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BUSINESS COMBINATIONS

6 Months Ended

Jun. 26, 2021

Business Combination and Asset Acquisition [Abstract]

Vigene Biosciences, Inc.

On June 28, 2021 (third fiscal quarter of 2021), the Company acquired Vigene Biosciences, Inc. (Vigene), a gene therapy contract development and manufacturing organization (CDMO), providing viral vector-based gene delivery solutions. The acquisition enables clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner. The preliminary purchase price of Vigene was $292.5 million in cash, subject to customary closing adjustments, with additional contingent payments of up to $57.5 million based on future performance. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business will be reported as part of the Company’s Manufacturing reportable segment. Due to the limited time between the acquisition date and the filling of this Quarterly Report on Form 10-Q, it is not practicable for the Company to disclose the preliminary allocation of the purchase price to assets acquired and liabilities assumed. The Company incurred transaction and integration costs in connection with the acquisition of $2.5 million for both the three and six months ended June 26, 2021, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of

income.

Retrogenix Limited

On March 30, 2021 (second fiscal quarter of 2021), the Company acquired Retrogenix Limited (Retrogenix), an early-stage contract research organization providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances the Company’s scientific expertise with additional large molecule and cell therapy discovery capabilities. The preliminary purchase price of Retrogenix was $53.1 million, net of $8.5 million in cash, subject to certain post-closing adjustments that may change the purchase price. Included in the preliminary purchase price are additional contingent payments fair valued at $6.9 million, which is the maximum potential payout, and is based on a probability-weighted approach. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

The preliminary purchase price allocation of $53.1 million, net of $8.5 million of cash acquired was as follows:


	March 30, 2021
	(in thousands)
Trade receivables	$	2,266
Other current assets (excluding cash)	209
Property, plant and equipment	400
Goodwill	33,625
Definite-lived intangible assets	22,126
Other long-term assets	1,385
Current liabilities	(1,569)
Deferred tax liabilities	(4,174)
Other long-term liabilities	(1,205)
Total purchase price allocation	$	53,063

The preliminary purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

The breakout of definite-lived intangible assets acquired was as follows:


	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	17,340	13
Developed technology	3,685		3
Other intangible assets	1,101		2
Total definite-lived intangible assets	$	22,126	11

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA business from new customers introduced to Retrogenix and the assembled workforce of the acquired business. The goodwill attributable to Retrogenix is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $0.9 million and $1.7 million for the three and six months ended June 26, 2021, respectively, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Retrogenix’s financial results are not significant when compared to the Company’s consolidated financial results.

Cognate BioServices, Inc.

On March 29, 2021 (second fiscal quarter of 2021), the Company acquired Cognate BioServices, Inc. (Cognate), a cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate establishes the Company as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The preliminary purchase price of Cognate was $876.1 million, net of $70.5 million in cash, subject to certain post-closing adjustments and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired, which will be redeemed in 2022 with the ultimate payout tied to performance in 2021. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility and recently issued Senior Notes. This business is reported as part of the Company’s Manufacturing reportable segment.

The preliminary purchase price allocation of $876.1 million, net of $70.5 million of cash acquired was as follows:


	March 29, 2021
	(in thousands)
Trade receivables	$	16,564
Inventories	4,231
Other current assets (excluding cash)	9,840
Property, plant and equipment	52,082
Operating lease right-of-use assets, net	34,349
Goodwill	603,379
Definite-lived intangible assets	266,700
Other long-term assets	6,098
Deferred revenue	(18,582)
Current liabilities	(32,517)
Operating lease right-of-use liabilities	(31,383)
Deferred tax liabilities	(34,256)
Other long-term liabilities	(414)
Total purchase price allocation	$	876,091

The breakout of definite-lived intangible assets acquired was as follows:


	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	252,900	14
Other intangible assets	4,900		2
Backlog	8,900		1
Total definite-lived intangible assets	$	266,700	13

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s Manufacturing business from new customers introduced to Cognate and the assembled workforce of the acquired business. The goodwill attributable to Cognate is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $11.2 million and $18.4 million for the three and six months ended June 26, 2021, respectively, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Beginning on March 29, 2021, Cognate has been included in the operating results of the Company. Cognate revenue and operating income during the three months ended June 26, 2021 was $34.8 million and $1.1 million, respectively.

The following selected unaudited pro forma consolidated results of operations are presented as if the Cognate acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 29, 2019, after

giving effect to certain adjustments. For the six months ended June 26, 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $9.5 million, additional interest expense on borrowing of $2.2 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. For the six months ended June 27, 2020, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $10.2 million, additional interest expense on borrowing of $4.1 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.


	Three Months Ended				Six Months Ended
	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
	(in thousands)
	(unaudited)
Revenue	$	914,607	$	706,250	$	1,767,096	$	1,434,708
Net income attributable to common shareholders	96,365		74,408		138,712		85,249

These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition.

Distributed Bio, Inc.

On December 31, 2020, the Company acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The preliminary purchase price of Distributed Bio was $97.0 million, net of $0.8 million in cash, subject to certain post-closing adjustments that may change the purchase price. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously invested by the Company during prior fiscal years, and $14.0 million of contingent consideration, which is estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $21.0 million based on future performance and milestone achievements over a one-year period). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment.

