Note 2 - Acquisitions

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

(2) Acquisitions

Advant Medical

On March 16, 2022 the Company purchased 100% of the outstanding shares of common stock of Advant Medical, Ltd., Advant Medical Inc. and Advant Medical Costa Rica, Limitada, (together Advant), pursuant to a Stock Purchase Agreement and related agreements, for an aggregate purchase price of €19.0 million in cash along with a working capital adjustment at closing (total consideration in U.S. Dollars amounted to approximately $21.2 million). The purchase price was subject to additional adjustment based upon Advant’s final working capital at closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Stock Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type.

Founded in 1993, Advant is headquartered in Galway, Ireland, with operations in Costa Rica and partner manufacturing in Mexico. Advant is a developer and manufacturer of Class I, II, and III medical devices and packaging, primarily for catheters and guide wires.

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):

Fair value of considerations transferred
Cash paid at closing	$	23,608
Other liability		457
Cash from Contech		(2,840	)
Total consideration	$	21,225
Purchase price allocation
Accounts receivable	$	2,299
Inventory		2,410
Other current assets		213
Property, plant, and equipment		6,089
Customer contracts & relationships		2,550
Intellectual property		2,127
Non-compete agreement		260
Lease right of use assets		289
Other assets		42
Goodwill		7,358
Total identifiable assets	$	23,637
Accounts payable		(772	)
Accrued expenses		(668	)
Income taxes		(66	)
Deferred taxes		(617	)
Lease liabilities		(289	)
Net assets acquired	$	21,225

Acquisition costs associated with the transaction were approximately $669 thousand, of which $639 thousand were charged to expense in the quarter ended March 31, 2022 and $30 thousand were charged to expense in the year ended December 31, 2021. These costs were primarily for legal services, valuation services and stamp duty filings and are reflected on the face of the income statement. 

The amount of revenue and earnings of Advant recognized since the acquisition date, which is included in the condensed consolidated statement of income for the period ended March 31, 2022, was approximately $824 thousand and $63 thousand, respectively.

Pro-forma statements

The following table contains an unaudited pro forma condensed consolidated statement of operations for the three-month periods ended March 31, 2022 and 2021, as if the Advant acquisition had occurred at the beginning of the respective periods (in thousands):

	Three-month Period Ended March 31,
	2022		2021
	(Unaudited)		(Unaudited)
Sales	$	75,469	$	53,876
Operating income	$	7,023	$	5,916
Net income	$	5,346	$	4,614
Earnings per share:
Basic	$	0.71	$	0.61
Diluted	$	0.70	$	0.60

The above unaudited pro forma information is presented for illustrative purposes only and may not be indica‐tive of the results of operations that would have occurred had both acquisitions occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.

DAS Medical

On December 22, 2021 the Company purchased 100% of the outstanding membership interests of DAS Medical Holdings, LLC, (DAS Medical) pursuant to a Securities Purchase Agreement, for a net purchase price of $66.7 million in cash. The purchase price is subject to adjustment based upon DAS Medical’s final working capital at closing, and the purchase price may be increased by up to $20.0 million in earn-out payments based upon the performance of the business during the four-year period following the closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities, as well as to provide for liquidated damages in the event that the Sellers’ representative fails to deliver to the Company certain audited financial statements of DAS Medical for pre-closing periods.  The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. As a result of the final working capital adjustment, the total consideration was reduced by approximately $115 thousand.

In connection with its entry into the Purchase Agreement, the Company also entered into an Agreement for the Purchase and Sale of Personal Goodwill (the “Goodwill Agreement”) with the purchase price beneficiaries.  Pursuant to the terms of the Goodwill Agreement, on December 22, 2021, the Company purchased from the beneficiaries their personal goodwill, including business relationships, trade secrets and knowledge in connection with DAS Medical’s business, for a purchase price of $20 million in cash. 

The Company has also entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners.

Founded in 2010, DAS Medical is headquartered in Atlanta, Georgia, with manufacturing in the Dominican Republic. DAS Medical is a medical device contract manufacturer specializing in the design, development and production of single-use surgical equipment covers, robotic draping systems and fluid control pouches.

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):

Cash paid at closing	$	95,000
Contingent liability (Earn-out)		5,188
Non-compete agreements		8,855
Cash from DAS		(8,316	)
Working capital adjustment		(115	)
Total consideration	$	100,612
Purchase price allocation
Accounts receivable	$	2,351
Inventory		7,570
Other current assets		68
Property, plant, and equipment		3,314
Customer contracts & relationships		36,730
Intellectual property		2,380
Non-compete agreement		4,697
Lease right of use assets		1,221
Goodwill		51,985
Total identifiable assets	$	110,316
Accounts payable		(5,238	)
Accrued expenses		(3,238	)
Deferred revenue		(7	)
Lease liabilities		(1,221	)
Net assets acquired	$	100,612

Acquisition costs associated with the transaction were approximately $356 thousand, of which $58 thousand were charged to expense in the quarter ended March 31, 2022 and $298 thousand were charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement. 

Contech Medical

On October 12, 2021 the Company purchased 100% of the outstanding shares of common stock of Contech Medical, Inc., pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of $9.5 million in cash, the assumption of a contingent liability of $0.5 million plus up to an additional $5 million in purchase price based upon the achievement of certain EBITDA targets of Contech for the 12-month period ended June 30, 2022. The purchase price was subject to adjustment based upon Contech’s working capital at closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Stock Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type.

Founded in 1987, Contech is based in Providence, Rhode Island with partner manufacturing in Costa Rica. Contech is a global leader in the design, development, and manufacture of Class III medical device packaging primarily for catheters and guide wires. The Company has leased the Providence location from a realty trust owned by the selling shareholders and affiliates. The lease is for five years with one five-year renewal option.

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value (in thousands):

Fair value of considerations transferred
Cash paid at closing	$	9,766
Contingent liability (Earn-out)		4,543
Other liability		500
Cash from Contech		(266	)
Total consideration	$	14,543
Purchase price allocation
Accounts receivable	$	2,851
Inventory		2,320
Other current assets		37
Property, plant, and equipment		1,170
Customer contracts & relationships		3,043
Intellectual property		2,247
Non-compete agreement		86
Lease right of use assets		1,523
Goodwill		4,278
Total identifiable assets	$	17,555
Accounts payable		(1,015	)
Accrued expenses		(414	)
Deferred revenue		(60	)
Lease liabilities		(1,523	)
Net assets acquired	$	14,543

Acquisition costs associated with the transaction were approximately $118 thousand, of which $78 thousand were charged to expense in the quarter ended March 31, 2022 and $40 thousand were charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement. 

Pro-forma statements

The following table contains an unaudited pro forma condensed consolidated statement of operations for the three-month period ended March 31, 2021, as if both the DAS Medical and Contech Medical acquisitions had occurred at the beginning of the period (in thousands):

	Three-month Period Ended March 31, 2021
	(Unaudited)
Sales	$	63,862
Operating income	$	6,888
Net income	$	4,739
Earnings per share:
Basic	$	0.63
Diluted	$	0.62

The above unaudited pro forma information is presented for illustrative purposes only and may not be indica‐tive of the results of operations that would have occurred had both acquisitions occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.