On July 27, 2022, Waldencast consummated its initial business combination with (i) Obagi, pursuant to an Agreement and Plan of Merger dated November 15, 2021, by and among Waldencast, Obagi Merger Sub, Inc., a Cayman Islands exempted company limited by shares and an indirect wholly-owned subsidiary of Waldencast (“Merger Sub”), and Obagi (the “Obagi Merger Agreement”), and (ii), Milk, pursuant to an Equity Purchase Agreement dated November 15, 2021, by and among Waldencast, Obagi Holdco 1 Limited, a limited company incorporated under the laws of Jersey (“Holdco Purchaser”) and a subsidiary of Waldencast, Waldencast Partners LP together with Holdco Purchaser, (the “Purchasers”), certain members of Milk (the “Milk Members”), and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as representative of the Milk Members (the “Equityholder Representative”) (the “Milk Equity Purchase Agreement” and together with the Obagi Merger Agreement, the “Transaction Agreements”).

Pursuant to the Obagi Merger Agreement, at the effective time of the Obagi Merger (the “Obagi Merger Effective Time”) Merger Sub merged with and into Obagi (the “Obagi Merger”) and the separate corporate existence of Merger Sub ceased, with Obagi surviving as an indirect subsidiary of the Company. At the Obagi Merger Effective Time, all outstanding ordinary shares of Obagi, $0.50 par value (“Obagi common shares”) were canceled and exchanged for (i) 28,237,506 Class A ordinary shares of Waldencast and (ii) cash in the amount of $345.4 million.

Pursuant to the Milk Equity Purchase Agreement, at the effective time of the Milk Transaction (the “Milk Purchase Effective Time”) the Purchasers acquired from the Milk Members all of their equity in Milk in exchange for (i) 21,104,225 limited partnership units in Waldencast Partners LP (“Waldencast LP Units”) (ii) 21,104,225 Class B ordinary shares, which are non-economic voting shares of Waldencast and (iii) cash in the amount of $121.6 million (the “Milk Transaction”). Each Waldencast LP Unit and Class B ordinary share held by a Milk Member is redeemable at the option of the holder, and, if such option is exercised, exchangeable at the option of Waldencast into one Waldencast Class A ordinary share or cash, in accordance with the terms of the Amended and Restated Waldencast Partners LP Agreement. Upon consummation of the Business Combination Waldencast became organized in an “Up-C” structure, whereby the equity interests of Obagi and Milk are held by Waldencast Partners LP, which is an indirect subsidiary of Waldencast plc.

In the Business Combination, Waldencast was deemed to be the accounting acquirer and continues as the SEC registrant. Obagi and Milk were deemed to be the accounting acquirees, however Obagi is considered the predecessor entity for purposes of financial reporting. Waldencast was determined to be the accounting acquirer based on evaluation of the following factors:

–The original owner of Waldencast, Waldencast Long-Term Capital LLC (the “Sponsor”), and its affiliates nominated the majority of the initial members who will serve on the board of directors of Waldencast (the former owner of Obagi nominated one director, and Milk nominated no directors); and

Immediately prior to the Obagi Merger Effective Time, Obagi carved out and distributed the Obagi China Business to Cedarwalk pursuant to the Obagi China Distribution. Following the Obagi China Distribution, the Obagi China Business continues to be held by Cedarwalk, which also owned 24.5% of the fully diluted Waldencast plc Class A ordinary shares as of the Obagi Merger Effective Time. Prior to the Obagi China Distribution, the pre-tax losses for the Obagi China Business were $8.0 million and $3.7 million for the period from January 1 to July 27, 2022 (Predecessor Period) and the year ended December 31, 2021 (Predecessor Period).


