On July 31, 2019, the Company acquired 100% of the outstanding shares of ARGES GmbH (“ARGES”), a Wackersdorf, Germany-based manufacturer of innovative laser scanning subsystems used in industrial materials processing and medical applications, for a total purchase price of €65.5 million ($72.9 million), subject to customary working capital adjustments. The purchase price consists of €24.0 million ($26.7 million) cash paid at closing, 124,461 Novanta common shares issued at closing (with a fair market value of €9.8 million, or $10.9 million, based on the closing market price of $87.58 per share on July 30, 2019), €7.1 million ($7.9 million) estimated fair value of contingent consideration and €24.7 million ($27.4 million) deferred cash consideration which is expected to be paid on June 29, 2020. The initial cash purchase price was financed with borrowings under the Company’s revolving credit facility. The contingent consideration will be payable annually based on actual revenue achievement against certain revenue targets from August 2019 through December 2026, with the first payment due in the first quarter of 2021. The undiscounted range of contingent consideration is zero to €10.0 million. The addition of ARGES complements and expands the Company’s existing portfolio of lasers and laser beam steering solutions capabilities within the Photonics reportable segment.

On June 5, 2019, the Company acquired 100% of the outstanding stock of Med X Change, Inc. (“Med X Change”), a Bradenton, Florida-based provider of medical grade, high definition and 4K video recording and documentation solutions to OEMs in the medical market. The purchase price of $21.9 million, net of working capital adjustments, was financed with cash on hand and a $21.0 million borrowing under the Company’s revolving credit facility. The addition of Med X Change complements and broadens the range of technology capabilities within the Company’s Vision reportable segment by providing its medical OEM customers with more integrated operating room solutions.

On April 16, 2019, the Company acquired 100% of the outstanding stock of Ingenia-CAT, S.L. (“Ingenia”), a Barcelona, Spain-based provider of high-performance servo drives and control software to OEMs in the medical and advanced industrial

markets, for a total purchase price of €14.3 million ($16.2 million), net of working capital adjustments. The purchase price consists of €8.5 million ($9.6 million) cash consideration and €5.8 million ($6.6 million) estimated fair value of contingent consideration. The initial cash purchase price was financed with cash on hand and borrowings under the Company’s revolving credit facility. The contingent consideration will be payable annually based on actual revenue achievement against certain revenue targets from April 2019 through March 2022, with the first payment due in the second quarter of 2020. The undiscounted range of contingent consideration is zero to €8.0 million. The Ingenia purchase and sale agreement requires €0.8 million ($0.9 million) of the purchase price to be held back by the Company for indemnification of certain representations and warranties claims by the Company until the expiration of the holdback agreement in October 2021. The addition of Ingenia enhances the Company’s strategic position in precision motion control industry by enabling it to offer a broader range of motion control technologies and integrated solutions. Ingenia is included in the Company’s Precision Motion reportable segment.

The acquisitions of ARGES, Med X Change and Ingenia have been accounted for as business combinations. Purchase price allocation is based upon a valuation of assets acquired and liabilities assumed. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition dates. The fair values of intangible assets were based on valuation techniques with estimates and assumptions developed by management. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including revenue growth rates, customer attrition rates, royalty rates, discount rates and projected future cash flows. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

	Amount
Cash	$	3,159
Accounts receivable		1,430
Inventories		7,129
Property, plant and equipment		14,095
Intangible assets		24,713
Goodwill		43,045
Other assets		2,244
Total assets acquired		95,815
Accounts payable		2,598
Deferred tax liabilities		7,081
Other liabilities		13,207
Total liabilities assumed		22,886
Total assets acquired, net of liabilities assumed		72,929
Less: cash acquired		3,159
Total purchase price, net of cash acquired		69,770
Less: contingent consideration		7,870
Less: issuance of common shares		10,900
Less: deferred cash consideration		27,442
Initial cash purchase price, net of cash acquired	$	23,558

The purchase price allocation is preliminary pending final settlement of net working capital adjustment and the deferred purchase price.

