Acquisitions

12 Months Ended

Sep. 30, 2020

Business Combinations

Acquisitions

Assets acquired and liabilities assumed in a business combination are recorded at their estimated fair values on the date of acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill on the balance sheet if the purchase price exceeds the estimated net fair value or as a bargain purchase gain on the income statement if the purchase price is less than the estimated net fair value. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed.

During fiscal 2020 and 2019, we acquired the following companies:


Fiscal Year	Company Name	Description of the Business	Description of the Acquisition
2020	Excel Medical	Clinical communications software company located in the United States	Purchased all of the outstanding equity interest.
2020	Connecta	Clinical communications software company based in Mexico.	Purchased the multiplatform medical device integration and connectivity software programs, products, and solutions of the company.
2020	Videomed 1	Developer of integrated video solutions in operating rooms located in Italy.	Purchased all of the outstanding equity interest.
2019	Voalte	Clinical communications software company located in the United States.	Purchased all of the outstanding equity interest.
2019	Breathe	Developer and manufacturer of a patented wearable, non-invasive ventilation technology that supports improved patient mobility, which is located in the United States.	Purchased all of the outstanding equity interest.
1 On July 21, 2020, we acquired the remaining 74% outstanding equity interest in Videomed for total aggregate consideration of $10.7 million. As a result of the transaction, the previously held 26% equity investment was adjusted to reflect the fair value as of the acquisition date and a gain of $3.0 million was recognized in Investment income (expense) and other, net for the fiscal year ended September 30, 2020. The fair value of the previously held equity investment was estimated using the discounted cash flow method of the income approach that incorporated a discount for the lack of marketability.

The following tables summarize additional details for each acquisition that closed during the fiscal years ended September 30, 2020 and 2019:


	Company Name
	Excel Medical		Connecta		Videomed
Acquisition Details:
Date of acquisition	January 10, 2020		May 18, 2020		July 21, 2020

Cash paid	$	13.1	$	7.5	$	7.8
Contingent consideration 1	6.1		0.2		2.9
Total consideration 2	$	19.2	$	7.7	$	10.7

Contingent consideration payable up to: 3	$	15.0	$	4.0	$	3.7

Segment information:	Patient Support Systems		Front Line Care		Surgical Solutions

The following summarizes the fair value of assets acquired and liabilities assumed for each fiscal 2020 acquisition: 4

Trade accounts receivable	$	0.6	$	—	$	2.5
Inventories	0.2		—		0.9
Other current assets	0.1		—		0.2
Goodwill 5	10.5		4.8		10.0
Developed technology 6	10.9		2.9		4.4
Other assets	0.1		—		0.6
Trade accounts payable	—		—		(1.2)
Deferred revenue	(2.7)		—		(0.2)
Other current liabilities	(0.5)		—		(1.1)
Other long-term liabilities	—		—		(2.4)
Fair value of assets acquired and liabilities assumed	19.2		7.7		13.7
Less: Fair value adjustment of previously held investment	—		—		(3.0)
Total purchase price, net of cash acquired	$	19.2	$	7.7	$	10.7


Acquisition costs for the fiscal year ended September 30, 2020:
Acquisition and integration costs recognized in Selling and administrative expenses	$	2.2	$	0.3	$	0.4

1 This amount represents the fair value of the contingent consideration on the acquisition date. For Excel Medical, contingent consideration also includes $1.6 million, which was withheld at the close of the transaction and is payable upon completion of a supply contract modification. As of September 30, 2020, we recognized $1.4 million of acquisition and integration costs for the fair value adjustment of the Excel Medical contingent consideration. The fair value adjustments related to Connecta and Videomed contingent consideration were not significant as of September 30, 2020.
2 The purchase price for fiscal 2020 acquisitions are subject to post-closing adjustments.
3 The contingent consideration will be payable if commercial milestones defined in the sale and purchase agreements are achieved within the specified time period following the date of acquisition. For Excel Medical, Connecta and Videomed, the specified time periods are 2 years, 3.5 years and 2 years, respectively.
4 The fair values of assets acquired and liabilities assumed are still considered to be preliminary. The values reflect net working capital and fair value adjustments as of the fiscal year ended September 30, 2020. We do not expect further adjustments to be significant.
5 Goodwill recognized in our acquisitions is attributable to the following: žExcel Medical - Accelerating our leadership in care communications platform and advancing our digital and mobile communications platform and capabilities. žConnecta - Advancing connected care in Mexico as well as creating lower cost opportunities to expand to other emerging markets. žVideomed - Expanding our operating room integration platform and our market leadership in advancing connected care. Goodwill in connection with the Excel Medical and Connecta acquisitions is deductible for tax purposes in the United States. Goodwill for the Videomed acquisition is not deductible for tax purposes in Italy.
6 Useful lives for the acquired developed technology intangible assets range from 5 years to 10 years.


