3.Acquisitions

Post-Fiscal 2016

Vantage Endoscopy Inc.’s Medivators® Endoscopy Business

On September 26, 2016, we acquired certain net assets of Vantage related to its distribution and sale of our Medivators endoscopy products in Canada (the “Vantage Business” or the “Vantage Acquisition”). Vantage was our exclusive distributor of Medivators capital equipment (e.g., automated endoscope reprocessors) and related consumables and accessories and had pre-acquisition adjusted annual revenues (unaudited) of approximately $11,000,000. The total consideration for the transaction, excluding acquisition-related costs, was $4,072,000, subject to net asset value adjustments. The Vantage Acquisition is included in our Endoscopy segment.

The principal reasons for the Vantage Acquisition were (i) to sell our Endoscopy products on a direct basis in Canada, one of our largest markets outside of the United States, (ii) the establishment of a platform in Canada where we can sell additional products on a direct basis such as our endoscopy procedure products and transport and storage systems and (iii) the expectation that the acquisition will be accretive to our EPS in fiscal 2017 and beyond. The Vantage Acquisition is not included in our results of operations for any portion of fiscal 2016 or any prior period.

Accutron, Inc.

On August 1, 2016, we acquired all of the issued and outstanding stock of Accutron, a private company with pre-acquisition annual revenues (unaudited) of approximately $21,500,000 (the “Accutron Business” or the “Accutron Acquisition”). The Accutron Business designs, manufactures and sells nitrous oxide conscious sedation equipment and single use nasal masks for use in dental procedures. The total consideration for the transaction, excluding acquisition-related costs, was $52,500,000, subject to net asset value adjustments. The Accutron Acquisition is included in our Healthcare Disposables segment.

The principal reasons for the Accutron Acquisition were (i) to broaden our Healthcare Disposable segment’s product portfolio by adding conscious sedation equipment and single-use nasal masks, (ii) the opportunity to cross-sell our existing Healthcare Disposable products, (iii) the addition of a high margin, branded product portfolio with compelling infection prevention benefits and (iv) the expectation that the acquisition will be accretive to our EPS in fiscal 2017 and beyond. The Accutron Acquisition is not included in our results of operations for any portion of fiscal 2016 or any prior period.

Fiscal 2016

North American Science Associates, Inc.

On March 1, 2016, we acquired certain net assets of North American Science Associates, Inc.’s Sterility Assurance Monitoring Products division, a business with pre-acquisition adjusted annual revenues (unaudited) of approximately $5,700,000 (the “NAMSA Business”). The business manufactures a broad suite of high-quality biological and chemical indicators which are used to accurately monitor the effectiveness of sterilization processes primarily for manufacturers of medical device, life science and other products. The total consideration for the transaction, excluding acquisition-related costs, was $13,424,000. The NAMSA Acquisition is included in our Healthcare Disposables segment.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	2,283,000
Property, plant and equipment		437,000
Amortizable intangible assets (10- year weighted average life):
Customer relationships (10- year life)		5,820,000
Technology (8- year life)		1,320,000
Current liabilities		(123,000)
Net assets acquired	$	9,737,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $3,687,000 was assigned to goodwill. Such goodwill, all of which is deductible for income tax purposes, is included in our Healthcare Disposables segment.

The principal reasons for the NAMSA Acquisition were (i) the ability to broaden our Healthcare Disposable segment’s presence into the industrial market, (ii) the opportunity to cross-sell our existing Healthcare Disposable products, (iii) the strategic benefit and cost savings to our overall sterility assurance monitoring business, (iv) to enhance our new product development and overall research and development capabilities and (v) the expectation that the acquisition will be accretive to our EPS in fiscal 2017 and beyond.

The NAMSA Business is included in our results of operations for the portion of fiscal 2016 subsequent to its acquisition date and is not included in fiscals 2015 and 2014. This acquisition did not have a significant effect on our consolidated results of operations in fiscal 2016 due to the size of the acquisition in relation to our overall consolidated results of operations.

Medical Innovations Group Holdings Limited

On September 14, 2015, we acquired all of the issued and outstanding stock of MI, a private company with pre-acquisition annual revenues (unaudited) of approximately $28,500,000 providing specialized endoscopy medical devices and products primarily in the United Kingdom (the “MI Business”). Principal products of MI include proprietary short-term and long-term endoscope transport and storage systems, a comprehensive range of endoscopic consumable accessories, OEM mobile medical carts, as well as specialized products for patient warming and patient transfer. With an employee base of approximately 100 individuals, including a complete sales organization and a manufacturing facility in Southend-on-Sea, England, the addition of MI complements our existing endoscopy business in the United States, the United Kingdom and other global markets. The MI Business is included in our Endoscopy segment. The total consideration for the transaction, excluding acquisition-related costs, was $79,597,000, net of a $212,000 net asset value adjustment to be paid by the sellers.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	7,060,000
Property, plant and equipment		6,464,000
Amortizable intangible assets (15- year weighted average life):
Customer relationships (17- year life)		24,430,000
Technology (10- year life)		10,930,000
Brand names (12- year life)		2,030,000
Current liabilities		(2,640,000)
Deferred income tax liabilities		(8,683,000)
Net assets acquired	$	39,591,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $40,006,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, is included in our Endoscopy segment.