The fair value of intangible assets for ARGES is comprised of the following (dollar amounts in thousands):

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Developed technologies	$	11,355	15 years
Customer relationships		11,800	15 years
Trademarks and trade names		1,225	10 years
Backlog		333	5 months
Total	$	24,713

Customer relationships and backlog for ARGES were valued using the multi-period excess earnings method. Developed technology and trademarks and trade names for ARGES were valued using the relief-from-royalty method.

The purchase price allocation resulted in $24.7 million of identifiable intangible assets and $43.0 million of goodwill. As the ARGES acquisition was an acquisition of outstanding common shares, none of the resulting goodwill is expected to be deductible for income tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) expected future benefits from advancing the Company’s photonic-based product roadmap through the addition of R&D capabilities from ARGES; (ii) ARGES’s ability to grow the business with existing and new customers, including leveraging the Company’s customer base; (iii) ARGES’s ability to grow the business through new product introductions; and (iv) cost improvements due to the integration of ARGES’s operations into the Company’s existing infrastructure.

The operating results of ARGES were included in the Company’s results of operations beginning on July 31, 2019. ARGES contributed revenues of $4.9 million and a loss before income taxes of $3.5 million for the year ended December 31, 2019. Loss before income taxes for the year ended December 31, 2019 included amortization of inventory fair value adjustments and purchased intangible assets of $2.2 million.

The pro forma financial information reflecting the operating results of ARGES, as if it had been acquired as of January 1, 2018, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2018.

The final purchase price for Med X Change and Ingenia is as follows (in thousands):

	Amount
Cash	$	1,000
Accounts receivable		1,739
Inventories		2,372
Property, plant and equipment		496
Intangible assets		22,376
Goodwill		13,388
Other assets		601
Total assets acquired		41,972
Accounts payable		604
Deferred tax liabilities		2,399
Other liabilities		910
Total liabilities assumed		3,913
Total assets acquired, net of liabilities assumed		38,059
Less: cash acquired		1,000
Total purchase price, net of cash acquired		37,059
Less: contingent consideration		6,569
Less: purchase price holdback		905
Net cash used for acquisition of businesses	$	29,585

The fair value of intangible assets for Med X Change and Ingenia is comprised of the following (dollar amounts in thousands):

					Weighted Average
	Estimated Fair Value				Amortization
	Med X Change		Ingenia		Period
Developed technologies	$	1,800	$	9,272	10 years
Customer relationships		9,900		565	15 years
Trademarks and trade names		300		339	9 years
Backlog		200		—	7 months
Total	$	12,200	$	10,176

Customer relationships and backlog for both Med X Change and Ingenia were valued using the multi-period excess earnings method. Developed technology for Med X Change and Ingenia were valued using the relief from royalty and multi-period excess earnings methods, respectively. Trademarks and trade names for both Med X Change and Ingenia were valued using the relief-from-royalty method.

The Company recorded an aggregate fair value of $22.4 million of identifiable intangible assets from the Med X Change and Ingenia acquisitions. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized.

The Company recorded $13.4 million of goodwill from these acquisitions. Goodwill amounting to $6.2 million from the Med X Change acquisition is expected to be fully deductible for income tax purposes. Goodwill amounting to $7.2 million from the Ingenia acquisition is not expected to be deductible for income tax purposes. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) the ability of Med X Change and Ingenia to grow the business with existing and new customers, including leveraging the Company’s customer base; (ii) their ability to grow the businesses through new product introductions; and (iii) cost improvements due to the integration of Med X Change and Ingenia operations into the Company’s existing infrastructure.

The operating results of Med X Change and Ingenia were included in the Company’s results of operations beginning on the respective acquisition dates. These acquisitions contributed revenues of $7.9 million and an income before income taxes of $0.6 million for the year ended December 31, 2019. Income before income taxes for the year ended December 31, 2019 included amortization of inventory fair value adjustments and purchased intangible assets of $1.5 million.

The pro forma financial information reflecting the operating results of Med X Change and Ingenia, as if they had been acquired as of January 1, 2018, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2018.

During the year ended December 31, 2018, the Company acquired two businesses for total cash considerations of $33.5 million, including the acquisition of Zettlex Holdings Limited ("Zettlex"). The consolidated statement of operations includes the operating results of the businesses from the dates of acquisition.