(In thousands)	Obagi		Milk		Total
Total Purchase Price:
Cash consideration	$	345,398	$	121,629	$	467,027
Equity consideration	277,824		200,087		477,911
Cash repayment of debt	136,112		3,935		140,047
Related party liability	22,100		—		22,100
Total purchase consideration	$	781,434	$	325,651	$	1,107,085
Fair value of assets acquired:
Cash and cash equivalents	$	15,850	$	2,092	$	17,942
Restricted cash	650		819		1,469
Account receivable, net	15,214		3,866		19,080
Related party receivable	327		199		526
Inventories	31,026		30,945		61,971
Prepaid expenses	4,307		520		4,827
Other current assets	359		—		359
Property and equipment	1,245		8,436		9,681
Intangible assets	505,300		157,500		662,800
Right-of-use assets	4,811		8,232		13,043
Other assets	227		—		227
Total identifiable assets acquired	$	579,316	$	212,609	$	791,925
Liabilities assumed:
Accounts payable and accrued expenses	18,699		6,442		25,141
Other current liabilities	12,912		5,483		18,395
Lease liabilities	6,461		10,105		16,566
Deferred income tax liabilities	28,073		—		28,073
Total liabilities assumed:	$	66,145	$	22,030	$	88,175
Net assets acquired	513,171		190,579		703,750
Purchase consideration	781,434		325,651		1,107,085
Goodwill	$	268,263	$	135,072	$	403,335

Goodwill recognized for these acquisitions is attributable to improving the product offerings, expanding into additional markets and the expected cash flows resulting from these efforts, and assembled workforce. Goodwill recognized is not expected to be deductible for local tax purposes. During the period from July 28, 2022 to December 31, 2022 (Successor Period), the Company recorded a non-cash impairment charge of $68.7 million within the Obagi Skincare reportable segment. See “Note 5. Goodwill” for additional details.

The Company recognized a liability with respect to a related party supply contract executed on the Closing Date between Obagi and Obagi Hong Kong. The fair value of the related party liability was determined using the present value of after-tax cash flows related to unfavorable discounts provided to the Obagi China Business included in the supply agreement. As of the Obagi Merger Effective Time, the Company recognized a related party liability of $22.1 million. During the year ended December 31, 2023 (Successor Period) and the period from July 28, 2022 to December 31, 2022 (Successor Period), respectively, the Company amortized $4.1 and $12.2 million of the related party liability into the related party revenue recognized on the sale of products to the Obagi China Business. The Company had a remaining related party liability of $5.9 and $9.9 million, included in Other current liabilities, as of December 31, 2023 (Successor Period) and December 31, 2022 (Successor Period), respectively.


	Fair Value
	Obagi		Milk		Total		Weighted- Average Useful Life
(In thousands)
Trademarks and Trade Name	$	414,000	$	145,000	$	559,000	14 years
Customer/distributor relationships	25,000		11,000		36,000		11 years
Tretinoin distribution and supply agreement	38,900		—		38,900		5 years
Formulations	27,400		1,500		28,900		8 years
Total Intangible Assets	$	505,300	$	157,500	$	662,800

The intangible assets acquired in connection with the Business Combination are classified as Level 3 in the fair value hierarchy. The estimate of the fair values of the acquired amortizable intangible assets were determined using a multi-period excess earnings income approach by discounting the incremental after-tax cash flows over multiple periods. Significant estimates used in the determination include estimating future cash flows over multiple periods, terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows.

In connection with the Business Combination, Waldencast incurred transactions costs of $9.4 million which were incurred during the period from July 28, 2022 to December 31, 2022 (Successor Period). Transaction costs consisted of advisory, legal, accounting and management fees, which are included in SG&A expenses on the consolidated statements of operations and comprehensive loss.

The following unaudited pro forma combined financial information presents the Company’s results as though the Business Combination had occurred on January 1, 2021, for the years ended December 31, 2021 and 2022. The unaudited pro forma consolidated financial information has been prepared using the acquisition method of accounting in accordance with U.S. GAAP.


	Year ended December 31, 2022		Year ended December 31, 2021
(In thousands)	(Unaudited)		(Unaudited)
Pro forma net revenue	$	200,547	$	162,583
Pro forma net income (loss)	(86,930)		(145,152)
Less: Pro forma net income (loss) attributable to noncontrolling interest	(25,140)		(26,519)
Pro forma net income (loss) attributable to Waldencast plc	$	(61,790)	$	(118,633)

These unaudited pro forma results include adjustments such as inventory step-up, amortization of acquired intangible assets, and interest expense on debt financing in connection with the Business Combination. Material, nonrecurring pro forma adjustments directly attributable to the Business Combination include:

The unaudited consolidated pro forma financial information was prepared in accordance with accounting standards and is not necessarily indicative of the results of operations that would have occurred if the Business Combination had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after the Business Combination, including, but not limited to, the anticipated realization of operating synergies in subsequent periods. They also do not give effect to certain charges that the Company expects to incur in connection with these acquisitions, including, but not limited to, additional professional fees and employee integration.