Acquisitions

3 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

2022 Acquisition Activity

In the first quarter of 2022, we completed the acquisition of all the outstanding equity interests of an O&P business for total consideration of $5.0 million, of which $4.0 million was cash consideration, net of cash acquired, and $1.0 million was issued in the form of notes to shareholders at fair value. The acquisition was completed with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of this high quality O&P provider. The acquisition was not material to our financial position, results of operations, or cash flows.

We accounted for this transaction under the acquisition method of accounting and have reported the results of operations of the acquisition as of the date of the acquisition. We based the estimated fair values of intangible assets on an income approach utilizing the excess earnings method for customer relationships. The income approach utilizes management’s estimates of future operating results and cash flows using a weighted average cost of capital that reflects market participant assumptions. Other significant judgments used in the valuation of tangible assets acquired in the acquisition include estimated selling price of inventory and estimated replacement cost for acquired property, plant, and equipment. For all other assets acquired and liabilities assumed, the fair value reflects the carrying value of the asset or liability due to their short maturity. We recorded the excess of the fair value of the consideration transferred in the acquisition over the fair value of net assets acquired as goodwill. The goodwill reflects our expectations of favorable future growth opportunities, anticipated synergies through the scale of our O&P operations, and the assembled workforce. We expect that substantially all of the goodwill, which has been assigned to our Patient Care reporting unit, will not be deductible for federal income tax purposes.

Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the three months ended March 31, 2022 were $0.3 million, which includes those costs for transactions that are in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisition completed during the three months ended March 31, 2022 were $0.1 million.

We have not presented pro forma combined results for this acquisition because the impact on previously reported statements of operations would not have been material.

Purchase Price Allocation

We have performed a preliminary valuation analysis of the fair market value of the assets acquired and liabilities assumed in the acquisition. The final purchase price allocation will be determined when we have completed and fully reviewed the detailed valuations which could differ materially from the preliminary allocations. The final allocation may include changes in allocations of acquired intangible assets as well as goodwill and other changes to assets and liabilities, including deferred taxes. The estimated useful lives of acquired intangible assets are also preliminary.

The aggregate purchase price of this acquisition was allocated on a preliminary basis as follows:


(in thousands)
Cash paid, net of cash acquired	$	4,001
Issuance of Seller Notes at fair value	981
Aggregate purchase price	4,982

Accounts receivable	310
Inventories	85
Customer relationships (Weighted average useful life of 5.0 years)	500
Non-compete agreements (Weighted average useful life of 5.0 years)	243
Other assets and liabilities, net	(103)
Net assets acquired	1,035
Goodwill	$	3,947

Right-of-use assets and lease liabilities related to operating leases recognized in connection with the acquisition completed for the three months ended March 31, 2022 were $0.4 million.

During the second quarter of 2022 to date, we completed the acquisition of one O&P business for a total purchase price of $3.2 million. Total consideration transferred for this acquisition is comprised of $2.4 million in cash consideration and $0.8 million in the form of notes to shareholders at fair value. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets purchased and liabilities assumed in the acquisition. Acquisition-related expenses related to this transaction were not material.

In March 2022, we entered into a definitive share purchase agreement in connection with the acquisition of one O&P business for a total purchase price of approximately $9.0 million. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets acquired and liabilities assumed in this acquisition. Acquisition-related expenses were not material for this transaction.

2021 Acquisition Activity

During 2021, we completed the following acquisitions of O&P clinics with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of these high quality O&P providers. None of the acquisitions were individually material to our financial position, results of operations, or cash flows.

•In the first quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $24.2 million, of which $19.2 million was cash consideration, net of cash acquired, $4.0 million was issued in the form of notes to shareholders at fair value, and $1.0 million in additional consideration.

•In the second quarter of 2021, we completed the acquisitions of all the outstanding equity interests of two O&P businesses for total consideration of $21.0 million, of which $16.0 million was cash consideration, net of cash acquired, $4.9 million was issued in the form of notes to shareholders at fair value, and $0.1 million in additional consideration.

•In the third quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $6.2 million, of which $3.9 million was cash consideration, net of cash acquired, $1.5 million was issued in the form of notes to shareholders at fair value, and $0.8 million in additional consideration.

•In the fourth quarter of 2021, we completed the acquisitions of all the outstanding equity interests of eight O&P businesses for total consideration of $53.1 million, of which $40.8 million was cash consideration, net of cash acquired, and $12.3 million was issued in the form of notes to shareholders at fair value.

Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the year ended December 31, 2021 were $2.1 million, which includes those costs for transactions that were in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisitions completed during the year ended December 31, 2021 were $1.6 million.

The aggregate purchase price of these acquisitions was allocated on a preliminary basis as follows:


(in thousands)
Cash paid, net of cash acquired	$	79,927
Issuance of Seller Notes at fair value	22,706
Additional consideration, net	1,925
Aggregate purchase price	104,558

Accounts receivable	6,569
Inventories	4,683
Customer relationships (Weighted average useful life of 5.0 years)	11,745
Non-compete agreements (Weighted average useful life of 5.0 years)	558
Other assets and liabilities, net	(5,121)
Net assets acquired	18,434
Goodwill	$	86,124

Right-of-use assets and lease liabilities related to operating leases recognized in connection with acquisitions completed for the year ended December 31, 2021 were $8.9 million.