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Business Combination
9 Months Ended
Sep. 30, 2016
Business Combinations [Abstract]  
Business Combination

5. BUSINESS COMBINATION

On April 14, 2016, the Company acquired 98.3% of the outstanding common stock of Allenex. Allenex is a transplant diagnostic company based in Stockholm, Sweden that develops, manufactures, and sells products that help match donor organs with potential recipients prior to transplantation. The acquisition of Allenex creates an international transplant diagnostics company with product offerings along the pre- and post-transplant continuum. The combined company has a presence and direct distribution channels in the U.S. and Europe, with additional third party distributors in Europe and other markets around the world. Under the terms of the Conditional Share Purchase Agreements entered into on December 16, 2015, as amended and the tender offer prospectus dated March 7, 2016, and as a result of the tender offer, the aggregate purchase consideration paid by the Company was approximately $34.1 million and consisted of (i) $26.9 million of cash, of which approximately $5.7 million was deferred purchase consideration payable to the Majority Shareholders by no later than March 31, 2017, and (ii) the issuance of 1,375,029 shares of the Company’s common stock valued at $7.2 million. Of the total cash consideration, $8.0 million of cash payable to the Majority Shareholders was deposited into an escrow account by the Company and subsequently invested in the Company by the Majority Shareholders through a purchase of the Company’s equity securities in the Subsequent Financing. Upon the completion of the Subsequent Financing, certain contingencies in the Conditional Share Purchase Agreements were waived, and the deferred purchase consideration is due to the Majority Shareholders by no later than March 31, 2017. The Company determined at the date of the acquisition that these contingencies would be waived. The Company intends to complete compulsory acquisition proceedings under Swedish law to purchase the remaining shares of Allenex. On June 8, 2016, the Company delisted Allenex’s common stock from Nasdaq Stockholm.

The cash portion of the acquisition purchase price was paid from the Company’s general working capital. The acquisition of Allenex required, and the Company obtained, a consent from East West Bank (the “Consent”), as the lender under the Company’s Loan and Security Agreement, dated January 30, 2015, as amended (the “Loan Agreement”). The Consent was contingent upon the closing of a private placement financing for aggregate cash proceeds of at least $12.0 million and separately depositing into an escrow account cash of $8.0 million relating to a commitment by the Majority Shareholders to purchase the Company’s equity securities in the Subsequent Financing, all of which occurred on April 14, 2016. Pursuant to the Consent, the Company is also required to raise another $20.0 million through one or more equity financings by March 31, 2017, of which $9.0 million was raised on September 26, 2016 in the Public Offering, prior to paying the approximately $5.7 million of deferred purchase price consideration to the Majority Shareholders, which has a carrying value of $5.9 million as of September 30, 2016.

The Company has accounted for this transaction as a business combination in exchange for total consideration of approximately $34.1 million. Under business combination accounting, the total purchase price was allocated to Allenex’s net tangible and identifiable intangible assets based on their estimated fair values as of April 14, 2016 as set forth in the table below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a valuation, and the Company’s estimates and assumptions are subject to change. The primary areas of the purchase price allocation that are not yet finalized relate to valuation of acquired inventory, income and non-income based taxes and residual goodwill. Total acquisition-related expenses for the three and nine months ended September 30, 2016 were $0.5 million and $4.3 million, respectively.

The amounts recorded for certain assets and liabilities are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date, as permitted under U.S. GAAP. Any potential adjustments made could be material in relation to the values presented in the table below.

The preliminary fair values of the assets acquired and liabilities assumed are as follows (in thousands):

 

 

 

Total

 

Cash

 

$

596

 

Accounts receivable

 

 

1,608

 

Prepaid and other assets

 

 

1,092

 

Inventory

 

 

9,636

 

Property, plant and equipment

 

 

1,057

 

Intangible assets

 

 

31,560

 

Goodwill

 

 

16,940

 

Deferred tax liability

 

 

(8,505

)

Assumed liabilities

 

 

(19,910

)

Total preliminary acquisition consideration

 

$

34,074

 

 

The fair value of the remaining 1.7% of noncontrolling interest in Allenex was estimated to be approximately SEK 5,100,000, or approximately $0.6 million in U.S. dollars, as of April 14, 2016. The fair value of the noncontrolling interest was determined based on the number of outstanding shares comprising the noncontrolling interest and Allenex’s stock price of SEK 2.48 per share as of the acquisition date. The noncontrolling interest was presented as a component of stockholders’ equity on the Company’s condensed consolidated balance sheets. During the three months ended September 30, 2016, the Company recorded a measurement period adjustment related to inventory, tax and accruals recorded in the preliminary purchase price allocation, with a corresponding adjustment to goodwill.

Noncontrolling interest as of September 30, 2016 was as follows (in thousands):

 

 

 

September 30, 2016

 

Beginning noncontrolling interest

 

$

 

Noncontrolling interest investment

 

 

634

 

Foreign currency effect

 

 

(2

)

Loss attributable to noncontrolling interest

 

 

(58

)

Ending noncontrolling interest

 

$

574

 

 

The following table presents details of the identified intangible assets acquired at the acquisition date (in thousands):

 

 

 

Estimated

Fair Value

 

 

Estimated Useful

Life (Years)

 

Customer relationships

 

$

12,650

 

 

 

15

 

Developed technology

 

 

11,650

 

 

 

10

 

Acquired in-process technology

 

 

4,510

 

 

 

15

 

Trademarks

 

 

2,260

 

 

 

15

 

Acquired contracts

 

 

490

 

 

 

2

 

Total

 

$

31,560

 

 

 

 

 

 

Goodwill recorded from the acquisition of Allenex is primarily related to expected synergies. The goodwill resulting from the acquisition is not deductible for tax purposes.

Allenex’s post-acquisition results of operations for the period from April 14, 2016 through September 30, 2016 are included in the Company’s condensed consolidated statements of operations. Since the acquisition date, total revenue of Allenex for the period from April 14, 2016 through September 30, 2016 was $7.2 million. Net loss for Allenex for the period from April 14, 2016 through September 30, 2016 was $3.4 million, including $1.1 million of costs for the amortization of acquisition related intangible assets, net of tax effects.

Pro Forma Impact of the Acquisition of Allenex

The following table presents pro forma results of operations and gives effect to the Allenex transaction as if the transaction had been consummated on January 1, 2015. The unaudited pro forma results of operations have been prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the period or of the results that may occur in the future. Furthermore, the pro forma financial information does not reflect the impact of any reorganization or operating efficiencies resulting from combining the two companies (in thousands).

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Testing revenue

 

$

8,613

 

 

 

7,007

 

 

 

22,310

 

 

 

21,147

 

Product revenue

 

 

3,754

 

 

 

3,806

 

 

 

11,642

 

 

 

11,867

 

Other revenue

 

 

108

 

 

 

237

 

 

 

396

 

 

 

593

 

Total revenue

 

$

12,475

 

 

 

11,050

 

 

 

34,348

 

 

 

33,607

 

Net loss

 

$

(2,491

)

 

 

(4,563

)

 

 

(17,597

)

 

 

(13,091

)

 

 

The unaudited pro forma financial information for the three and nine months ended September 30, 2016 and 2015 is prepared using the acquisition method of accounting and has been adjusted to give effect to the pro forma events that are: (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) expected to have a continuing impact on the combined results. The pro forma adjustments directly attributable to the acquisition exclude acquisition-related expenses of $4.3 million and debt financing costs of $2.9 million relating to a six-month bridge loan with Oberland Capital SA Davos LLC (“Oberland”) that did not materialize, together with the consequential tax effects.