The principal reasons for the MI Acquisition were (i) the global expansion of our infection prevention product offerings in Endoscopy, (ii) the opportunity to sell our existing endoscopy products to MI’s installed base, (iii) the ability to combine the MI sales force with our existing United Kingdom organization to create what we believe will be a dominant UK sales force in endoscopy product sales and service, (iv) to achieve cost savings through various operating synergies, (v) the ability to leverage our direct sales force to accelerate the growth of MI products in the U.S. and various international markets, and (vi) the expectation that the acquisition will be accretive to our EPS in fiscal 2017 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The MI Acquisition is included in our results of operations in the portion of fiscal 2016 subsequent to its acquisition date, and is not reflected in fiscals 2015 and 2014.

Fiscal 2015

DentaPure

On February 20, 2015, we purchased all of the issued and outstanding stock of MRLB, a private company with pre-acquisition annual revenues (unaudited) of approximately $2,300,000, to obtain the DentaPure® product line. The DentaPure product line is a proprietary, iodinated resin filter cartridge system used by dentists to maintain safe water quality in dental unit waterlines. It has been integrated into our Crosstex product portfolio. The DentaPure Business is included in our Healthcare Disposables segment. The total consideration for the transaction was $9,980,000, excluding acquisition-related costs.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	566,000
Property, plant and equipment		50,000
Amortizable intangible assets (10- year weighted average life):
Customer relationships (10- year life)		4,640,000
Technology (10- year life)		780,000
Brand names (10- year life)		260,000
Current liabilities		(248,000)
Deferred income tax liabilities		(2,172,000)
Net assets acquired	$	3,876,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $6,104,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, is included in our Healthcare Disposables segment.

The principal reasons for the DentaPure Acquisition were to (i) leverage the sales and marketing infrastructure of Crosstex by adding a branded, technologically differentiated, proprietary product line, (ii) strengthen our leadership position in a rapidly growing area of infection prevention, (iii) add a new product line that will provide for opportunities to cross-sell to biological monitoring customers and expand our waterline disinfection products and (iv) the expectation that the acquisition will be accretive to our EPS in fiscal 2017 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The DentaPure Business is included in our results of operations for fiscal 2016 and the portion of fiscal 2015 subsequent to its acquisition date, and is not included in fiscal 2014. This acquisition did not have a significant effect on our consolidated results of operations in fiscals 2016 and 2015 due to the size of the business in relation to our overall consolidated results of operations.

Pure Water Solutions, Inc.

On January 1, 2015, we purchased substantially all of the net assets of PWS, a private company based out of Ridgeland, Mississippi with pre-acquisition annual revenues (unaudited) of approximately $8,000,000 that provides water treatment services for commercial and industrial, laboratory and medical customers. The PWS Business is included in our Water Purification and Filtration segment. The total consideration for the transaction, excluding acquisition-related costs, was $11,835,000.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	1,417,000
Property, plant and equipment		1,966,000
Amortizable intangible assets (12- year weighted average life):
Customer relationships (12- year life)		5,940,000
Brand names (1- year life)		30,000
Other assets		20,000
Current liabilities		(503,000)
Net assets acquired	$	8,870,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $2,965,000 was assigned to goodwill. Such goodwill, all of which is deductible for income tax purposes, is included in our Water Purification and Filtration segment.

The principal reasons for the PWS Acquisition were (i) to strengthen our sales and service business by adding PWS’s strategic southeastern United States market presence to enable us to better serve our national customers, (ii) to further expand our business into the commercial, laboratory and research segments and (iii) the expectation that the acquisition will be accretive to our EPS in fiscal 2016 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The PWS Business is included in our results of operations in fiscal 2016 and the portion of fiscal 2015 subsequent to its acquisition date, and is not included in fiscal 2014. This acquisition did not have a significant effect on our consolidated results of operations in fiscals 2016 and 2015 due to the size of the business in relation to our overall consolidated results of operations.

International Medical Service S.r.l.

