Business Combinations

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

On June 13, 2022, we acquired In2Bones Global, Inc. ("In2Bones") and all of its stock (the "In2Bones Acquisition") for an aggregate upfront payment of $145.2 million in cash. In addition, there are potential earn-out payments to In2Bones’ equity holders in an amount up to $110.0 million based on the achievement of certain revenue targets for In2Bones products during the sixteen (16) successive quarters commencing on July 1, 2022. In2Bones is a global developer, manufacturer and distributor of medical devices for the treatment of disorders and injuries of the upper (hand, wrist and elbow) and lower (foot and ankle) extremities. The In2Bones Acquisition was funded through a combination of cash on hand and long-term borrowings as further described in Note 11.

On August 9, 2022, we acquired Biorez, Inc. ("Biorez") and all of its stock (the "Biorez Acquisition") for an aggregate upfront payment of $85.9 million in cash. We paid $83.1 million upon closing, with a $2.8 million purchase price adjustment holdback, pursuant to the merger agreement for the Biorez Acquisition. In addition, there are potential earn-out payments to Biorez’ equity holders in an amount up to $165.0 million based on the achievement of certain revenue targets for Biorez products during the sixteen (16) successive quarters commencing on October 1, 2022. Biorez is a medical device start-up focused on advancing the healing of soft tissue using its proprietary BioBrace® implant technology. The Biorez Acquisition was funded through a combination of cash on hand and long-term borrowings.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the In2Bones and Biorez Acquisitions that were accounted for as business combinations. The assessment of fair value is based on preliminary valuations and estimates that were available to management at the time the consolidated condensed financial statements were prepared. Accordingly, the allocation of purchase price is preliminary and therefore subject to adjustment during the measurement adjustment period.


	In2Bones		Biorez

Cash	$	445	$	742
Accounts receivable, net	5,036		318
Inventories	24,247		61
Prepaid expenses and other current assets	403		118
Current assets	30,131		1,239
Goodwill	139,816		59,176
Developed technology	37,300		176,300
Distributor relationships	27,600		—
Trademarks and tradenames	—		1,600
Other long-term assets	2,875		112
Total assets acquired	$	237,722	$	238,427

Current liabilities assumed	5,972		1,441
Deferred income taxes	16,699		36,621
Contingent consideration	69,402		114,512
Other long-term liabilities	466		—
Total liabilities assumed	$	92,539	$	152,574
Net assets acquired	$	145,183	$	85,853

The goodwill recorded as part of the In2Bones Acquisition primarily represents revenue synergies, the related cost to enter into this new product offering and the In2Bones assembled workforce. Goodwill is not deductible for tax purposes. In2Bones distributor relationships and developed technology are each being amortized over a weighted average life of 15 years.

The goodwill recorded as part of the Biorez Acquisition primarily represents revenue synergies, the related cost to enter into this new product offering and the Biorez assembled workforce. Goodwill is not deductible for tax purposes. Biorez developed technology and trademarks and tradenames are each being amortized over a weighted average life of 20 years.

The contingent consideration was recorded at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues. The recurring Level 3 fair value measurements of contingent consideration for which the liability is recorded include the following significant unobservable inputs:


	Assumptions
Unobservable Input	In2Bones	Biorez

Discount rate	5.67%	10.34%
Revenue volatility	12.75%	18.87%
Projected year of payment	2023-2026	2023-2026

We recorded $10.0 million in net sales for In2Bones products during the third quarter and a total of $12.1 million in net sales since the date of acquisition, June 13, 2022. The net sales were recorded in the consolidated condensed statements of comprehensive income (loss) for the three and nine months ended September 30, 2022, respectively. Earnings recorded in the consolidated condensed statements of comprehensive income (loss) for the three and nine months ended September 30, 2022 were not material. We also believe the proforma information is immaterial for disclosure for the three and nine months ended September 30, 2022 and 2021.

Net sales and earnings for Biorez were immaterial to both the three and nine months ended September 30, 2022. We also believe the proforma information is immaterial for disclosure for the three and nine months ended September 30, 2022 and 2021.