Acquisitions

9 Months Ended

Jun. 30, 2021

Business Combinations

Acquisitions

Assets acquired and liabilities assumed in a business combination are recorded at their estimated fair values on the date of acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill on the balance sheet if the purchase price exceeds the estimated net fair value or as a bargain purchase gain on the income statement if the purchase price is less than the estimated net fair value. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed.

During fiscal 2020 we acquired the following companies:


Company Name	Description of the Business	Description of the Acquisition
Excel Medical	Clinical communications software company located in the United States	Purchased all of the outstanding equity interest.
Connecta	Clinical communications software company based in Mexico.	Purchased the multiplatform medical device integration and connectivity software programs, products, and solutions of the company.
Videomed	Developer of integrated video solutions in operating rooms located in Italy.	Purchased all of the outstanding equity interest.

The purchase price for the acquisitions listed above includes contingent consideration for which the performance periods have not yet expired. For the nine months ended June 30, 2021, we recorded a reduction in the contingent consideration obligations of $2.6 million, in Selling and administrative expenses primarily related to Excel Medical as a certain commercial milestone was not met. During the three and nine months ended June 30, 2021, we paid $2.0 million in cash as contingent consideration associated with the acquisition of Excel Medical. As of June 30, 2021 and September 30, 2020, contingent consideration liabilities related to prior year acquisitions totaled $4.3 million and $8.9 million and are included in Other current liabilities and Other long-term liabilities.

For the nine months ended June 30, 2021, we did not close on any new business acquisitions. For additional information on Acquisitions, see Note 3. Business Combinations within the 2020 Form 10-K.

Bardy Diagnostics, Inc.

On January 15, 2021, Hill-Rom, Inc., our wholly owned subsidiary, entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Hill-Rom, Inc., Barcelona Merger Sub, Inc. (“Merger Sub”), Bardy Diagnostics, Inc. (“Bardy”) and Fortis Advisors LLC (as Equityholders’ Representative), providing for our acquisition of Bardy. Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with and into Bardy with Bardy surviving the merger as our wholly owned subsidiary. The Merger Agreement provides that holders of outstanding shares of Bardy common and preferred stock and holders of Bardy warrants, stock options and other equity-related awards will be entitled to receive initial cash consideration of $375.0 million, subject to closing conditions and certain post-closing adjustments (the “Bardy Transaction”). Additional contingent cash consideration will be payable based on the revenue generated from the acquired cardiac monitoring product during the first two calendar years starting with the calendar year in which the transaction is closed.

The contingent consideration payable for the first calendar year in which the transaction closes will equal (i) 50% of the revenue generated if less than $45.0 million, (ii) 100% of the revenue generated if such revenue is between $45.0 million and $57.0 million, and (iii) 150% of revenue generated if greater than $57.0 million during calendar year 2021.

The contingent consideration payable for the second calendar year will equal (i) 50% of the revenue generated if such revenue is less than $70.0 million, (ii) 100% of the revenue generated if such revenue is between $70.0 million and $89.0 million, and (iii) 125% of the revenue generated if such revenue is greater than $89.0 million during the calendar year 2022.

On January 29, 2021, the Medicare Administrative Contractor, Novitas Solutions ("Novitas"), published newly established, Category 1 reimbursement rates applicable to the Current Procedural Terminology ("CPT") codes 93241, 93243, 93245 and 93247 for the extended holter cardiac monitoring category.

As a result of the unexpected Novitas reimbursement rate reduction, on February 21, 2021, Hillrom asserted that a "Company Material Adverse Effect" occurred, and therefore the closing conditions were not satisfied. On February 28, 2021, Bardy filed a complaint against Hillrom in the Court of Chancery of the State of Delaware seeking, among other things, specific performance to compel Hillrom to close the transaction.

On April 10, 2021, Novitas published updated reimbursement rates applicable to CPT codes 93241, 93243, 93245 and 93247 and Hillrom reconfirmed its position that a “Company Material Adverse Effect” occurred.

Following a trial conducted during May 5-7, 2021, on July 9, 2021, the Court of Chancery of the State of Delaware ordered Hillrom to proceed with the closing of the Bardy Transaction, denying Hillrom’s claim of a "Company Material Adverse Effect". Hillrom now anticipates closing of the Bardy Transaction on or about August 6, 2021.

Asset Acquisition

On January 28, 2021, we acquired the contact-free continuous monitoring intellectual property and technology from EarlySense Ltd. in exchange for cash of $30.0 million, a portion of our non-marketable equity investment in EarlySense Ltd. of $25.5 million at cost and forgiveness of a prepayment of approximately $1.8 million. The investment was transferred to EarlySense Ltd. on April 27, 2021 after certain conditions outlined in the purchase agreement were satisfied. Additionally, contingent consideration of up to $10.0 million will be payable if commercial milestones defined in the purchase agreement are achieved through September 2023.

The value of the acquired intangible asset recorded upon close of the transaction was $59.4 million, which included estimated contingent consideration of $2.4 million. The intangible asset acquired is presented in Other intangible assets and software, net and is amortized over the expected useful life of the technology of 8 years. The liability for the contingent consideration is included in Other long-term liabilities. Revenues generated from this asset acquisition are recorded within the Patient Support Systems segment.