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Acquisitions
 9 Months Ended
Sep. 30, 2020
Acquisitions
3.
Acquisitions
Engineered Molding Technology LLC
On July 13, 2020, the Company completed the acquisition of 100% of the membership interests of Engineered Molding Technology LLC (“EMT”), a New York limited liability company
,
pursuant to a Membership Interest Purchase Agreement, dated June 26, 2020, by and among the Company, EMT, and Michael Pandori and Todd Etesse, the legal and beneficial owners of EMT (such acquisition, the “EMT Acquisition”).
EMT, which is headquartered in Clifton Park, New York, is an innovator and manufacturer of
single-use
silicone assemblies and components used in the manufacturing of biologic drugs. EMT’s standard and custom molding as well as their over-molded connectors and silicone tubing products are key components in
single-use
filtration and chromatography systems. EMT’s products will complement and expand Repligen’s
single-use
product offerings.
Consideration Transferred
The EMT
Acquisition
was accounted for as a purchase of a business under ASC 805,
“Business Combinations”.
Total consideration paid was $28.5 million
,
which included $2.2 million
 
deposited into an escrow account against which the Company may make claim
s
 
for indemnification
.
Under the acquisition method of accounting, the net assets of EMT were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net tangible assets acquired is estimated to be approximately $1.5 million, the fair value of the intangible assets acquired is estimated to be $14.4 million, and the residual goodwill is estimated to be approximately $12.6 million. The estimated consideration and preliminary purchase price information has been prepared using a preliminary valuation. The preparation of the valuation required the use of significant assumptions and
 
estimates
. Critical estimates included, but were not 
limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that Repligen believes to be reasonable. However, actual results may differ from these estimates.
Acquisition
-
related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred $1.0 million and $1.1 million of acquisition related costs during the three and nine months ended September 30, 2020. The transaction costs are included in selling, general and
administrative
expenses in the consolidated statements of comprehensive income (loss).
Fair Value of Net Assets Acquired
The allocation of purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, based on the preliminary valuation. As additional information becomes available, the Company may further revise its preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from July 13, 2020). Any such revisions or changes may be material. The components and allocation of the purchase price consists of the following amounts (amounts in thousands):
 
Cash and cash equivalents
    $ 69  
Accounts receivable
      1,057  
Inventory
      449  
Prepaid expenses and other current assets
      7  
Fixed assets, net
      472  
Operating lease right of use assets
      1,050  
Customer relationships
      11,080  
Developed technology
      2,910  
Trademark and tradename
      320  
Non-compete
agreements
      50  
Goodwill
      12,573  
Accounts payable
      (283 ) 
Accrued liabilities
      (190 ) 
Operating lease liability
      (211 ) 
Operating lease liability, long-term
      (839 ) 
  
 
 
  
Fair value of net assets acquired
   
$
28,514
 
  
 
 
  
Acquired Goodwill
The goodwill of $12.6 million represents future economic benefits expected to arise from anticipated synergies from the integration of EMT. These synergies include certain cost savings, operating efficiencies and other strategic benefits projected to be achieved as a result of the EMT Acquisition. Substantially all of the goodwill recorded is expected to be deductible for income tax purposes.
Intangible Assets
The following table sets forth the components of the identified intangible assets associated with the EMT Acquisition and their estimated useful lives:
 
    
Useful life
     
Fair Value
  
           
(Amounts in thousands)
  
Customer relationships
      14 years      $ 11,080  
Developed technology
      11 years        2,910  
Trademark and tradename
      14 years        320  
Non-competition
agreements
      3 years        50  
     
 
 
  
      $ 14,360  
     
 
 
  
Revenue, Net Income and Pro Forma Presentation
The Company has included the operating results of EMT in its consolidated statements of comprehensive income (loss) since the July 13, 2020 acquisition date. The Company does not consider this acquisition to be material to its consolidated statements of comprehensive income (loss) and therefore has not included pro forma results.
C Technologies, Inc.
On May 31, 2019, Repligen acquired C Technologies, pursuant to the terms of a Stock Purchase Agreement (the “Agreement”), by and among Repligen, C Technologies and Craig Harrison, an individual and sole stockholder of C Technologies (such acquisition, the “C Technologies Acquisition”).
Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred $4.0 million in transaction costs for the nine months ended September 30, 2019. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of comprehensive income (loss). In connection with the transaction, an additional $9.0 million was paid to employees during the second quarter of 2020, based on their continued employment with the Company one year after the date of the close of the C Technologies Acquisition.
 