On November 3, 2014, we acquired all of the issued and outstanding stock of IMS, a privately owned company in Italy with pre-acquisition annual revenues (unaudited) of approximately $13,500,000 that manufactures and sells automated endoscope reprocessors (“AERs”), high-level disinfectant chemistries used in AERs, other infection prevention chemistries used in healthcare and dental markets, as well as technical service. The IMS Business is included in our Endoscopy segment. The total consideration for the transaction, excluding acquisition-related costs, was $24,610,000, which includes assumed debt of $2,498,000 which was subsequently repaid.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	8,111,000
Property, plant and equipment		7,922,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (9- year life)		5,669,000
Technology (9- year life)		1,381,000
Other assets		177,000
Current liabilities		(5,735,000)
Deferred income tax liabilities		(3,028,000)
Other long-term liabilities		(1,020,000)
Net assets acquired	$	13,477,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $11,133,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, is included in our Endoscopy segment. Following the acquisition, we changed the name of IMS to Cantel Medical (Italy) S.r.l.

The principal reasons for the IMS Acquisition were: (i) to add a high quality manufacturing facility in Europe, (ii) the expansion of our product offerings with a broader range of advanced endoscope reprocessing equipment suitable for various international markets, (iii) the opportunity to transition our existing Italy business from a distribution model to a direct sales model, (iv) the opportunity to leverage IMS’s chemistry manufacturing capabilities to enhance and expand our existing product portfolio while reducing freight and logistics expenses related to the export of chemistries from the United States, (v) the ability to expand our footprint and infrastructure in Europe and (vi) the expectation that the acquisition will be accretive to our EPS in fiscal 2016 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The IMS Business is included in our results of operations in fiscal 2016 and the portion of fiscal 2015 subsequent to its acquisition date, and is not included in fiscal 2014. The IMS Business did not have a significant effect on our consolidated results of operations in fiscals 2016 and 2015 due to the size of the business in relation to our overall consolidated results of operations.

Fiscal 2014

PuriCore International Limited

On June 30, 2014, we acquired from PuriCore plc, a publicly traded company in the United Kingdom (“UK”), all the issued and outstanding stock of its subsidiary PuriCore International Limited, a company located in the UK with pre-acquisition annual revenues (unaudited) of approximately $25,000,000 that sells automated endoscope reprocessors, endoscope drying and storage cabinets, chemistry and consumables, as well as comprehensive maintenance and validation services, primarily in the UK. The total consideration for the transaction, excluding acquisition-related costs, was $27,675,000, net of a $337,000 net asset value adjustment paid by the seller in August 2014. The PuriCore Business is included in our Endoscopy segment.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	8,982,000
Property, plant and equipment		972,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (10- year life)		11,340,000
Technology (6- year life)		1,760,000
Other (3- year life)		93,000
Non-current deferred income tax assets, net		1,924,000
Current liabilities		(10,085,000)
Other long-term liabilities		(753,000)
Net assets acquired	$	14,233,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $13,442,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Endoscopy segment. Following the acquisition, we changed the name of PuriCore to Cantel Medical (UK) Limited.

In connection with the acquisition, we acquired certain ordinary course business assets and liabilities which included a contingent guaranteed obligation to reimburse an endoscope service company for endoscope repair costs it incurs when servicing its customers’ endoscopes that are damaged by one of PuriCore’s discontinued endoscope reprocessing machine models. Although the terms of the guarantee provide for no limit to the maximum potential future payments, we have estimated the fair value of the liability on the date of the acquisition to be approximately $1,414,000, of which $693,000 was recorded in current liabilities and $721,000 was recorded in other long-term liabilities at June 30, 2014. This contingent guaranteed obligation increased goodwill on the date of the acquisition and is continually re-measured at each balance sheet date by recording changes in the fair value of the liability to general administrative expenses in our Consolidated Statements of Income, as further explained in Note 6 of the Consolidated Financial Statements. At July 31, 2016, such liability was $441,000 of which $75,000 was recorded in current liabilities and $366,000 was recorded in other long-term liabilities.

Since we are continually re-measuring the contingent guaranteed obligation at each balance sheet date and recording changes in the fair value through our Consolidated Statements of Income, we may potentially have earnings volatility in our future results of operations until the discontinued endoscope reprocessing machine model is no longer used in the marketplace.

The principal reasons for the acquisition are as follows: (i) the expansion of our product offerings with a broader range of advanced endoscope reprocessing equipment suitable for various international markets, (ii) the opportunity to sell our chemistries and other products to PuriCore’s installed base through a direct sales force, (iii) the opportunity to transition our existing UK business from a distribution model to a direct sales model, (iv) the ability to expand our footprint and infrastructure in Europe and (v) the expectation that the acquisition will be accretive to our earnings per share in fiscal 2015 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The PuriCore Business is included in our results of operations in fiscal 2016, fiscal 2015 and the portion of fiscal 2014 subsequent to its acquisition date.

Sterilator Company, Inc.

