ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

6 Months Ended

Jun. 30, 2024

ASSET ACQUISITIONS AND BUSINESS COMBINATIONS [Abstract]

Asset Acquisitions And Business Combinations

NOTE 3. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

Asset Acquisitions

During the first quarter of 2024, the Company completed a share acquisition of a biotech company focused on research and development for hemostasis solutions. The fair value of the assets acquired are concentrated in a similar identified asset, IPR&D of the acquired technology, thus satisfying the requirements of the screen test in ASC 805, Business Combinations. At the date of the acquisitions, the Company determined that the development of the projects underway had not yet reached technological feasibility and that the research in process had no alternative future use. Accordingly, the acquired IPR&D of $12.6 million was charged to research and development expense in the condensed consolidated statements of operations and comprehensive income. The purchase price consisted of $12.0 million of cash paid at closing. The transaction also provides for $12.0 million contingent consideration which is payable upon meeting the Good Manufacturing Process milestones, as promulgated by the U.S. Food and Drug Administration (the “FDA”), and consideration of $10.0 million contingent upon the developed products obtaining approval from the FDA. Contingent consideration will not be recorded in this asset acquisition until the milestone is met.

Business Combinations

During the second quarter of 2024, the Company completed one acquisition that was not material to the overall condensed consolidated financial statements during the periods presented. This acquisition has been included in the condensed consolidated financial statements from the date of acquisition. The purchase price consisted of approximately $0.1 million of cash paid at closing and $1.9 million in contingent consideration payments, resulting in goodwill of $2.0 million based on the estimated fair values. The contingent payments for this acquisition are based upon achieving various performance milestones over a period of 5 years and are payable in cash.

During the first quarter of 2024, the Company completed one acquisition that was not material to the overall condensed consolidated financial statements during the periods presented. This acquisition has been included in the condensed consolidated financial statements from the date of acquisition. The purchase price consisted of approximately $0.5 million of cash paid at closing and $19.1 million of contingent consideration payments, resulting in goodwill of $17.9 million and reacquired rights of $1.8 million based on the estimated fair values. The contingent payments for this acquisition are based upon achieving various performance milestones over a period of 10 years and are payable in a combination of cash and RSUs.

During the first quarter of 2023, the Company completed one acquisition that was not material to the condensed consolidated financial statements and has been included in our financial statements from the date of acquisition. The purchase price consisted of approximately $1.4 million of cash. The Company recorded identifiable assets of $0.4 million of instruments and $1.0 million of inventory.

During the fourth quarter of 2022, the Company acquired the membership interests of Harvest Biologics LLC, which engages in the business of selling systems that produce autologous biologics. The purchase price consisted of approximately $30.0 million of cash paid at closing, plus $1.4 million of preliminary post-closing adjustments. The Company recorded identifiable net assets, based on their estimated fair values, for inventory of $3.3 million, goodwill of $15.2 million, customer relationships and other intangibles of $10.5 million with a weighted average useful life of 20 years, and developed technology of $2.4 million with a weighted average useful life of 8 years. The Company will finalize the purchase price allocation of the assets and liabilities acquired within one year from the date of acquisition.

During the second quarter of 2022, the Company completed one acquisition that was not material to the overall condensed consolidated financial statements during the periods presented. This acquisition has been included in the condensed consolidated financial statements from the date of acquisition. The purchase price consisted of approximately $0.2 million of cash paid at closing and $4.4 million of contingent consideration payments, resulting in goodwill of $4.6 million based on the estimated fair values. The contingent payments for this acquisition are based upon achieving various performance milestones over a period of 10 years and are payable in a combination of cash and RSUs.

NuVasive Merger

On September 1, 2023, the Company merged with NuVasive, Inc. (“NuVasive”) and Zebra Merger Sub Inc., a wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into NuVasive (the “Merger”), with NuVasive surviving as a wholly owned subsidiary of the Company. Upon the consummation of the Merger, each issued and outstanding share of common stock of NuVasive, $0.001 par value per share, was converted into 0.75 fully paid and non-assessable shares of the Company’s Class A Common Stock, and the right to receive cash in lieu of fractional shares.

As part of the Merger, the Company assumed equity awards for certain NuVasive RSUs and NuVasive PRSUs in accordance with the terms of the Merger Agreement. Certain awards included a change in control provision (single trigger) which accelerated the vesting of the awards on the closing date of the Merger. These awards were considered as part of the total purchase price. The unvested awards will continue to vest in accordance with the terms of the original award agreement, except for certain PRSUs that were converted into RSUs. Once vested, the holders will receive shares of the Company’s Class A Common Stock. Of the total consideration for the assumed equity awards, $28.6 million was allocated to the purchase price and $42.3 million was deemed compensatory as it was attributable to post acquisition vesting. Of the $42.3 million of total compensation related to the assumed awards, $12.9 million was expensed on the acquisition date due to accelerated vesting of the awards, recognized as Merger related costs, and $29.4 million relates to future services and will be expensed over the remaining service periods of the unvested awards on a straight-line basis. Of the $29.4 million related to future services, $13.6 million of expense has been recognized as of June 30, 2024.