The preliminary purchase price allocation of $97.0 million, net of $0.8 million of cash acquired was as follows:


	December 31, 2020
	(in thousands)
Trade receivables	$	2,722
Other current assets (excluding cash)	221
Property, plant and equipment	2,382
Goodwill	71,585
Definite-lived intangible assets	24,540
Other long-term assets	2,055
Current liabilities	(2,823)
Deferred tax liabilities	(2,529)
Other long-term liabilities	(1,123)
Total purchase price allocation	$	97,030

The breakout of definite-lived intangible assets acquired was as follows:


	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	16,080	9
Developed technology	3,940		5
Other intangible assets	4,520		4
Total definite-lived intangible assets	$	24,540	7

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s DSA business from new customers introduced to Distributed Bio and the assembled workforce of the acquired business. The goodwill attributable to Distributed Bio is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $0.2 million and $0.9 million for the three and six months ended June 26, 2021, respectively, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Distributed Bio's financial results are not significant when compared to the Company’s consolidated financial results.

Cellero, LLC

On August 6, 2020, the Company acquired Cellero, LLC (Cellero), a provider of cellular products for cell therapy developers and manufacturers worldwide. The addition of Cellero enhances the Company’s unique, comprehensive solutions for the high-growth cell therapy market, strengthening the ability to help accelerate clients’ critical programs from basic research and proof-of-concept to regulatory approval and commercialization. It also expands the Company’s access to high-quality, human-derived biomaterials with Cellero’s donor sites in the United States. The purchase price for Cellero of $36.9 million, net of $0.5 million in cash, was funded through available cash. This business is reported as part of the Company’s RMS reportable segment.

The purchase price allocation of $36.9 million, net of $0.5 million of cash acquired was as follows:


	August 6, 2020
	(in thousands)
Trade receivables	$	1,500
Inventories	551
Other current assets (excluding cash)	182
Property, plant and equipment	1,648
Goodwill	19,457
Definite-lived intangible assets	16,230
Other long-term assets	849
Current liabilities	(1,360)
Deferred tax liabilities	(1,467)
Other long-term liabilities	(740)
Total purchase price allocation	$	36,850

From the date of the acquisition through June 26, 2021, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The breakout of definite-lived intangible assets acquired was as follows:


	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	14,740	13
Other intangible assets	1,490		3
Total definite-lived intangible assets	$	16,230	12

The goodwill resulting from the transaction, $10.8 million of which is deductible for tax purposes due to a prior asset acquisition, is primarily attributable to the potential growth of the Company’s RMS business from customers introduced through Cellero and the assembled workforce of the acquired business.

The Company incurred integration costs in connection with the acquisition of $0.2 million and $0.6 million for the three and six months ended June 26, 2021, respectively, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

Pro forma financial information as well as the disclosure of actual revenue and operating income (loss) have not been included because Cellero's financial results are not significant when compared to the Company’s consolidated financial results.

HemaCare Corporation

On January 3, 2020, the Company acquired HemaCare Corporation (HemaCare), a business specializing in the production of human-derived cellular products for the cell therapy market. The acquisition of HemaCare expands the Company’s comprehensive portfolio of early-stage research and manufacturing support solutions to encompass the production and customization of high-quality, human derived cellular products to better support clients’ cell therapy programs. The purchase price of HemaCare was $376.7 million, net of $3.1 million in cash, which was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s RMS reportable segment.

The purchase price allocation of $376.7 million, net of $3.1 million of cash acquired was as follows:


	January 3, 2020
	(in thousands)
Trade receivables	$	6,451
Inventories	8,468
Other current assets (excluding cash)	3,494
Property, plant and equipment	10,033
Goodwill	210,196
Definite-lived intangible assets	183,540
Other long-term assets	5,920
Current liabilities	(5,188)
Deferred tax liabilities	(38,529)
Other long-term liabilities	(7,664)
Total purchase price allocation	$	376,721

From the date of the acquisition through December 26, 2020, the Company recorded measurement-period adjustments related to the acquisition that resulted in an immaterial change to the purchase price allocation on a consolidated basis. No further adjustments will be made to the purchase price allocation.

The breakout of definite-lived intangible assets acquired was as follows:


	Definite-Lived Intangible Assets		Weighted Average Amortization Life
	(in thousands)		(in years)
Client relationships	$	170,390	19
Trade name	7,330		10
Other intangible assets	5,820		3
Total definite-lived intangible assets	$	183,540	18

The goodwill resulting from the transaction is primarily attributable to the potential growth of the Company’s RMS business from customers introduced through HemaCare and the assembled workforce of the acquired business. The goodwill attributable to HemaCare is not deductible for tax purposes.

The Company incurred transaction and integration costs in connection with the acquisition of $0.3 million and $0.1 million for the three months ended June 26, 2021 and June 27, 2020, respectively, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income. The Company incurred transaction and integration costs in connection with the acquisition of $0.4 million and $5.8 million for the six months ended June 26, 2021 and June 27, 2020, respectively, which were included in Selling, general and administrative expenses within the unaudited condensed consolidated statements of income.

The following selected unaudited pro forma consolidated results of operations are presented as if the HemaCare acquisition had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 30, 2018, after giving effect to certain adjustments. For the six months ended June 27, 2020, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $0.4 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments.


	June 27, 2020
	Three Months Ended		Six Months Ended
	(unaudited)		(unaudited)
Revenue	$	682,584	$	1,389,661
Net income attributable to common shareholders	67,383		123,088

Other Acquisition

On March 3, 2021, the Company acquired certain assets from a distributor that supports the Company’s DSA reportable segment. The preliminary purchase price was $35.4 million, which includes $19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), and $15.9 million of contingent consideration, which is estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $17.5 million based on future performance over a three-year period). The fair value of the net assets acquired included $17.3 million of goodwill, $15.2 million attributed to supplier relationships (to be amortized over a 4-year period), and $3.0 million of property, plant, and equipment. The business is reported as part of the Company’s DSA reportable segment. Pro forma information and transaction and integration costs have not been presented because such information is not material to the financial statements.