On January 7, 2014, we acquired all the issued and outstanding stock of Sterilator, a private company based in Cuba, New York that manufactures biological indicators and supplies for sterility assurance products, which are used to accurately monitor the effectiveness of sterilization processes. The total consideration for the transaction was $3,349,000, excluding transaction costs.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	1,058,000
Property, plant and equipment		521,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (11- year life)		130,000
Technology (8- year life)		510,000
Current liabilities		(321,000)
Deferred income tax liabilities		(276,000)
Net assets acquired	$	1,622,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $1,727,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Healthcare Disposables segment.

The principal reasons for this vertical acquisition were to (i) add one of our key long-standing suppliers of biological indicators to our portfolio providing a strategic benefit and cost savings to our overall sterility assurance monitoring business and (ii) strengthen our new product development and overall research and development capabilities. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The Sterilator Business is included in our results of operations in fiscal 2016, fiscal 2015 and the portion of fiscal 2014 subsequent to its acquisition date.

Jet Prep Ltd.

On November 5, 2013, we acquired all the issued and outstanding capital stock of Jet Prep, a private Israeli company that developed the Jet PrepTM Endoscopic Flushing Device, a novel single-use irrigation and aspiration catheter to improve visualization during colonoscopy procedures. The device has FDA 510(k) and CE Mark clearances and is in the beginning phase of commercialization by our global endoscopy sales force. Total consideration for the transaction, excluding transaction costs, was $5,350,000 plus preliminarily estimated contingent consideration of $2,490,000 based on a percentage of sales above a minimum threshold over a seven year period, as further explained below. The Jet Prep Acquisition is included in our Endoscopy segment.

We account for contingent consideration by recording the fair value of contingent consideration as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased contingent consideration and goodwill by $2,490,000 to record our initial estimated fair value of the contingent consideration that would be earned over the seven year period ending November 4, 2020. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the contingent consideration and recorded the changes in fair value by increasing both contingent consideration and general administrative expenses, as further explained in Note 6 of the Consolidated Financial Statements. At July 31, 2016, the estimated fair value was zero.

In connection with the acquisition, we acquired certain ordinary course business assets and liabilities as well as an obligation to repay the Israeli Government for $810,000 of seed funding that was previously granted to Jet Prep. In accordance with the seed funding agreement, the Israeli Government is entitled to a return on their investment that can range from one to nine times their total grant based upon specific conditions set forth in the seed funding agreement and applicable Israeli law, including the acceleration of payments if we transfer certain operations of the company or intellectual property outside of Israel. We account for this assumed contingent obligation to the Israeli Government by recording the fair value as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased accrued expenses by $4,000, other long-term liabilities by $1,716,000 and goodwill by $1,720,000 to record our initial estimated fair value of the assumed contingent obligation to the Israeli Government that would be earned on a percentage of sales over a forecasted period. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the assumed contingent liability and recorded the changes in fair value by increasing both other long-term liabilities and general administrative expenses, as further explained in Note 6 of the Consolidated Financial Statements. At July 31, 2016, the estimated fair value was $1,138,000, of which $12,000 was recorded in accrued expenses and $1,126,000 was recorded in other long-term liabilities.

Since we are continually re-measuring the contingent consideration liability and the assumed contingent obligation at each balance sheet date and recording changes in the respective fair values through our Consolidated Statements of Income, we may potentially have significant earnings volatility in our future results of operations until the completion of the seven year period with respect to the contingent consideration and until the assumed contingent obligation is satisfied or until sales of the Jet Prep Ltd. products no longer exist.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:


	Final
Net Assets	Allocation
Current assets	$	82,000
Property, plant and equipment		65,000
Amortizable intangible asset:
Technology (7- year life)		3,730,000
Current liabilities		(104,000)
Other long-term liabilities		(1,716,000)
Net assets acquired	$	2,057,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $5,783,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Endoscopy segment.

The principal reasons for the acquisition were (i) to address a market need for an effective technology that improves colonoscopy visualization through the use of irrigation and suction, (ii) to expand our endoscopy product portfolio further bolstering the Medivators brand in the gastrointestinal (“GI”) suite, (iii) to further expand our research and development capability by adding accomplished engineers to our existing research and development team and (iv) the expectation that the acquisition will be accretive to our earnings per share in the future. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The Jet Prep Business is included in our results of operations in fiscal 2016, fiscal 2015 and the portion of fiscal 2014 subsequent to its acquisition date. Since the full commercialization of the Jet Prep Endoscopic Flushing Device has been delayed, this acquisition has not yet generated any sales and did not have a significant impact on our results of operations, except for recording the changes in fair values of the contingent consideration liability and the assumed contingent obligation through our Consolidated Statements of Income, as further explained in Note 6 to the Consolidated Financial Statements.