Concurrently with the Merger, the Company repaid the outstanding $420.8 million under NuVasive’s revolving senior credit facility in addition to assuming the 0.375% Senior Convertible Notes due 2025 (“2025 Notes”), the privately negotiated call options (“2025 Hedge”) and the privately negotiated warrants (“2025 Warrants”).

The aggregate consideration in connection with the closing of the Merger was as follows:

(In thousands)
NuVasive shares outstanding as of September 1, 2023		52,451
NuVasive accelerated equity awards		632
Globus exchange ratio		0.75
Globus Class A Common Stock issued in exchange for NuVasive shares		39,813
Globus closing share price	$	54.10
Total Value Class A Common Stock	$	2,153,860
2025 Warrants		579
Repayment of revolving credit facility		420,762
Fair value of assumed equity awards		28,635
Total purchase price	$	2,603,836

We accounted for the Merger using the acquisition method of accounting, which requires the NuVasive assets and liabilities to be recorded on our balance sheet at fair value as of the acquisition date. We will complete a final determination of the fair value of certain assets and liabilities within the one-year measurement period from the date of the acquisition as required by FASB ASC Topic 805, “Business Combinations”. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations, valuations, and assumptions that are subject to change as the Company obtains additional information during the measurement period.  The following table summarizes the preliminary purchase price allocation for the Merger as of September 30, 2023:

(In thousands)	Preliminary Purchase Price Allocation as of September 1, 2023		Measurement Period and Other Adjustments		Purchase Price Allocation as of June 30, 2024 (as adjusted)
Current assets (excluding accounts receivable and inventories)	$	158,112	$	38	$	158,150
Accounts receivable		249,591		(6,912)		242,679
Inventories		570,300		(12,266)		558,034
Property, plant, and equipment		361,118		598		361,716
Operating lease ROU asset		90,457		(32,174)		58,283
Intangible assets		1,222,000		(323,000)		899,000
Other long-term assets		25,973		13,111		39,084
Deferred income taxes		4,837		977		5,814
Total Assets	$	2,682,388	$	(359,628)	$	2,322,760
Current Liabilities		185,175		(605)		184,570
Operating lease liabilities, including current portion		109,110		(7,758)		101,352
Business acquisition liabilities, including current portion		66,873		—		66,873
Senior convertible notes		409,500		—		409,500
Deferred income taxes and other tax liabilities		194,553		(16,035)		178,518
Other liabilities		37,496		(23,797)		13,699
Total liabilities	$	1,002,707	$	(48,195)	$	954,512
Fair value of acquired identifiable assets and liabilities	$	1,679,681	$	(311,433)	$	1,368,248
Purchase price	$	2,603,836			$	2,603,836
Less: Fair value of acquired identifiable assets and liabilities		(1,679,681)				(1,368,248)
Goodwill	$	924,155			$	1,235,588

The excess of the purchase price over the net tangible and intangible assets is recorded to Goodwill and primarily reflects the assembled workforce and expected synergies. The majority of goodwill is non-deductible for tax purposes.

Details of our valuation methodology and significant inputs for fair value measurements are included below. The fair value measurements for property, plant and equipment and intangible assets are based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.

The preliminary fair value of work-in-process and finished goods inventory utilizes a sales comparison approach which estimates the selling price of the inventory in completed condition less costs of disposal and a reasonable profit allowance for the selling effort.

The preliminary fair value of property and equipment utilizes a combination of the cost approach, income approach, and sales comparison approach less amounts for capitalized research and development costs existing on NuVasive’s closing balance sheet.

The preliminary fair value of the identifiable intangible assets was determined using variations of the income approach, namely the multi-period excess earnings and relief from royalty methodologies. The most significant assumptions applied in the development of the intangible asset fair values include: the amount and timing of future cash flows, the selection of discount and royalty rates, and the assessment of the asset’s economic life. 

The identifiable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The following table summarizes the estimated fair value of NuVasive’s identifiable intangible assets acquired and their amortization period (in years):

	Fair Value as of
(In thousands)	June 30, 2024		Useful Life
Developed Technology	$	607,000	8
Customer Relationships		292,000	11

Preliminary fair value of the 2025 Notes was determined using the publicly traded price.

NuVasive’s results have been included in the Company’s financial statements for the period subsequent to the date of the acquisition on September 1, 2023. Due to the continuing integration of NuVasive’s operations into the Company, it is impractical to determine NuVasive’s net income/loss during the current period, which is included in the Company’s Net Income.