Acquisitions

12 Months Ended

Sep. 30, 2021

Business Combinations

Business 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 years ended September 30, 2021, 2020 and 2019, we acquired the following companies:


Fiscal Year	Company Name	Description of the Business	Description of the Acquisition
2021	Bardy	Developer and supplier of cardiac arrhythmia monitoring devices located in the United States.	Purchased all of the outstanding equity interest.
2020	Excel Medical	Clinical communications software company located in the United States	Purchased all of the outstanding equity interest.
2020	Connecta	Clinical communications software company based in Mexico.	Purchased the multiplatform medical device integration and connectivity software programs, products, and solutions of the company.
2020	Videomed 1	Developer of integrated video solutions in operating rooms located in Italy.	Purchased all of the outstanding equity interest.
2019	Voalte	Clinical communications software company located in the United States.	Purchased all of the outstanding equity interest.
2019	Breathe	Developer and manufacturer of a patented wearable, non-invasive ventilation technology that supports improved patient mobility, which is located in the United States.	Purchased all of the outstanding equity interest.
1 On July 21, 2020, we acquired the remaining 74% outstanding equity interest in Videomed for total aggregate consideration of $10.7 million. As a result of the transaction, the previously held 26% equity investment was adjusted to reflect the fair value as of the acquisition date and a gain of $3.0 million was recognized in Investment income (expense) and other, net for the fiscal year ended September 30, 2020. The fair value of the previously held equity investment was estimated using the discounted cash flow method of the income approach that incorporated a discount for the lack of marketability.

The following tables summarize additional details for each acquisition that closed during fiscal years ended September 30, 2021, 2020, and 2019:


(In millions)	Company Name
	Bardy
Acquisition Details:
Date of acquisition	August 6, 2021

Cash paid	$	369.0
Contingent consideration 1	65.2
Total consideration 2	$	434.2

Contingent consideration payable based upon mid-point of commercial milestones: 3	$	130.5

Segment information:	Front Line Care

The following summarizes the fair value of assets acquired and liabilities assumed for each fiscal 2021 acquisition: 4

Trade accounts receivable	$	10.4
Inventories	4.5
Other current assets	0.3
Property, plant and equipment	2.3
Goodwill 5	383.8
Developed technology 6	10.0
Trade name6	5.0
Customer relationships6	2.0
Other assets	31.5
Trade accounts payable	(4.1)
Deferred revenue	(1.1)
Other current liabilities	(5.6)
Other long-term liabilities	(4.8)


Total purchase price, net of cash acquired	$	434.2


Acquisition costs for the fiscal year ended September 30, 2021:


Acquisition and integration costs recognized in Selling and administrative expenses7	$	24.4
Indemnity claim settlement recognized in Investment income (expense) and other, net8	$	32.5

1 This amount represents the fair value of the contingent consideration on the acquisition date. The fair value adjustment related to Bardy contingent consideration subsequent to acquisition was not significant for the fiscal year ended September 30, 2021.
2 The purchase price for the fiscal year ended September 30, 2021 acquisitions are subject to post-closing adjustments. The impact to reported revenue and net income in fiscal 2021 was not significant.
3 The contingent consideration will be payable if commercial milestones defined in the merger agreement are achieved within 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. In order to determine the fair value of the contingent consideration, we utilize a Monte Carlo model. Inherent in this model is an assumption related to revenue growth rate.
4 The fair values of assets acquired and liabilities assumed are still considered to be preliminary. The values reflect net working capital and fair value adjustments as of the fiscal year ended September 30, 2021. We do not expect further adjustments to be significant.
5 Goodwill recognized reflect the value associated with enhancing synergies and accelerating our leadership in ambulatory cardiac monitoring technologies and custom data solutions. Goodwill in connection with the Bardy acquisition is not deductible for tax purposes in the United States.
6 Useful lives for the acquired intangible assets range from 8 years to 13 years.
7 Acquisition and integration costs include legal and professional fees, consulting and other costs related to the closing and integration of Bardy.
8 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. 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". The litigation expenses related to the court proceedings are included in Selling and administrative expenses and the settlement payments of (i) $24.1 million related to an indemnity claim settlement payment and (ii) $8.4 million in related to accrued interest, subject to further adjustments as set forth under the terms of the merger agreement are included in Investment income (expense) and other, net for the fiscal year ended September 30, 2021.


(In millions)	Company Name
	Excel Medical		Connecta		Videomed
Acquisition Details:
Date of acquisition	January 10, 2020		May 18, 2020		July 21, 2020

Cash paid	$	13.1	$	7.5	$	7.8
Contingent consideration	6.1		0.2		2.9
Total consideration 1	$	19.2	$	7.7	$	10.7

Contingent consideration payable up to: 2	$	15.0	$	4.0	$	3.7

Segment information:	Patient Support Systems		Front Line Care		Surgical Solutions

The following summarizes the fair value of assets acquired and liabilities assumed for each fiscal 2020 acquisition:

Trade accounts receivable	$	0.6	$	—	$	2.5
Inventories	0.2		—		0.9
Other current assets	0.1		—		0.2
Goodwill 3	9.9		4.8		10.1
Developed technology 4	10.9		2.9		4.4
Other assets	0.1		—		0.6
Trade accounts payable	—		—		(1.2)
Deferred revenue	(2.1)		—		(0.2)
Other current liabilities	(0.5)		—		(1.2)
Other long-term liabilities	—		—		(2.4)
Fair value of assets acquired and liabilities assumed	19.2		7.7		13.7
Less: Fair value adjustment of previously held investment	—		—		(3.0)
Total purchase price, net of cash acquired	$	19.2	$	7.7	$	10.7

