Business Combinations

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Business Combinations

Business Combinations

2014 Acquisition Activity

On August 22, 2014, we completed our acquisition of Surgichem, a wholly-owned subsidiary of Bupa Care Homes (CFG) Plc ("Bupa"). In exchange for all of the voting equity interests of the acquired company, we paid a total purchase price of $20.7 million in cash, net of $0.2 million of cash acquired. This acquisition will assist U.K. healthcare professionals and caregivers seeking to improve patient outcomes, reduce medication errors and lower costs by effectively managing compliance to prescribed medication regimes in their mission to extend patient health and satisfaction through convenient, effective medication adherence solutions. Surgichem is being integrated with Omnicell’s existing U.K. business, MTS, a leading supplier of medication adherence packaging solutions.

The following table presents the purchase price allocation included in our Consolidated Balance Sheets:

	(In thousands)
Cash	$	153
Accounts receivable	2,462
Inventory	2,190
Deferred tax assets and other current assets	361
Total current assets	$	5,166
Property and equipment	164
Intangibles	5,730
Goodwill	12,112
Total assets	$	23,172
Current liabilities	1,191
Long-term deferred tax liabilities	1,104
Total purchase price	$	20,877

Acquired intangible assets. The fair value of $5.4 million for acquired customer relationships was determined based on an income approach using the discounted cash flow method. The fair value of $0.3 million for the trade name was determined using the relief-from-royalty approach. Customer relationships are amortized over their estimated useful lives of 18 years and the trade name is amortized over its estimated useful life of approximately 1 year.

Goodwill. The purchase price allocation resulted in goodwill of $12.1 million, which represents sales of future products and services and the assembled workforce of Surgichem. We believe the acquisition enhances Omnicell’s offerings and diversifies its revenue mix providing a more robust product and service solution to its current customers while expanding Omnicell’s international presence. We considered these factors as supporting the amount of goodwill recorded.

The amortization of intangible assets and goodwill is not deductible for tax purposes.

We incurred approximately $1.1 million in acquisition-related costs related to the Surgichem acquisition, offset by a $0.5 million expense reimbursement from Bupa for the year ended December 31, 2014. These costs are included in selling, general and administrative expenses in our Consolidated Statement of Operations.

Surgichem generated revenue of $4.6 million and losses from operations of $0.1 million since the acquisition date for the year ended December 31, 2014. The total revenues of Surgichem were $13.3 million (including $4.6 million mentioned above) and $11.9 million for the years ended December 31, 2014 and December 31, 2013, respectively. Results of operations for Surgichem have been included as a part of our Medication Adherence segment, and supplemental pro forma results of operations for the prior periods have not been presented, as the effect of the acquisition was not material to our consolidated financial results.

2012 Acquisition Activity

On May 21, 2012, we completed our acquisition of MedPak Holdings, Inc. ("MedPak") pursuant to an Agreement and Plan of Merger ("Merger Agreement") under which Mercury Acquisition Corp, a newly formed Omnicell subsidiary, was merged with and into MedPak, with MedPak surviving the merger as a wholly-owned subsidiary of Omnicell. MedPak is the parent company of MTS, a worldwide provider of medication adherence packaging systems. Pursuant to the terms of the Merger Agreement, we paid $156.3 million in cash, net of $2.0 million cash acquired.

The objective of the acquisition was to primarily align Omnicell with the long term trends of the healthcare market to manage the health of patients across the continuum of care. Omnicell and MTS bring capabilities to each other that strengthen the product lines and expand the medication management coverage of both companies.

The following table presents the purchase price allocation included in our Consolidated Balance Sheets:

	(In thousands)
Cash	$	2,000
Accounts receivable	7,403
Inventory	11,726
Deferred tax assets and other current assets	2,894
Total current assets	$	24,023
Property and equipment	9,807
Intangible assets	83,900
Goodwill	82,800
Other long-term assets	308
Total assets	$	200,838
Current liabilities	(7,917		)
Long-term deferred tax liabilities	(33,386		)
Other long-term liabilities	(1,223		)
Total purchase price	$	158,312

Identifiable intangible assets. Acquired technology relates to MTS’ products across all of its product lines that have reached technological feasibility, primarily the OnDemand technology. Trade names are primarily related to the MTS and OnDemand brand names. Customer relationships represent existing contracted relationships with pharmacies, institutional care facilities and others. Acquired technology, customer relationships, and trade names are amortized on a straight-line basis over their estimated useful lives, which range from 12 to 30 years.

The estimated fair values of the acquired technology, trade names and customer relationships were primarily determined using either the relief-from-royalty or excess earnings methods. The interest rates utilized to discount net cash flows to their present values were determined after consideration of the overall enterprise rate of return and the relative risk and importance of the assets to the generation of future cash flows.

The historical tax bases of the acquired assets and assumed liabilities, along with the tax attributes of the MTS companies, will carry over for income tax purposes. As the transaction was a cash-for-stock transaction, there is no tax basis in the acquired intangible assets. Accordingly, the acquisition accounting includes the establishment of net deferred tax liabilities of $33.4 million, resulting from book tax basis differences related to the intangible assets acquired, as well as to the step up in the value of fixed assets and inventory to their estimated fair values at the time of acquisition.

The following represents the details of the acquired intangible assets:

	Intangible Assets Acquired		Useful Life (Years)
	(In thousands, except for years)
Trade name	$	6,800	12
Customer relationships	50,500		28 to 30
Acquired technology	26,600		20
Intangibles acquired	$	83,900

Goodwill. The purchase price allocation resulted in goodwill of $82.8 million. We believe the MTS acquisition enhances our offerings and diversifies our revenue mix, providing a more robust product and service solution to our current customers while expanding Omnicell’s international presence. We considered these factors as supporting the amount of goodwill recorded.

We incurred approximately $3.2 million in acquisition-related costs for the year ended December 31, 2013. These costs are included in selling, general and administrative expenses in our Consolidated Statement of Operations.

MTS generated revenue of $47.2 million and net income of $2.9 million since the acquisition date for the year ended December 31, 2012. Results of operations for MTS have been included as a part of our Medication Adherence segment, and supplemental pro forma results of operations for the prior periods have not been presented, as the effect of the acquisition was not material to our consolidated financial results.