On May 1, 2018, the Company acquired 100% of the outstanding stock of Zettlex, a Cambridge, United Kingdom-based provider of inductive encoder products that provide absolute and accurate positioning, even in extreme operating environments, to OEMs in the medical and advanced industrial markets. The purchase price of £23.3 million ($32.0 million), net of working capital adjustments, was financed with cash on hand and borrowings under the Company’s revolving credit facility.

	Amount
Cash	$	3,776
Accounts receivable		2,237
Inventories		928
Property, plant and equipment		2,590
Intangible assets		14,585
Goodwill		11,790
Other assets		145
Total assets acquired		36,051

Accounts payable		509
Accrued expenses and other liabilities		1,035
Deferred tax liabilities		2,481
Total liabilities assumed		4,025
Total assets acquired, net of liabilities assumed		32,026
Less: cash acquired		3,776
Total purchase price, net of cash acquired	$	28,250

The fair value of intangible assets is comprised of the following (dollar amounts in thousands):

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Developed technologies	$	3,027	10 years
Customer relationships		9,494	15 years
Trademarks and trade names		550	10 years
Backlog		1,514	1 year
Total	$	14,585

The purchase price allocation resulted in $14.6 million of identifiable intangible assets and $11.8 million of goodwill. As the Zettlex acquisition was an acquisition of outstanding common shares, none of the resulting goodwill is deductible for income tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) Zettlex’s ability to grow its business with existing and new customers, including leveraging the Company’s customer base; and (ii) cost improvements due to the integration of Zettlex operations into the Company’s existing infrastructure.

The operating results of Zettlex were included in the Company’s results of operations beginning on May 1, 2018. Zettlex contributed revenues of $8.3 million and a loss before income taxes of $1.8 million for the year ended December 31, 2018. Loss before income taxes for the year ended December 31, 2018 included amortization of purchased intangible assets of $1.3 million and compensation expense of $4.4 million recognized under earn-out agreements. Zettlex is included in the Company’s Precision Motion reportable segment.

On July 3, 2017, the Company acquired 100% of the outstanding shares of W.O.M. World of Medicine GmbH (“WOM”), a Berlin, Germany-based provider of medical insufflators, pumps, and related disposables for OEMs in the minimally invasive surgery market, for a total purchase price of €118.1 million ($134.9 million). The acquisition was financed with a €118.0 million ($134.8 million) draw-down on the Company’s revolving credit facility.

	Amount
Cash	$	1,400
Accounts receivable		11,807
Inventories		14,549
Property, plant and equipment		21,940
Intangible assets		59,732
Goodwill		55,632
Other assets		2,660
Total assets acquired		167,720

Accounts payable		4,398
Other liabilities		8,681
Deferred tax liabilities		19,707
Total liabilities assumed		32,786
Total assets acquired, net of liabilities assumed		134,934
Less: cash acquired		1,400
Total purchase price, net of cash acquired	$	133,534

The fair value of intangible assets is comprised of the following (dollar amounts in thousands):

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Developed technologies	$	21,586	10 years
Customer relationships		35,634	12 years
Trademarks and trade names		2,284	10 years
Backlog		228	1 year
Total	$	59,732

The purchase price allocation resulted in $59.7 million of identifiable intangible assets and $55.6 million of goodwill. As the WOM acquisition was an acquisition of outstanding common shares, none of the resulting goodwill is deductible for income tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows attributable to: (i) WOM’s ability to grow its business with existing and new customers, including leveraging the Company’s customer base; and (ii) cost improvements due to expansion in scale.

The operating results of WOM were included in the Company’s results of operations beginning on July 3, 2017. WOM contributed revenues of $49.4 million and a loss before income taxes of $1.2 million for the year ended December 31, 2017. Loss before income taxes for the year ended December 31, 2017 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $6.0 million. WOM is included in the Company’s Vision reportable segment.

