On June 23, 2016, the Company entered into an agreement to acquire Adesis, Inc., a privately held contract research organization (CRO) with then 43 employees specializing in organic and organometallic synthetic research, development, and commercialization. Adesis is a technology vendor to companies in the pharmaceutical, fine chemical, biomaterials, and catalyst industries, and had worked with the Company prior to the acquisition to help advance and accelerate a number of the Company’s product offerings. The transaction closed on July 11, 2016. Under the terms of the agreement, the Company’s subsidiary, UDC, Inc., acquired all outstanding shares of Adesis in a merger for $33.9 million in cash, and up to an additional $2.4 million in cash contingent upon Adesis’ achievement of certain milestones within two years of the acquisition. The acquisition was funded through use of existing cash and investments.

The Company accounted for Adesis using the acquisition method of accounting in accordance with applicable GAAP whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The contingent consideration arrangement required the Company to pay up to $1.2 million of additional consideration to the former shareholders of Adesis if revenues exceeded certain threshold levels at the end of each twelve-month period ended December 31, 2016 and December 31, 2017. For both of the years ended December 31, 2017 and 2016, the additional cash consideration earned by the former shareholders of Adesis was $1.2 million. The fair value of the contingent consideration was derived using a Monte Carlo simulation model based on management’s projections of future revenue levels. The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Cash consideration	$	33,872
Contingent consideration		1,670
	$	35,542
Allocation of purchase price:
Current assets, including cash of $492	$	2,204
Property and equipment		1,869
Accounts payable and accrued liabilities		(906	)
Net tangible assets		3,167
Identifiable intangible assets		16,840
Goodwill		15,535
Total purchase price	$	35,542

The purchase price exceeded the fair value of the net tangible assets and identifiable intangible assets acquired and, as a result, the Company recorded goodwill in connection with this transaction. This difference includes a going concern element that represents the Company’s ability to earn a higher rate of return on this group of assets than would be expected on the separate assets as determined during the valuation process.

Transaction costs of $360,000 were recorded and charged to selling, general and administrative expense on the accompanying consolidated statements of income during 2016.

The following table presents the intangible assets identified in the transaction:

Category	Estimated fair value (in thousands)		Estimated useful life (in years)
Customer relationships	$	10,520		11.5
Developed IP, processes and recipes		4,820		15.0
Trade name/Trademarks		1,500		10.0
Total identifiable intangible assets	$	16,840

The fair value of the customer relationships asset was determined using the income approach through an excess earnings analysis which estimates value based on the present value of future economic benefits. The customer relationships intangible asset represents relationships between Adesis and its customers. The fair value of the internally-developed IP, processes and recipes was determined by utilizing the relief-from-royalty methodology. The fair value of the Adesis trade name asset was determined using the income approach through a relief-from-royalty analysis. The determination of useful lives was based upon consideration of market participant assumptions and transaction specific factors.

The results of Adesis’ operations have been included in the Company’s consolidated financial statements since the July 11, 2016 date of acquisition. The following unaudited pro forma information assumes the acquisition of Adesis occurred at the beginning of the respective periods presented (in thousands):

	2016
Revenue	$	202,547
Net income		44,718

The unaudited pro forma information presented is for illustrative purposes only and does not reflect future events that may occur after December 31, 2018, or any operating efficiencies or inefficiencies that may result from the Adesis acquisition. Additionally, this unaudited pro forma information includes certain one-time costs associated with the Company’s integration of the acquired Adesis operations. Therefore, the information is not necessarily indicative of the results that would have been achieved had the business been combined during the periods presented or the results that the Company will experience going forward.