2. Business Combinations

The Merger

On March 10, 2020 (the “Merger Effective Date”), pursuant to the Agreement and Plan of Merger, dated December 20, 2016 (the “Merger Agreement”), by and among the Company, McKesson and SpinCo, the Company combined with SpinCo in a two-step all-stock “Reverse Morris Trust” transaction that involved (i) a separation of SpinCo from McKesson pursuant to the Separation and Distribution Agreement, dated February 10, 2020 (the “Separation Agreement” and, the transactions contemplated by the Separation Agreement, the “Separation”), followed by (ii) the merger of SpinCo with and into the Company, with the Company as the surviving company (such merger, together with the other transactions contemplated by the Merger Agreement, the “Merger”).

The Merger was consummated pursuant to the Merger Agreement and the Separation Agreement. On the Merger Effective Date, SpinCo merged with and into the Company, with the Company as the surviving company. As a result, the Joint Venture became a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, McKesson accepted 15,426,537 shares of its own common stock, par value $0.01 (the “McKesson Common Stock”) in exchange for all 175,995,192 issued and outstanding shares of SpinCo common stock, par value $0.001 per share (the “SpinCo Common Stock”). All shares of SpinCo Common Stock were then converted into an equal number of shares of common stock of the Company, par value $0.001 (the “Change Common Stock”), which the Company issued to the former holders of SpinCo Common Stock, together with cash in lieu of any fractional shares.

Immediately after consummation of the Merger, approximately 58% of the outstanding Change Common Stock was held by pre-Merger holders of McKesson Common Stock and approximately 42% of the outstanding Change Common Stock was held by pre-Merger holders of Change Common Stock.

Prior to the Merger, the Company accounted for its investment in the Joint Venture under the equity method of accounting. Therefore, the Company’s acquisition of control of the Joint Venture was accounted for as a business combination achieved in stages under the acquisition method, in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Accordingly, the Company remeasured its previously held equity interest in the Joint Venture to fair value by reference to the publicly traded price of the common shares issued to SpinCo shareholders in exchange for the remaining 58% equity interest in the Joint Venture. Upon remeasurement of its investment, the Company recognized a loss of $230,229 which is included in Loss from Equity Method Investment in the Joint Venture in the consolidated statement of operations. The loss represents the amount by which the carrying value of the Company’s investment in the Joint Venture exceeded the fair value of its 42% interest immediately prior to the Merger.

The fair values of the assets acquired and the liabilities assumed were determined based on information that is currently available to the Company. Additional information is being gathered to finalize the provisional measurements with respect to deferred taxes. Accordingly, the measurement of the deferred tax assets acquired and deferred tax liabilities assumed may change upon finalization of the Company’s valuations and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. The Company considers its accounting for the other assets acquired and liabilities assumed in the Merger to be complete. The following table summarizes the fair values of the identifiable assets and liabilities at the date of the acquisition.


Net Assets acquired
Cash	$	330,665
Accounts receivable, net of allowance for doubtful accounts of $22,059		718,895
Contract assets		132,704
Prepaid and other current assets		115,265
Investment in business purchase option		146,500
Property and equipment, net		206,751
Goodwill		4,360,648
Other noncurrent assets		169,539
Identified intangible assets:
Customer relationships (life 12-16 years)		3,056,000
Tradenames (life 18 years)		146,000
Technology-based intangible assets (life 6-12 years)		1,188,000
Drafts and accounts payable		(60,637)
Accrued expenses		(559,456)
Deferred revenues, current		(292,528)
Current portion of long-term debt		(28,969)
Other current liabilities		(22,732)
Long-term debt, excluding current portion		(4,713,565)
Deferred income tax liabilities		(578,076)
Tax receivable agreement obligations with related parties		(176,586)
Other long-term liabilities		(102,675)
Net Assets acquired	$	4,035,743

Summary of purchase consideration:
Fair value of shares issued to SpinCo shareholders
(175,995,192 shares at $12.47 per share):
Common Stock, $0.001 par value	$	176
Additional paid-in capital		2,194,484
Fair value of Joint Venture equity interest previously held		1,589,040
Fair value of Joint Venture equity interest previously held through TEUs		216,764
Settlement of dividend receivable		42,778
Repayment of advances to member		(7,499)
Purchase consideration	$	4,035,743

The goodwill recognized in the Merger is primarily attributable to expected synergies of the combined businesses and the acquisition of an assembled workforce knowledgeable of the healthcare and information technology industries in which the Company operates. The goodwill is not expected to be deductible for tax purposes.

Acquisition costs related to the Merger were not material for the year ended March 31, 2020.

Supplemental Information

The supplemental pro forma results below were calculated after applying the Company’s accounting policies and adjusting the results of the acquired Joint Venture businesses to reflect (i) the additional depreciation and amortization that would have been charged resulting from the fair value adjustments to property and equipment and intangible assets, (ii) the additional interest expense associated with the consolidation of the Joint Venture’s long-term borrowings, and (iii) the decrease to revenue resulting from the fair value adjustment of assumed deferred revenue obligations, assuming the acquisition occurred on April 1, 2018.


	(Unaudited) Year ended March 31,
		2020		2019
Results of acquired business since acquisition date of March 10, 2020:
Revenue		$	196,792		n/a
Net income (loss)		$	297		n/a

Supplemental pro forma data for combined entity:
Revenue		$	3,290,734	$	3,133,907
Net income (loss)		$	(228,234)	$	(128,889)
Net income (loss) per share, basic and diluted		$	(0.75)	$	(0.43)