Business Combinations

6 Months Ended

Jan. 31, 2017

Business Combinations [Abstract]

Business Combinations

3. Business Combinations

Oncura Partners Diagnostics, LLC, or Oncura

On January 8, 2016, the Company wholly acquired Oncura Partners Diagnostics, LLC, a privately held provider of remote, real-time ultrasound imaging and teleconsulting services currently focused on the veterinary medicine market. Oncura is included within the Ultrasound reportable segment. The purchase price was $20.2 million, comprised of an upfront cash payment of $8.4 million, post-closing adjustments of $0.4 million, the relief of liabilities owed to Analogic of $1.3 million, and the fair value of contingent consideration at the time of acquisition of $10.1 million. The acquisition has been accounted for as an acquisition of a business.

We finalized the purchase accounting for the Oncura acquisition during the second quarter of fiscal year 2017. The following table summarizes the purchase price allocation based on estimates of the fair values of the separately identifiable assets acquired and liabilities assumed as of the acquisition date. The fair value measurements of intangibles, property, plant and equipment, deferred revenue, and contingent consideration were based upon significant inputs not observable in the market and therefore represent fair value measurements based on Level 3 inputs, as defined in Note 7, Fair Value Measurements.

(in millions)
Cash				$	0.4
Accounts receivable					0.3
Inventory					0.2
Other assets					0.4
Property, plant, and equipment					0.4
Goodwill					16.4
Intangible assets:
Tradename (estimated useful life of 5 years)	$	1.0
Customer relationships (estimated useful life of 6 years)		3.1
Total intangible assets					4.1
Total assets acquired					22.2
Accounts payable and accrued expenses		(0.9	)
Deferred revenue		(1.1	)
Total liabilities assumed					(2.0	)
Total purchase price				$	20.2

We estimated the fair value of identifiable acquisition-related intangible assets primarily based on discounted cash flow projections that will arise from these assets. We use significant judgment with regard to assumptions used in the determination of fair value such as discount rates and the determination of the estimated useful lives of the intangible assets.

In connection with this acquisition, we recorded an acquisition date fair value contingent consideration obligation of $10.1 million within long-term contingent consideration, in the Consolidated Balance Sheets. This obligation is payable upon the achievement of certain revenue and gross margin targets over a four year period starting on May 1, 2016. There is no limit on the earnout that can be paid out. The $10.1 million fair value was estimated through a Monte Carlo valuation model that incorporates probability adjusted assumptions relating to the achievement of these targets and the likelihood of us making payments. This fair value measurement is based upon significant inputs not observable in the market and therefore represents a Level 3 input measurement. Subsequent changes in the fair value of this obligation will be recognized as adjustments to the contingent consideration liability and reflected within our Consolidated Statement of Operations within general and administrative operating expenses. During the six months ended January 31, 2017 and fiscal year 2016, the estimated fair value of our contingent consideration obligation changed by $(8.1) million and $0.1 million. The total fair value of our contingent consideration obligation was $2.1 million and $10.2 million as of January 31, 2017 and July 31, 2016. For additional information related to the fair value of this obligation, please refer to Note 7. Fair Value Measurements.

We recorded goodwill of $16.4 million related to the Oncura acquisition representing the value of the opportunities from the addition of Oncura’s product and service portfolio within the veterinary industry. The goodwill from this acquisition will be deductible for tax purposes over the statutory 15 year period.

During the three and six months ended January 31, 2017, we did not incur acquisition costs. During the three and six months ended January 31, 2016, we incurred acquisition costs of approximately $0.4 million, which consisted primarily of legal and due diligence expenses that are included in our general and administrative expenses in our Consolidated Statements of Operations.

The pro forma financial information for the three and six months ended January 31, 2017 and 2016, including revenue and net income, is immaterial, and has not been separately presented.