ACQUISITIONS

3 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

On January 9, 2022, Convey’s indirect wholly-owned subsidiary, D-M-S Holdings Parent, LLC (f/k/a Dragon Holdings Parent, LLC), a Delaware limited liability company (“Buyer”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Briggs Medical Service Company, a Delaware corporation (“Seller”), and D-M-S Holdings, Inc. d/b/a HealthSmart International, a Delaware corporation (“Target”), pursuant to which, on the terms and subject to the conditions set forth in the Purchase Agreement, Buyer agreed to acquire from Seller all of the issued and outstanding capital stock of Target (the acquisition of such capital stock, the “Acquisition”). Target provides a diverse portfolio of health, wellness and diagnostic products centered on home based care outcomes, and the Company intends to leverage the Target’s supply chain and logistics expertise to get high quality products to members faster and at a lower cost.

On February 1, 2022, Buyer completed its acquisition of all of the issued and outstanding capital stock of the Target. The Acquisition was consummated pursuant to the Purchase Agreement.

Pursuant to the terms set forth in the Purchase Agreement, at closing Buyer paid to Seller cash in an amount equal to $74.7 million, subject to certain adjustments for, among other things, Target’s cash, indebtedness and net working capital (the “Closing Purchase Price”). If the Target achieves certain amounts of net revenue in calendar year 2022, Buyer will pay to Seller cash up to an additional $15 million. A portion of the Closing Purchase Price was deposited into an escrow account held by an

escrow agent and will be released to Buyer or Seller, as applicable, following the final determination of any purchase price adjustment.

In connection with the Purchase Agreement, CHS obtained a first lien incremental term loan facility under CHS’s existing First Lien Credit Agreement in an aggregate principal amount of $78 million, for the purpose of financing the Acquisition and paying fees and expenses related thereto. See Note 9. Credit Facility for additional information related to the incremental term loan facility.

The Acquisition was accounted for using the acquisition method of accounting under which assets and liabilities of the Target were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. A deferred tax liability has been recorded for the excess of financial statement basis over tax basis of the acquired assets and assumed liabilities with a corresponding increase to goodwill. The goodwill attributable to the Acquisition has been recorded as a non-current asset and is not amortized, but is subject to an annual review for impairment. Such goodwill, which is non-deductible for income tax purposes, is part of the Technology Enabled Solutions segment.

The Acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of assets acquired and liabilities assumed are considered preliminary and are based on the most recent information available. The Company believes that the information provides a reasonable basis for assigning the fair values of assets acquired and liabilities assumed. Thus, the provisional measurements of fair value set forth below are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

The following table summarizes the Acquisition date fair value of the allocation of the purchase consideration assigned to each major class of assets acquired and liabilities assumed as of February 1, 2022, the acquisition date:


	Estimated Fair Value
(in thousands)
ASSETS ACQUIRED
Cash	$	112
Accounts receivable	6,481
Inventories	22,879
Prepaid expenses and other current assets	1,840

Property and equipment	1,269

Operating lease right-of-use-assets	4,908
Total identifiable assets acquired	37,489
Fair value of intangible assets
Trade names	8,600
Customer relationships	25,500

Total fair value of intangible assets acquired	34,100
Total assets acquired	$	71,589
LIABILITIES ASSUMED
Accounts payable	$	2,937

Accrued expenses	3,895

Operating lease liabilities, current portion	1,003
Deferred taxes	10,222
Operating lease liabilities, net of current portion	3,905


Total liabilities assumed	21,962
Net identifiable assets	49,627
Goodwill	27,352
Total consideration	$	76,979

Indications of fair value of the intangible assets acquired in connection with the Acquisition were determined using either the income, market or replacement cost methodologies. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized. The trade names and customer relationships are being amortized on a straight-line basis over an estimated useful life of twenty years and seventeen years, respectively. The goodwill recognized is primarily attributable to synergies of the business and the acquisition of workforce knowledgeable of product development and supply chain expertise in the healthcare industry.

The following table summarizes the purchase consideration transferred in connection with the Acquisition and consists of the following:


(in thousands)	March 31, 2022
Initial purchase price	$	74,725

Earn-out (contingent consideration)	2,254
Total consideration	$	76,979

Included in the condensed consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2022, are net sales of $7.2 million and net loss of $1.6 million, related to the Target’s operations since the acquisition date of February 1, 2022.

Unaudited Supplemental Pro Forma Information

The following table presents the unaudited pro forma combined results of operations of the Company and Target for the three months ended March 31, 2022 and 2021, as if the acquisition had occurred on January 1, 2021. The pro forma information presented is for informational purposes only and is not indicative of results of operations that would have been achieved had the Acquisition taken place at the beginning of the period.


	For the Three Months Ended March 31
(in thousands)	2022	2021
Net revenue	101,174	97,567
Net income (loss)	205	(299)