Acquisitions and Divestitures

9 Months Ended

Sep. 28, 2018

NOTE 2. ACQUISITIONS AND DIVESTITURES

For a description of our material acquisition activity in 2017 and during the nine months ended September 28, 2018, refer to Note 3 of our 2017 Annual Report on Form 10-K and the discussion below.

We continually evaluate potential mergers, acquisitions and divestitures that align with our strategy and expedite the evolution of our portfolio of businesses into new and attractive areas. We have completed a number of acquisitions that have been accounted for as purchases and resulted in the recognition of goodwill in our financial statements. This goodwill arises because the purchase price for each acquired business reflects a number of factors including the complimentary fit, acceleration of our strategy and synergies the business brings with respect to our existing operations, the future earnings and cash flow potential of the business, the potential to add other strategically complimentary acquisitions to the acquired business, the scarce or unique nature of the business in its markets, competition to acquire the business, the valuation of similar businesses in the marketplace (as reflected in a multiple of revenues, earnings or cash flows) and the avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance our existing offerings to key target markets and develop new and profitable businesses.

We make an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of the acquired assets and assumed liabilities. We obtain this information during due diligence and through other sources. In the months after closing, as we obtain additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learn more about the newly acquired business, we are able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. We are in the process of obtaining valuations of certain acquired assets and evaluating the tax impact of certain acquisitions. We make appropriate adjustments to purchase price allocations prior to completion of the applicable measurement period, as required.

Completed Acquisitions in 2018

Accruent

On September 6, 2018, we acquired Accruent, LLC (“Accruent”), a privately-held, leading provider of facilities asset management software, for a total purchase price of approximately $2.0 billion net of acquired cash (the “Accruent Acquisition”). Accruent is a recognized leader in the facilities asset management industry, combining deep domain and industry capabilities with an integrated, cloud-based framework that provides insights spanning the full lifecycle of real estate, facilities and asset management. Accruent serves over 10,000 global customers, and helps assure clients fulfill the mission of their organization by extending the lifecycle of assets, monitoring full compliance and reducing safety risks. Accruent is headquartered in Austin, Texas, and is included in our the Professional Instrumentation Segment. Accruent generated annual revenues of approximately $200 million in 2017. We financed the Accruent Acquisition with available cash and proceeds from our financing activities. We preliminarily recorded approximately $1.2 billion of goodwill related to the Accruent Acquisition.

Gordian

On July 27, 2018, we acquired TGG Ultimate Holdings, Inc. and its subsidiaries, including The Gordian Group, Inc. (“Gordian”), a privately-held, leading provider of construction cost data, software and service, for a total purchase price of $778 million net of cash acquired (the “Gordian Acquisition”). Gordian’s comprehensive offerings serve the entire building lifecycle and provide workflow solutions designed to optimize every stage of an asset owner’s construction and maintenance needs, including connecting the owner and contractors in the same exchange and providing access to cost and facility metrics databases via a subscription-based model. Gordian is headquartered in Greenville, South Carolina, and is included in our Professional Instrumentation segment. Gordian generated annual revenues of approximately $110 million in 2017. We financed the Gordian Acquisition with available cash. We preliminarily recorded approximately $443 million of goodwill related to the Gordian Acquisition.

In addition to the acquisitions of Accruent and Gordian, during the nine months ended September 28, 2018, we acquired one business for total consideration of $7.7 million in cash, net of cash acquired. The business acquired complements existing units of our Professional Instrumentation segment. We preliminarily recorded an aggregate of $1.8 million of goodwill related to this acquisition.

