XML 17 R8.htm IDEA: XBRL DOCUMENT v3.22.2
Note 2 - Acquisitions
6 Months Ended
Jun. 30, 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

  395 

Cash from Advant

  (2,840)

Total consideration

 $21,163 
     

Purchase price allocation

    

Accounts receivable

 $2,299 

Inventory

  2,410 

Other current assets

  213 

Property, plant, and equipment

  5,704 

Customer contracts & relationships

  2,925 

Intellectual property

  2,127 

Non-compete agreement

  259 

Lease right of use assets

  289 

Other assets

  42 

Goodwill

  7,139 

Total identifiable assets

 $23,407 

Accounts payable

  (772)

Accrued expenses

  (668)

Income taxes

  (66)

Deferred taxes

  (449)

Lease liabilities

  (289)

Net assets acquired

 $21,163 

 

Acquisition costs associated with the transaction were approximately $779 thousand, of which $749 thousand was charged to expense in the six-months ended June 30, 2022 and $30 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal, investment banking and valuation services, as well as 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 June 30, 2022, was approximately $6.8 million and $0.7 million, respectively.

 

Pro-forma statements

 

The following table contains an unaudited pro forma condensed consolidated statement of operations for the six-month periods ended June 30, 2022 and 2021 and the three- month period ended June 30, 2021, as if the Advant acquisition had occurred at the beginning of the respective periods (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2022

  

2021

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 

Sales

 $56,203  $169,812  $110,079 

Operating Income

 $6,666  $19,302  $12,663 

Net Income

 $5,027  $14,341  $9,666 

Earnings per share:

            

Basic

 $0.67  $1.90  $1.29 

Diluted

 $0.66  $1.88  $1.28 

 

The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred had the acquisition 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 was 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. 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 $448 thousand, of which $155 thousand were charged to expense in the six months ended June 30, 2022 and $293 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 $153 thousand, of which $113 thousand were charged to expense in the six months ended June 30, 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- and six-month periods ended June 30, 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 June 30, 2021

  

Six-month Period Ended June 30, 2021

 
  

(Unaudited)

  

(Unaudited)

 

Sales

 $68,741  $132,603 

Operating income

 $8,641  $15,409 

Net income

 $7,364  $12,825 

Earnings per share:

        

Basic

 $0.98  $1.71 

Diluted

 $0.97  $1.69 

 

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.