Business Combinations |
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Business Combinations | 15. Business Combinations IMS Health On October 3, 2016, pursuant to the terms of the Merger Agreement, IMS Health merged with and into Quintiles, with Quintiles continuing as the Surviving Corporation. The combination of Quintiles and IMS Health capabilities and resources creates an information and technology enabled healthcare service provider with a full suite of end-to-end clinical and commercial offerings. The Merger was accounted for as a business combination with Quintiles considered the accounting and the legal acquirer. Immediately prior to the completion of the Merger, Quintiles reincorporated as a Delaware corporation. The Surviving Corporation changed its name to Quintiles IMS Holdings, Inc. At the effective time of the Merger, IMS Health common stock was automatically converted into 0.3840 of a share of the Company’s common stock. In addition, IMS Health equity awards held by current employees and certain members of the former IMS Health board of directors were converted into the Company’s equity awards after giving effect to the exchange ratio. The terms of these awards, including vesting provisions, are substantially consistent to those of the historical IMS Health equity awards. All of the Company’s and IMS Health’s performance units outstanding at the date of the Merger were converted into restricted stock units with service based vesting requirements. The merger consideration was approximately $10.4 billion (based on the closing price of the Company’s common stock on October 3, 2016), and consisted of the fair value of the Company’s common stock issued (approximately 126.6 million shares) in exchange for the IMS Health common stock as well as the fair value of the vested portion of the converted IMS Health equity awards. The Merger-date value of former IMS Health stock-based awards was valued using the Black-Scholes model and apportioned between Merger consideration (purchase price) and unearned compensation to be recognized in expense as earned in future periods based on remaining service periods. In connection with the IMS Health acquisition, the Company recorded goodwill, primarily attributable to the assembled workforce of IMS Health and the expected synergies, which was assigned to the Commercial Solutions segment ($9,688 million), the Research & Development Solutions segment ($533 million) and the Integrated Engagement Services segment ($67 million). The goodwill is not deductible for income tax purposes. The Company’s assessment of fair value and the purchase price accounting are preliminary and subject to change upon completion. Further adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed during the measurement period (up to one year from the acquisition date). Quest On July 1, 2015, the Company and Quest closed on a joint venture transaction that resulted in the combination of their respective global clinical trials laboratory operations. The joint venture transaction was effected through the creation of two primary new legal entities that the Company controls. Both the Company’s and Quest’s clinical trials laboratory operations were contributed to these new legal entities. The Company accounted for the contribution of the Quest businesses as a business combination. Quest was issued a 40% equity interest in the legal entities, the fair value of which was $423 million on July 1, 2015 (40% of the fair value of all operations contributed by both parties) and represents the purchase price paid by the Company for the clinical trials laboratory operations that Quest contributed to the joint venture transaction. The resulting combined capabilities are designed to provide its clients with globally scaled end-to-end clinical trials laboratory services and the combined business is referred to and marketed as Q2 Solutions. The Company accounted for the contribution of the Quest businesses as a business combination and consolidated the related new legal entities in its financial statements with a non-controlling interest for the portion owned by Quest. The Company recorded goodwill, primarily attributable to assembled workforce and expected synergies. This business combination is part of the Research & Development Solutions segment and the resulting goodwill is not deductible for income tax purposes. The following table summarizes the estimated fair value of the net assets acquired at the date of the acquisitions (in millions):
The other identifiable intangible assets consisted of the following (in millions):
The acquired Quest trade name is an indefinite-lived intangible asset that is not amortized. Acquisition Related Costs Acquisition related costs include the direct and incremental costs associated with mergers and acquisitions such as investment banking, legal, accounting and consulting fees. The Company recognized approximately $36 million of acquisition related costs associated with the IMS Health merger during the year ended December 31, 2016, which are included with merger related costs on the consolidated statement of income. Acquisition related costs for all other acquisitions were immaterial and are not presented. Unaudited Pro Forma Information The following unaudited pro forma information presents the financial results as if the acquisition of IMS Health had occurred on January 1, 2015 with pro forma adjustments to give effect to (i) an increase in depreciation and amortization expense for fair value adjustments of property, plant and equipment and intangible assets, (ii) an increase in stock-based compensation expense resulting from the exchange of the vested IMS Health equity awards for the Company’s equity awards, (iii) to present transaction costs in the 2015 period, (iv) to reflect the effect on revenue from the deferred revenue fair value adjustment in the 2015 period, and (v) the related income tax effects. The pro forma results do not include any anticipated cost synergies, costs or other effects of the planned integration of IMS Health. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred for the periods presented below had the IMS Health acquisition been completed on January 1, 2015, nor are they indicative of the future operating results of the Company. The following table summarizes the pro forma results (in millions, except earnings per share):
Pro forma information is not presented for any other acquisitions as the aggregate operations of the acquired businesses were not significant to the overall operations of the Company. The Company’s consolidated statements of income for the year ended December 31, 2016 included $806 million of revenues related to the IMS Health acquisition. Following the closing of the IMS Health acquisition, the Company began integrating IMS Health’s operations. As a result, computing a separate measure of IMS Health’s stand-alone profitability for periods after the acquisition date is impracticable. Other Acquisitions In addition to the merger with IMS Health, the Company also completed three unrelated individually immaterial acquisitions during 2016, all of which occurred during December 2016. The purchase price allocations for some of these acquisitions will be finalized after the completion of the valuation of certain intangible assets and any adjustments to the preliminary purchase price allocation are not expected to have a material impact on the Company’s results of operations or financial position. During 2014, the Company completed one immaterial acquisition (Encore). In connection with the Encore acquisition in 2014, the Company recorded goodwill, primarily attributable to the assembled workforce of Encore and expected synergies, which was assigned to the Commercial Solutions segment and is deductible for income tax purposes. The accompanying consolidating financial statements include the results of the acquisitions subsequent to each respective closing date. The following table provides certain financial information for these acquisitions, including the preliminary allocation of the purchase price to certain tangible and intangible assets acquired and goodwill (in millions):
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