Acquisitions

12 Months Ended

Dec. 31, 2018

NOTE 3. ACQUISITIONS

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.

The following describes our acquisition activity for the three years ended December 31, 2018.

Completed Acquisitions in 2018

Accruent

On September 6, 2018, we acquired Athena SuperHoldCo, Inc., including 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 $1.1 billion of goodwill related to the Accruent Acquisition which is not tax deductible.

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 $429 million of goodwill related to the Gordian Acquisition which is not tax deductible.

Revenue and operating losses attributable to these acquisitions was $115 million and $51 million for the year ended December 31, 2018, respectively.

In addition to the acquisitions of Accruent and Gordian, during 2018, we acquired two businesses for total consideration of $44 million in cash, net of cash acquired. The businesses acquired complement existing units of both our segments. The aggregate annual sales of these businesses at the time of their respective acquisitions, in each case based on the acquired company’s revenues for its last completed fiscal year prior to the acquisition, were approximately $35 million. We preliminarily recorded an aggregate of $31 million of goodwill related to these acquisitions.

During 2017, we acquired three businesses for total consideration of $1.56 billion in cash, net of cash acquired. The businesses acquired complement existing units of both our segments. The aggregate annual sales of these businesses at the time of their respective acquisitions, in each case based on the acquired company’s revenues for its last completed fiscal year prior to the acquisition, were approximately $389 million. We recorded an aggregate of $1.04 billion of goodwill related to these acquisitions.

During 2016, we acquired three businesses for total consideration of $190 million in cash, net of cash acquired. The businesses acquired complement existing units of both our segments. The aggregate annual sales of these businesses at the time of their respective acquisitions, in each case based on the acquired company’s revenues for its last completed fiscal year prior to the acquisition, were approximately $47 million. We recorded an aggregate of $113 million of goodwill related to these acquisitions.

The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during the years ended December 31 ($ in millions):



	2018			2017			2016
Accounts receivable	$	86.7		$	103.7		$	5.2
Inventories	3.9			37.3			2.2
Property, plant and equipment	7.1			137.1			0.6
Goodwill	1,601.2			1,035.2			113.2
Other intangible assets, primarily customer relationships, trade names and technology	1,345.8			587.8			82.7
Trade accounts payable	(9.9		)	(18.7		)	(1.5		)
Other assets and liabilities, net	(219.7		)	(289.0		)	(12.3		)
Previously held investment	—			(36.8		)	—
Net cash consideration	$	2,815.1		$	1,556.6		$	190.1

The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the individually significant acquisitions in 2018 discussed above, and all of the other 2018 acquisitions as a group ($ in millions):



	Accruent			Gordian			Other			Total
Accounts receivable	$	54.3		$	28.7		$	3.7		$	86.7
Inventories	—			—			3.9			3.9
Property, plant and equipment	4.1			2.6			0.4			7.1
Goodwill	1,141.0			428.9			31.3			1,601.2
Other intangible assets, primarily customer relationships, trade names and technology	953.0			386.0			6.8			1,345.8
Trade accounts payable	(8.8		)	(1.0		)	(0.1		)	(9.9		)
Other assets and liabilities, net	(150.2		)	(67.1		)	(2.4		)	(219.7		)
Net cash consideration	$	1,993.4		$	778.1		$	43.6		$	2,815.1

We incurred approximately $25 million of pretax transaction-related costs related to these four acquisitions in 2018 and incurred approximately $19 million of pretax transaction-related costs in 2017, which were primarily for banking fees, legal fees, amounts paid to other third-party advisers, and other change in control costs. Transaction-related costs for acquisitions closed in 2016 were not material. Transaction-related costs are recorded in SG&A.

We recorded certain adjustments to the preliminary purchase price allocation of acquisitions that closed during 2018 that resulted in a net increase of $61 million to goodwill. Purchase price allocation adjustments recorded in 2018 that related to acquisitions closed in 2017 were immaterial.

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):



	2018		2017
Sales	$	6,707.3	$	6,407.5
Net earnings from continuing operations	$	834.6	$	707.6
Diluted net earnings per share from continuing operations	$	2.38	$	2.01

Pending Acquisition

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 after the end of 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.