	Company Name
	Voalte		Breathe
Acquisition Details:
Date of acquisition	April 1, 2019		September 3, 2019
Cash paid	$	175.8	$	127.6
Contingent consideration	5.2		—
Total consideration 1	$	181.0	$	127.6

Contingent consideration payable up to: 2	$	15.0	$	—

Segment information:	Patient Support Systems		Front Line Care

The following summarizes the fair value of assets acquired and liabilities assumed for each fiscal 2019 acquisition:

Trade accounts receivable	$	5.8	$	0.3
Inventories	0.1		5.7
Other current assets	2.7		0.1
Property, plant and equipment	0.2		2.1
Goodwill 3	98.5		59.8
Non-competition agreements 4	2.7		—
Trade name 4	13.5		4.0
Customer relationships 4	29.0		0.4
Developed technology 4	55.0		56.0
Other assets	—		0.2
Trade accounts payable	(1.7)		(0.5)
Deferred revenue	(10.7)		—
Other current liabilities	(4.3)		(1.6)
Deferred income taxes	(9.8)		1.9
Other long-term liabilities	—		(0.8)
Total purchase price, net of cash acquired	$	181.0	$	127.6


Acquisition costs for the fiscal year ended September 30, 2020:
Acquisition and integration costs recognized in Selling and administrative expenses 5	$	(8.4)	$	2.5
Acquisition and integration costs recognized in Special charges	—		3.1

Acquisition costs for the fiscal year ended September 30, 2019:
Acquisition and integration costs recognized in Selling and administrative expenses 5	$	12.1	$	6.4
Acquisition and integration costs recognized in Special charges	—		1.7

1 The purchase price for fiscal 2019 acquisitions are considered final.
2 Contingent consideration was not paid as the commercial milestones were not met within 1 year of the acquisition date.
3 Goodwill recognized in our acquisitions is attributable to the following: žVoalte - Enhancing synergies, accelerating our leadership in care communications platform and advancing our digital and mobile communications platform and capabilities. žBreathe - Enhancing synergies and accelerating our leadership in respiratory health products. Goodwill associated with the acquisitions of Voalte and Breathe is not deductible for tax purposes in the United States.
4 The intangible asset useful lives for non-competition agreements, trade name, customer relationships and developed technology range from 2 years to 11 years.
5 Acquisition and integration costs recognized for Voalte during fiscal 2020 and fiscal 2019 include $(8.4) million and $3.2 million related to fair value adjustments to contingent consideration. Hillrom did not pay any contingent consideration as the commercial milestones were not met within 1 year of the acquisition date.

Asset Acquisition

On October 1, 2018, we acquired the right to use patented technology and certain related assets from a supplier to our Front Line Care segment. We paid $17.1 million of cash and committed to guaranteed minimum future royalty payments of $22.0 million, which are presented in Other intangible assets and software, net and are being amortized over the 7-year term of the agreement.

Dispositions

On August 2, 2019, we completed a disposition to sell certain of our surgical consumable products and related assets for a purchase price of $166.6 million, which is net of cash and working capital adjustments. In fiscal 2019, we recorded a pre-tax loss on this disposition of $15.9 million, including transaction costs of $4.0 million, in Investment income (expense) and other, net. During the fiscal year ended September 30, 2020, we recorded an additional loss of $4.2 million related to this transaction primarily due to income taxes. This disposition did not have a significant effect on our operations or financial results, and, therefore, has not been reported as a discontinued operation.

In fiscal 2018, we conveyed certain net assets related to our third-party rental business that was part of our Patient Support Systems segment, which was comprised of purchased moveable medical equipment that could be rented to customers, to Universal Hospital Services, Inc. (“UHS”) in exchange for UHS’s agreement to dismiss its previously disclosed litigation against us (“Settlement Agreement”). As a result, we recorded a loss of $24.5 million in Special charges, which included $20.9 million related to the non-cash loss reserve for the assets conveyed, and other Settlement Agreement related costs of approximately $3.6 million. The transaction closed in fiscal 2018.