Business Combinations and Asset Purchases

12 Months Ended

Jan. 03, 2021

Business Combinations and Asset Purchases

Business Combinations

Acquisitions in fiscal year 2020

During the fiscal year 2020, the Company completed the acquisition of four businesses for aggregate consideration of $438.7 million. The acquired businesses include Horizon Discovery Group plc (“Horizon”), a company based in Cambridge, UK with approximately 400 employees, which was acquired on December 23, 2020 for a total consideration of $399.4 million (£296.0 million), and three other businesses which were acquired for a total consideration of $39.3 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments, as applicable, from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names, customer relationships and IPR&D, acquired as part of these acquisitions had a weighted average amortization period of 11.0 years.

The total purchase price for the acquisitions in fiscal year 2020 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:


	Preliminary
	Horizon		Other
	(In thousands)
Fair value of business combination:
Cash payments	$	399,005	$	38,243
Other liability	396		1,263

Working capital and other adjustments	—		(176)
Less: cash acquired	(25,539)		(1,300)
Total	$	373,862	$	38,030
Identifiable assets acquired and liabilities assumed:
Current assets	$	29,762	$	5,770
Property, plant and equipment	17,729		2,673
Other assets	17,743		371
Identifiable intangible assets:
Core technology	60,000		5,730
Trade names	4,900		680

Customer relationships	96,600		10,923
IPR&D	10,800		—
Goodwill	200,745		16,224
Deferred taxes	(22,480)		(1,132)
Deferred revenue	(2,031)		—
Debt assumed	—		(29)
Liabilities assumed	(39,906)		(3,180)
Total	$	373,862	$	38,030

Acquisitions in fiscal year 2019

During the fiscal year 2019, the Company completed the acquisition of five businesses for aggregate consideration of $433.1 million. The acquired businesses include Cisbio Bioassays SAS (“Cisbio”), a company based in Codolet, France, which was acquired for a total consideration of $219.9 million, Shandong Meizheng Bio-Tech Co., Ltd. ("Meizheng Group"), a company headquartered in Beijing, China, for a total consideration of $166.5 million, and three other businesses which were acquired for a total consideration of $46.6 million. The Company has a potential obligation to pay the former shareholders of certain of these acquired businesses additional contingent consideration of up to $31.8 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments, as applicable, from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.0 years.

The total purchase price for the acquisitions in fiscal year 2019 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:


	Cisbio		Meizheng Group		Other
	(In thousands)
Fair value of business combination:
Cash payments	$	219,795	$	145,000	$	45,042
Other liability	—		6,446		638
Contingent consideration	—		12,100		634
Working capital and other adjustments	138		2,961		302
Less: cash acquired	(12,542)		(2,108)		(1,334)
Total	$	207,391	$	164,399	$	45,282
Identifiable assets acquired and liabilities assumed:
Current assets	$	43,554	$	15,077	$	4,125
Property, plant and equipment	4,835		6,278		727
Other assets	100		24		502
Identifiable intangible assets:
Core technology	89,000		36,600		27,667
Trade names	5,000		4,900		1,310

Customer relationships	39,000		55,800		6,700

Goodwill	73,417		78,612		17,079
Deferred taxes	(34,962)		(21,548)		(6,603)

Debt assumed	—		(706)		(2,698)
Liabilities assumed	(12,553)		(10,638)		(3,527)
Total	$	207,391	$	164,399	$	45,282

Acquisitions in fiscal year 2018

During fiscal year 2018, the Company completed the acquisition of four businesses for aggregate consideration of $105.8 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.2 years.

The total purchase price for the acquisitions in fiscal year 2018 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:


	(In thousands)
Fair value of business combination:
Cash payments	$	95,950
Other liability	3,354
Contingent consideration	6,200
Working capital and other adjustments	261
Less: cash acquired	(1,132)
Total	$	104,633
Identifiable assets acquired and liabilities assumed:
Current assets	$	4,905
Property, plant and equipment	1,166
Other assets	776
Identifiable intangible assets:
Core technology	31,956
Trade names	1,070
GC Libraries	2,065

Customer relationships	10,200

Goodwill	65,886
Deferred taxes	(9,049)

Debt assumed	(461)
Liabilities assumed	(3,881)
Total	$	104,633

The Company does not consider the acquisitions completed during fiscal years 2020, 2019 and 2018 to be material to its consolidated results of operations; therefore, the Company is not presenting pro forma financial information of operations for these acquisitions. The aggregate revenue and the results of operations for the acquisitions completed during fiscal year 2020 for the period from their acquisition dates to January 3, 2021 were not material. The aggregate revenue and the results of operations for the acquisitions completed during fiscal year 2019 for the period from their acquisition dates to December 29, 2019 were not material. The aggregate revenue for the acquisitions completed during fiscal year 2018 for the period from their acquisition dates to December 30, 2018 were not material. The Company has also determined that the presentation of the results of operations for each of those acquisitions, from the date of acquisition, is impracticable due to the integration of the operations upon acquisition.

As of January 3, 2021, the allocations of purchase prices for acquisitions completed in fiscal years 2019 and 2018 were final. The preliminary allocations of the purchase prices for acquisitions completed in fiscal year 2020 were based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.

During fiscal year 2020, the Company obtained information relevant to determining the fair values of certain tangible and intangible assets acquired, and liabilities assumed, related to recent acquisitions and adjusted its purchase price allocations. Based on this information, the Company recognized an increase in intangible assets of $1.9 million, an increase in deferred tax liabilities of $0.4 million, a decrease in goodwill of $1.8 million, and a decrease in liabilities assumed of $0.4 million.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period.

As of January 3, 2021, the Company may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $7.3 million. As of January 3, 2021, the Company has recorded contingent consideration obligations of $3.0 million, of which $2.9 million was recorded in accrued expenses and other current liabilities, and $0.1 million was recorded in long-term liabilities. As of December 29, 2019, the Company has recorded contingent consideration obligations of $35.5 million, of which $20.8 million was recorded in accrued expenses and other current liabilities, and $14.7 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 2.9 years from January 3, 2021, and the remaining weighted average expected earnout period at January 3, 2021 was 1.9 years. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.

In connection with the purchase price allocations for acquisitions, the Company estimates the fair value of deferred revenue assumed with its acquisitions. The estimated fair value of deferred revenue is determined by the legal performance obligation at the date of acquisition, and is generally based on the nature of the activities to be performed and the related costs to be incurred after the acquisition date. The fair value of an assumed liability related to deferred revenue is estimated based on the current market cost of fulfilling the obligation, plus a normal profit margin thereon. The estimated costs to fulfill the deferred revenue are based on the historical direct costs related to providing the services. The Company does not include any costs associated with selling effort, research and development, or the related margins on these costs. In most acquisitions, profit associated with selling effort is excluded because the acquired businesses would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating income approximates, in theory, the amount that the Company would be required to pay a third-party to assume the obligation.

Total acquisition and divestiture-related costs for fiscal years 2020 and 2019 were $9.3 million and $6.6 million, respectively. These amounts included $4.7 million of incentive award associated with the Company's acquisition of Meizheng Group for fiscal year 2020, and $0.5 million of compensation expense related to Tulip Diagnostics Private Limited ("Tulip") and $2.6 million of net foreign exchange loss related mainly to the Company's acquisition of Cisbio for fiscal year 2019. Acquisition-related interest expenses was $0.5 million in fiscal year 2020. These acquisition and divestiture-related costs were expensed as incurred and recorded in selling, general and administrative expenses and interest and other expense, net in the Company's consolidated statements of operations.