Acquisitions

12 Months Ended

Dec. 31, 2019

(a)Accent

On December 23, 2019, HMS acquired West Claims Recovery Services, LLC (“Accent”), a payment accuracy and cost containment business, for aggregate consideration of cash in the amount of $158.6 million, which was funded through cash on hand. The purchase price is subject to certain post-closing purchase price adjustments and the initial purchase price allocation as of the date of acquisition was based on a preliminary valuation. Estimates and assumptions for which the Company is still obtaining or evaluating information are subject to change up to one year from the acquisition date as additional information becomes available and adjustments may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

The intangible assets are valued using various methods which require several judgments, including growth rates, discount rates, customer attrition rates, and expected levels of revenues, earnings, cash flows and tax rates. The intangible assets are amortized over their estimated useful lives on a straight-line basis. Goodwill was determined based on the difference between the purchase price and the fair values of the tangible and intangible assets acquired. Goodwill recognized from the acquisition was the result of synergies to be realized from future revenue growth. Goodwill is deductible for tax purposes, has an indefinite useful life and will be included in the Company’s annual impairment testing or between annual tests if an indicator of impairment exists.

The preliminary allocation of the purchase price to the fair value of the assets acquired and the liabilities assumed as of December 23, 2019, the effective date of the acquisition, was as follows (in thousands):


Cash and cash equivalents	$	9,400
Accounts receivable	9,188
Prepaid expenses	129
Property and equipment	2,878
Intangible assets	68,400
Goodwill	81,545
Other assets	489
Accounts payable and accrued liabilities	(13,395)


Total purchase price	$	158,634

The purchase price allocated to the intangible assets acquired was as follows (in thousands):


	Useful Life (in years)
Customer relationships	12	$	67,000

Trade name	3	1,400

Fair value of intangibles acquired		$	68,400

We incurred $2.1 million of acquisition related costs related to the Accent acquisition for the year ended December 31, 2019. The costs include consulting, legal and transaction costs, and have been recorded in selling, general and administrative expenses.

The financial results of Accent's operations since December 23, 2019 have been included in the Company’s consolidated financial statements and are not considered material for the year ended December 31, 2019.

The following table reflects the pro forma operating results for the Company which gives effect to the acquisition of Accent as if it had occurred on January 1, 2018. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of future results. The pro forma financial information includes the historical results of the Company and Accent adjusted for certain items, which are described below, and does not include the effects of any synergies or cost reduction initiatives related to the acquisition of Accent.


	Years ended December 31,
	2019		2018
	(pro forma, in thousands)
	(unaudited)
Revenue	$	675,259	$	650,203
Net income	$	92,845	$	60,011

Pro forma net income for the years ended December 31, 2019 and 2018 reflects adjustments primarily related to depreciation and amortization.

(b)VitreosHealth

On September 16, 2019, HMS acquired VitreosHealth, Inc. ("VitreosHealth"), a company that offers predictive and prescriptive health insights utilized by population risk models, for aggregate consideration of $36.6 million, which was funded with cash on hand. The purchase price was subject to certain post-closing purchase price adjustments and the initial purchase price allocation as of the date of acquisition was based on a preliminary valuation.

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the acquisition is based on estimated fair values as of September 16, 2019. The Company allocated the purchase price, net of cash acquired, to the following significant assets: intellectual property subject to amortization of $6.0 million, and goodwill of $30.2 million which represents the excess purchase price over the net identifiable tangible and intangible assets. There were no additional material allocations to assets and liabilities. The intangible assets are valued using various methods which require several judgments, including growth rates, discount rates, expected levels of revenues, earnings, cash flows and tax rates. The intangible assets are amortized over their estimated useful lives on a straight-line basis and are not expected to be deductible for tax purposes. The goodwill recognized from the

acquisition was a result of expected synergies to be realized from future revenue growth, is not expected to be deductible for tax purposes, has an indefinite useful life and will be included in the Company’s annual impairment testing.

Pro forma historical results of operations related to this business acquisition for the year ended December 31, 2018, or interim periods thereafter, and for the year ended December 31, 2019, have not been presented and are not considered material. The results of VitreosHealth's operations since September 16, 2019 have been included in the Company's consolidated financial statements and are not considered material.

(c)Eliza Holding Corp.

On April 17, 2017, the Company completed the acquisition of 100% of the outstanding capital stock of Eliza Holding Corp ("Eliza"), for a purchase price of $171.6 million funded with available liquidity of approximately 75% cash on hand and 25% from the Company’s existing credit line.

We incurred acquisition related costs of $4.5 million related to the Eliza acquisition for the year ended December 31, 2017. The costs include consulting, legal and transaction costs, and have been recorded in selling, general and administrative expenses.

The financial results of Eliza’s operations since April 17, 2017 have been included in the Company’s consolidated financial statements. Eliza contributed $52.5 million, $51.9 million and $30.4 million in revenue to HMS results of operations in the years ended December 31, 2019, 2018 and 2017, respectively.