On January 10, 2017, the Company acquired an additional approximately 35% of the outstanding shares of Laser Quantum, a Manchester, United Kingdom-based provider of solid state continuous wave lasers, ultrafast lasers, and optical light engines to OEMs in the medical market, for £25.5 million ($31.1 million) in cash consideration. The purchase price was financed with cash on hand and a $30.0 million draw-down on the Company’s revolving credit facility. As a result of this transaction, the Company’s ownership position in Laser Quantum increased from approximately 41% to approximately 76%.

In connection with the purchase price allocation, upon gaining control over Laser Quantum, the Company recognized a nontaxable gain of $26.4 million in the consolidated statement of operations for the twelve months ended December 31, 2017. The gain represented the excess of the fair value of the Company’s previously-held equity interest in Laser Quantum over its carrying value upon gaining control.

The fair value of the approximately 41% equity interest previously held by the Company before the acquisition and the fair value of the approximately 24% noncontrolling interest held by the remaining shareholders of Laser Quantum after the acquisition were determined using a combination of the discounted cash flow method (an income approach), the guideline public company method (a market approach), and the subject company transaction method (a market approach). The subject company transaction method was based on the purchase price paid by the Company for the acquisition of the additional approximately 35% of the outstanding shares, while giving consideration to the control and/or minority nature of the subject equity interests.

	Amount
Cash	$	15,343
Accounts receivable		2,739
Inventories		6,264
Property, plant and equipment		2,286
Intangible assets		38,955
Goodwill		31,168
Other assets		717
Total fair value of assets		97,472

Accounts payable		796
Other liabilities		2,068
Deferred tax liabilities		7,337
Total fair value of liabilities		10,201
Total fair value of assets, net of fair value of liabilities		87,271
Less: fair value of equity interest previously held by Novanta		34,637
Less: fair value of noncontrolling interest		21,582
Total purchase price paid by Novanta		31,052
Less: cash acquired		15,343
Purchase price, net of cash acquired	$	15,709

The fair value of intangible assets is comprised of the following (dollar amounts in thousands):

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Developed technologies	$	15,501	15 years
Customer relationships		19,990	15 years
Trademarks and trade names		1,964	15 years
Backlog		1,500	9 months
Total	$	38,955

The purchase price allocation resulted in $39.0 million of identifiable intangible assets and $31.2 million of goodwill. As the Laser Quantum acquisition was an acquisition of outstanding common shares, none of the resulting goodwill is deductible for income tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flow potential attributable to: (i) Laser Quantum’s ability to grow its business with existing and new customers, including leveraging the Company’s broader customer base; and (ii) cost improvements due to expansion in scale.

The operating results of Laser Quantum were included in the Company’s results of operations beginning on January 10, 2017. Laser Quantum contributed revenues of $44.7 million and income before income taxes of $11.3 million for the year ended December 31, 2017. Income before income taxes for the year ended December 31, 2017 included $7.1 million of expenses associated with the amortization of inventory fair value step-up and purchased intangible assets. Laser Quantum is included in the Company’s Photonics reportable segment.

As part of the agreement to acquire the additional approximately 35% of the outstanding shares in January 2017, the Company and the remaining shareholders of Laser Quantum entered into a call and put option agreement for the purchase and sale, in 2020, of all the remaining Laser Quantum shares held by the remaining shareholders, subject to certain conditions. The purchase

price for the remaining shares would be based on the proportionate share of the noncontrolling interest in Laser Quantum’s cash on hand as of December 31, 2019 and a multiple of Laser Quantum’s EBITDA for the twelve months ending December 31, 2019, as defined in the call and put option agreement. As a result of the put option held by the remaining shareholders, the noncontrolling interest was considered a redeemable equity instrument and was presented as temporary equity on the consolidated balance sheet. The proportionate share of the net income from Laser Quantum attributable to the noncontrolling interest was reported as a reduction to the consolidated net income in the Company’s consolidated statement of operations and an increase to the carrying value of the redeemable noncontrolling interest on the consolidated balance sheet.

The Company reported the redeemable noncontrolling interest at the higher of (i) the carrying value without any redemption value adjustments or (ii) the estimated redemption value as of the end of each reporting period. The estimated redemption value was determined as of the end of the reporting period as if it were also the redemption date for the instrument. The resulting adjustments were recorded in retained earnings in shareholders’ equity and did not affect net income attributable to Novanta Inc. However, these adjustments were included in the determination of earnings per common share for the periods in which such adjustments were required (See Note 9). The Company recorded a $1.8 million reduction and a $20.2 million addition to the noncontrolling interest redemption value for the years ended December 31, 2018 and 2017, respectively.