The following summarizes the provisional fair value estimates of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions closed during the nine months ended September 28, 2018 ($ in millions):



	Accruent			Gordian			Other			Total
Accounts receivable	$	52.8		$	30.0		$	—		$	82.8
Property, plant and equipment	4.1			3.0			—			7.1
Goodwill	1,217.5			442.5			1.8			1,661.8
Other intangible assets, primarily customer relationships, trade names and technology	926.5			376.5			6.8			1,309.8
Trade accounts payable	(8.7		)	(1.0		)	—			(9.7		)
Other assets and liabilities, net	(199.3		)	(72.8		)	(0.9		)	(273.0		)
Net cash consideration	$	1,992.9		$	778.2		$	7.7		$	2,778.8

Pro Forma Financial Information (Unaudited)

The unaudited pro forma information for the periods set forth below gives effect to the 2018 and 2017 acquisitions as if they had occurred as of January 1, 2017. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time ($ in millions except per share amounts):



	Three Months Ended				Nine Months Ended
	September 28, 2018		September 29, 2017		September 28, 2018		September 29, 2017
Sales	$	1,895.5	$	1,854.0	$	5,691.4	$	5,396.4
Net earnings	$	228.0	$	211.9	$	730.0	$	584.1
Diluted net earnings per share	$	0.64	$	0.60	$	2.07	$	1.66

Revenue and operating losses attributable to the acquisitions included in our results for the three and nine months ended September 28, 2018 were $35.7 million and $19.1 million, respectively.

Tritium

On September 11, 2018, we acquired a minority interest in Tritium Holdings Pty, Ltd for less than $50.0 million. Tritium specializes in the design and manufacture of DC fast charging solutions for electric vehicles. Established in 2001, it launched its first DC fast charger in 2014, and has since become a leading global supplier, with installations in 26 countries. Tritium offers a range of hardware, software and services developed and designed to support the global transition to e-mobility. Our investment in Tritium is recorded in Other assets on the Consolidated Condensed Balance Sheet at cost. We have elected to use the measurement alternative for equity investments without readily determinable fair values and evaluate this investment for indicators of impairment quarterly.

Pending Acquisitions

Advanced Sterilization Products

On June 6, 2018, we made a binding offer to Ethicon, Inc., a subsidiary of Johnson & Johnson, to purchase its Advanced Sterilization Products (“ASP”) business for approximately $2.7 billion in cash. On September 20, 2018, Ethicon, Inc. accepted our offer and countersigned the purchase agreement. The transaction is expected to close in the first quarter of 2019 and is subject to customary closing conditions.

ASP is a leading global provider of innovative sterilization and disinfection solutions and pioneered low-temperature hydrogen peroxide sterilization technology. ASP’s products, which are sold globally, include the STERRAD system for sterilizing instruments and the EVOTECH and ENDOCLENS systems for endoscope reprocessing and cleaning.

Divestiture of A&S Business

On March 7, 2018, we entered into a definitive agreement to combine four of our operating companies from our Automation & Specialty platform (the “A&S Business”) with Altra Industrial Motion Corp (“Altra”) in a tax-efficient Reverse Morris Trust transaction. The A&S Business includes the market-leading brands of Kollmorgen, Thomson, Portescap and Jacobs Vehicle Systems, and generated approximately $907 million in revenue for the year ended December 31, 2017. On October 1, 2018, we completed the split-off of the A&S Business. The total consideration received was $2.7 billion and consisted of (i) $1.3 billion through a fully-subscribed exchange offer, in which we accepted and subsequently retired 15,824,931 shares of our own common stock from our stockholders in exchange for the 35,000,000 of common stock of Stevens Holding Company, Inc.; (ii) $1.0 billion in cash paid to us for the direct sales of certain assets and liabilities of the A&S Business; (iii) $248.5 million as part of a debt-for-debt exchange that reduced outstanding indebtedness of Fortive; and (iv) $150 million in cash paid to us by Steven’s Holding Company, Inc. as a dividend.

As this transaction occurred during the fourth quarter of 2018, we will retrospectively classify the A&S Business as discontinued operations in our financial statements beginning in the fourth quarter of 2018 in accordance with the authoritative accounting guidance.

Transaction Costs

We incurred approximately $56.0 million and $70.8 million of pretax transaction-related costs associated with the divestiture and these acquisitions during during the three and nine months ended September 28, 2018, respectively, which are primarily for professional fees. These amounts are recorded in selling, general and administrative expenses.