to acquire certain assets of the Sellers and assume certain liabilities of the Sellers that are owned or used or arise in connection with the global operation of the Sellers’ renal business (the “Mar Cor Business”) for an aggregate purchase price of $196,300 in cash at closing (the “Purchase Price”), subject to customary adjustments, including for working capital (the “Transaction”). On January 3, 2022, the Company completed the Transaction to acquire the Mar Cor Business for $194,976 paid in cash at closing, following adjustments. During the six months ended March 31, 2022, the Company received cash of $1,754 from the Sellers as a result of net working capital adjustments, thus resulting in a final purchase price of $193,222. The Company utilized cash on hand and borrowed an additional $160,000 under the 2021 Revolving Credit Facility (as defined below) to fund the Transaction. The Mar Cor Business is included within the Integrated Solutions and Services segment.

The Purchase Price included a $12,300 earn out, which was being held in escrow and was to be paid, pro rata, to the Sellers if the Mar Cor Business met certain sales performance goals through December 31, 2022 (the “Earn Out”). During the three months ended March 31, 2023, the Company received cash of $12,300 for the Earn Out asset. See Note 6, “Fair Value Measurements”, for further discussion.

The acquisition of the Mar Cor Business has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date.

The opening balance sheet for the Mar Cor Business is summarized as follows:


Receivables, net	$	21,275
Inventories, net	32,350
Earn Out asset	7,824
Other current assets	1,844
Property, plant, and equipment, net	19,150
Goodwill	67,000
Intangible assets, net	57,094
Other non-current assets	7,694
Total assets acquired	$	214,231
Current liabilities	(15,467)
Non-current liabilities	(5,542)
Total liabilities assumed	$	(21,009)
Net assets acquired	$	193,222