Acquisition costs for the fiscal year ended September 30, 2021
Acquisition and integration costs recognized in Selling and administrative expenses 5	$	(3.8)	$	(0.1)	$	0.3

Acquisition costs for the fiscal year ended September 30, 2020:
Acquisition and integration costs recognized in Selling and administrative expenses 5	$	2.2	$	0.3	$	0.4

1 The purchase price for the fiscal year ended September 30, 2020 acquisitions are considered final.
2 The contingent consideration will be payable if commercial milestones defined in the sale and purchase agreements are achieved within the specified time period following the date of the acquisition. For Excel Medical, Connecta and Videomed, the specified time periods are 2 years, 3.5 years and 2 years.
3 Goodwill recognized in our acquisitions is attributable to the following: Excel Medical - Accelerating our leadership in care communications platform and advancing our digital and mobile communications platform and capabilities. Connecta - Advancing connected care in Mexico as well as creating lower cost opportunities to expand to other emerging markets. Videomed - Expanding our operating room integration platform and our market leadership in advancing connected care. Goodwill in connection with the Excel Medical and Connecta acquisitions is deductible for tax purposes in the United States. Goodwill for the Videomed acquisition is not deductible for tax purposes in Italy.
4 Useful lives for the acquired developed technology intangible assets range from 5 years to 10 years.
5 Acquisition and integration costs recognized for Excel Medical during fiscal year ended September 30, 2021 and 2020 include a gain of $3.9 million and expense of $1.4 million related to fair value adjustments to contingent consideration. The reduction in the contingent consideration obligation is due to the reduced likelihood of certain milestones being met. The fair value adjustment related to Connecta and Videomed contingent consideration were not significant for the fiscal year ended September 30, 2021 and 2020. During fiscal year ended September 30, 2021, we paid $2.0 million in cash as contingent consideration associated with the acquisition of Excel Medical.


(In millions)	Company Name
	Voalte		Breathe
Acquisition Details:
Date of acquisition	April 1, 2019		September 3, 2019
Cash paid	$	175.8	$	127.6
Contingent consideration	5.2		—
Total consideration	$	181.0	$	127.6

Contingent consideration payable up to: 2	$	15.0	$	—

Segment information:	Patient Support Systems		Front Line Care





















Acquisition costs for the fiscal year ended September 30, 2021:
Acquisition and integration costs recognized in Selling and administrative expenses 1	$	0.4	$	0.3
Acquisition and integration costs recognized in Special charges	—		—
Acquisition costs for the fiscal year ended September 30, 2020:
Acquisition and integration costs recognized in Selling and administrative expenses 1	$	(8.4)	$	2.5
Acquisition and integration costs recognized in Special charges	—		3.1

Acquisition costs for the fiscal year ended September 30, 2019:
Acquisition and integration costs recognized in Selling and administrative expenses 1	$	12.1	$	6.4
Acquisition and integration costs recognized in Special charges	—		1.7





1 There were no acquisition and integration costs recognized related to fair value adjustments of contingent consideration related to Voalte during fiscal year ended September 30, 2021. Acquisition and integration costs recognized during fiscal year ended September 30, 2020 and 2019 include a gain of $8.4 million and expense of $3.2 million related to fair value adjustments to contingent consideration. Hillrom did not pay any contingent consideration as the commercial milestones were not met within 1 year of the acquisition date.

Proposed Acquisition by Baxter

See Note 1. Summary of Significant Accounting Policies for further information.

Epiphany Cardiography Products, LLC

On November 4, 2021, we closed on the acquisition of Epiphany Cardiography Products, LLC (“Epiphany”), a company that offers an interoperable connectivity solution capable of supporting more than 260 unique devices from more than 80 manufacturers and integrating across all major Electronic Medical Record (EMR) vendors. Purchase consideration was $38.0 million, subject to certain post-closing adjustments. The results of Epiphany will be included in the Front Line Care segment from the date of acquisition. It is not practical to disclose the preliminary purchase price allocation for this transaction given the short period of time between the acquisition date and the filing of this report.

Asset Acquisitions

On January 28, 2021, we acquired the contact-free continuous monitoring intellectual property and technology from EarlySense in exchange for cash of $30.0 million, a portion of our non-marketable equity investment in EarlySense of $25.5 million at cost and forgiveness of a prepayment of approximately $1.8 million. The investment was transferred to EarlySense 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.

On October 1, 2018, we acquired the right to use patented technology and certain related assets from a supplier to our Front Line Care segment. We paid $17.1 million of cash and committed to guaranteed minimum future royalty payments of $22.0 million, which are presented in Other intangible assets and software, net and are being amortized over the 7-year term of the agreement.

Dispositions

On August 2, 2019, we completed a disposition to sell certain of our surgical consumable products and related assets for a purchase price of $166.6 million, which is net of cash and working capital adjustments. During fiscal year ended September 30, 2019, we recorded a pre-tax loss on this disposition of $15.9 million, including transaction costs of $4.0 million, in Investment income (expense) and other, net. During fiscal year ended September 30, 2020, we recorded an additional loss of $4.2 million related to this transaction primarily due to income taxes. This disposition did not have a significant effect on our operations or financial results, and, therefore, has not been reported as a discontinued operation.