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Acquisitions
 6 Months Ended
Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Acquisitions Acquisitions
2022 Acquisition Activity
During 2022, we completed the following acquisitions of O&P clinics with the intention of expanding the geographic footprint of our patient care offerings through the acquisitions 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 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.
•In the second quarter of 2022, we completed the acquisitions of all the outstanding equity interests of two O&P businesses for total consideration of $11.7 million, of which $8.5 million was cash consideration, net of cash acquired, and $3.2 million was issued in the form of notes to shareholders at fair value.
We accounted for these transactions under the acquisition method of accounting and have reported the results of operations of each acquisition as of the respective dates of the acquisitions. 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 acquisitions 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 acquisitions 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 associated with Hanger’s acquisition of O&P businesses are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the three and six months ended June 30, 2022 were $0.3 million and $0.6 million, respectively, which includes those costs for transactions that are in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisitions completed during the three and six months ended June 30, 2022 were $0.2 million and $0.3 million, respectively.
We have not presented pro forma combined results for these acquisitions because the impact on previously reported statements of operations would not have been material individually or in the aggregate.
Purchase Price Allocation
We have performed a preliminary valuation analysis of the fair market value of the assets acquired and liabilities assumed in the acquisitions. The final purchase price allocations will be determined when we have completed and fully reviewed the detailed valuations which could differ materially from the preliminary allocations. The final allocations 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 these acquisitions was allocated on a preliminary basis as follows:
(in thousands)
Cash paid, net of cash acquired$12,490 
Issuance of Seller Notes at fair value4,195 
Additional consideration36 
Aggregate purchase price16,721 
Accounts receivable697 
Inventories865 
Customer relationships (Weighted average useful life of 5.0 years)
2,270 
Non-compete agreements (Weighted average useful life of 5.0 years)
243 
Other assets and liabilities, net(418)
Net assets acquired3,657 
Goodwill$13,064 
Right-of-use assets and lease liabilities related to operating leases recognized in connection with the acquisitions completed for the six months ended June 30, 2022 were $0.7 million.
During the third quarter of 2022 to date, we completed the acquisitions of two O&P businesses for a total purchase price of $8.1 million. Total consideration transferred for these acquisitions is comprised of $6.3 million in cash consideration and $1.8 million in the form of notes to shareholders at fair value. Due to the proximity in time of these transactions 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 acquisitions. Acquisition-related expenses related to these transactions were not material.
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 value22,706 
Additional consideration, net1,925 
Aggregate purchase price104,558 
Accounts receivable6,569 
Inventories4,683 
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 acquired18,434 
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.