On September 27, 2018, the Company acquired the remaining approximately 24% of the outstanding shares of Laser Quantum for an aggregate consideration of $45.1 million, consisting of $30.7 million of cash and 213,219 shares of the Company’s restricted stock. The restricted stock will become fully vested upon achievement of certain milestones included in the restricted stock agreement. Restricted stock not otherwise vested as of December 31, 2025 will be subject to forfeiture. The acquisition was accounted for as a transaction among shareholders. No gain or loss was recognized in the consolidated statements of operations for the year ended December 31, 2018.

On January 10, 2017, the Company acquired from Trimble Inc. certain assets and liabilities that constituted the business of ThingMagic, a Woburn, Massachusetts-based provider of ultra-high frequency (“UHF”) radio frequency identification (“RFID”) modules and finished RFID readers to OEMs in the medical and advanced industrial markets, for a total purchase price of $19.1 million. The acquisition was financed with cash on hand and a $12.0 million draw-down on the Company’s revolving credit facility.

	Amount
Inventories	$	1,832
Intangible assets		7,423
Goodwill		9,929
Total assets acquired		19,184

Other liabilities		95
Total liabilities assumed		95
Total purchase price	$	19,089

The fair value of intangible assets is comprised of the following (dollar amounts in thousands):

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Developed technologies	$	4,600	10 years
Customer relationships		2,520	10 years
Trademarks and trade names		303	5 years
Total	$	7,423

The purchase price allocation resulted in $7.4 million of identifiable intangible assets and $9.9 million of goodwill. As the ThingMagic acquisition was treated as an acquisition of assets for income tax purposes, the goodwill acquired is fully deductible for income tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) ThingMagic’s ability to grow its business with existing and new customers, including leveraging the Company’s customer base; (ii) cost synergies in combining the research and development capabilities from ThingMagic with the existing RFID capabilities within Novanta; and (iii) cost improvements due to the integration of ThingMagic operations into the Company’s existing infrastructure.

The operating results of ThingMagic were included in the Company’s results of operations beginning on January 10, 2017. ThingMagic contributed revenues of $8.6 million and income before income taxes of $0.4 million for the year ended December 31, 2017. Income before income taxes for the year ended December 31, 2017 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $1.5 million. ThingMagic is included in the Company’s Vision reportable segment.

The unaudited pro forma information presented below includes the effects of business combination accounting resulting from the acquisitions of WOM and Laser Quantum, including amortization of intangible assets, interest expense on borrowings in connection with the acquisitions, and elimination of the gain from the Laser Quantum acquisition and income from the Company’s previous equity method investment in Laser Quantum, and the related tax effects, as though the acquisitions had been consummated as of January 1, 2016. The unaudited pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisitions had taken place on January 1, 2017.



	Year Ended December 31, 2017
Revenue	$	562,818
Consolidated net income	$	39,630
Earnings per share attributable to Novanta Inc. - Basic (1)	$	0.49
Earnings per share attributable to Novanta Inc. - Diluted (1)	$	0.49

Pro forma earnings for the year ended December 31, 2017 were adjusted to exclude non-recurring items such as amortization of inventory fair value adjustments of $4.4 million, acquisition related costs of $4.3 million, the gain on business acquisition of $26.4 million and income from equity method investment of $0.1 million. Pro forma earnings for the year ended December 31, 2017 were adjusted to include an increase in amortization of intangible assets of $5.3 million and an increase in interest expense of $1.4 million associated with borrowings under the Company’s revolving credit facility used to fund the acquisitions.

The Company recognized acquisition costs of $1.6 million, $1.1 million and $4.4 million in the years ended December 31, 2019, 2018 and 2017, respectively, related to the acquisitions that occurred during these years. These costs consisted of finders’ fees, legal, valuation and other professional or consulting fees. These amounts were included in restructuring and acquisition related costs in the consolidated statements of operations.