The
 Company has recognized $3.7 million of compensation expense associated
 
with
this amount due to employees
during the nine months ended September 30, 2020 
and has recognized $9.0 million of compensation expense associated with this amount due since the C Technologies Acquisition.
Fair Value of Net Assets Acquired
The allocation of purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, based on the preliminary valuation. The Company obtained this information during due diligence and through other sources. In the months after closing, the Company obtained additional information about these assets and liabilities as it learned more about C Technologies. The Company refined the estimates of fair value to more accurately allocate the purchase price. Only items identified as of the acquisition date were considered for subsequent adjustment. We made appropriate adjustments to the purchase price allocation during the measurement period, which was one year from the acquisition date. The components and allocation of the purchase price consists of the following amounts (amounts in thousands):
 
Cash and cash equivalents
    $ 3,795  
Restricted cash
      26,933  
Accounts receivable
      3,044  
Inventory
      3,783  
Prepaid expenses and other current assets
      93  
Fixed assets
      40  
Operating lease right of use asset
      3,836  
Customer relationships
      59,680  
Developed technology
      28,920  
Trademark and tradename
      1,570  
Non-competition
agreements
      660  
Goodwill
      142,314  
Deferred taxes
      895  
Accounts payable
      (436 ) 
Accrued liabilities
      (2,767 ) 
Accrued bonus
      (26,928 ) 
Deferred revenue
      (1,709 ) 
Operating lease liability
      (51 ) 
Operating lease liability, long-term
      (3,785 ) 
  
 
 
  
Fair value of net assets acquired
   
$
239,887
 
  
 
 
  
Acquired Goodwill
The goodwill of $142.3 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. Substantially all of the goodwill recorded is expected to be deductible for income tax purposes. Pursuant to the Company’s business combination accounting policy included in Note 2,
“
Summary of Significant Accounting Policies – Business Combinations, Goodwill and Intangible Assets,
”
of the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2019, the Company
 
recorded goodwill adjustments for the effects on goodwill of changes to net assets acquired during the period that such change is identified, provided that any such change is within the measurement period (up to one year from the date of the acquisition). In March 2020, the Company recorded an adjustment to goodwill of $0.3 million related to additional state income tax liabilities to be paid to the seller, which were incurred from the Company’s finalized 338(h)(10) tax election.
Revenue, Net Income and Pro Forma Presentation
The Company recorded revenue from C Technologies of $9.0 million and $23.3 million for the three and nine months ended September 30, 2020, respectively, and $16.4 million from May 31, 2019, the date of acquisition, to December 31, 2019. The Company recorded a net income from C Technologies’ results of operations of $2.1 million and a net loss of $0.8 million for the three and nine months ended September 30, 2020, respectively, and a net loss of $7.4 million from May 31, 2019 to December 31, 2019. The Company has included the operating results of C Technologies in its consolidated statements of comprehensive income (loss) since the May 31, 2019 acquisition date. The following pro forma financial information presents the combined results of operations of Repligen and C Technologies as if the acquisition had occurred on January 1, 2019 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the C Technologies Acquisition, factually supportable and have a recurring impact. These pro forma adjustments include amortization expense on the acquired identifiable intangible assets, adjustments to stock-based compensation expense for equity compensation issued to C Technologies employees and the income tax effect of the adjustments made. In addition, acquisition-related transaction costs and an accounting adjustment to record inventory at fair value were excluded from pro forma net income in 2019.
Prior to the C Technologies Acquisition, C Technologies did not generate monthly or quarterly financial statements that were prepared in accordance with GAAP.
The following pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on January 1, 2019 or of future results (amounts in thousands, except per share data):
 
    
Nine Months Ended

September 30,
  
    
2019
  
Pro forma total revenue
    $ 209,960  
Pro forma net income
    $ 21,012  
Pro forma earnings per share:
   
Basic
    $ 0.45  
  
 
 
  
Diluted
    $ 0.44