

4.	Acquisitions

Our acquisition strategy includes the acquisition of animal hospitals, animal hospital chains, laboratories or related businesses. In accordance with that strategy, we acquired the following:



	For the Years Ended December 31,
	2016		2015		2014
Animal Hospitals:
Acquisitions, excluding CAPNA in 2016 ⁽¹⁾	71		55		47
CAPNA ⁽²⁾	56		—		—
Acquisitions, merged	(3	)	(7	)	(4	)
Sold, closed or merged	(11	)	(9	)	(9	)
Net increase	113		39		34
Laboratories:
Acquisitions	—		1		—
Acquisitions, merged	—		(1	)	—
New facilities	1		1		3
Net increase	1		1		3

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⁽¹⁾	Includes two additional independent animal hospitals that were acquired by Companion Animal Practices, North America ("CAPNA") subsequent to its May 2016 acquisition.


⁽²⁾	On May 1, 2016, we acquired an 80% ownership interest in CAPNA.



4.	Acquisitions, continued

Animal Hospital and Laboratory Acquisitions, excluding CAPNA

The purchase price allocations for some of the 2016 animal hospital acquisitions included in the table below are preliminary; however, adjustments, if any, are not expected to be material. The measurement periods for purchase price allocations do not exceed 12 months from the acquisition date. The following table summarizes the aggregate consideration for our acquired independent animal hospitals and laboratories, excluding CAPNA, and the allocation of the purchase price (in thousands):



	For Years Ended December 31,
	2016			2015			2014
Consideration:
Cash	$	351,404		$	147,379		$	122,804
Cash acquired	(6,530		)	(258		)	(1		)
Cash, net of cash acquired	344,874			147,121			122,803
Assumed debt	11,414			16,885			7,426
Holdbacks	9,479			5,040			3,000
Earn-outs	7,281			1,671			2,037
Fair value of total consideration transferred	$	373,048		$	170,717		$	135,266

Allocation of the Purchase Price:
Tangible assets	$	32,212		$	11,482		$	5,902
Identifiable intangible assets ⁽¹⁾	47,121			41,216			22,964
Goodwill ⁽²⁾	302,957			124,198			110,234
Other liabilities assumed	(8,344		)	(2,206		)	(115		)
Fair value of assets acquired and liabilities assumed	$	373,946		$	174,690		$	138,985
Noncontrolling interest	(2,015		)	(2,675		)	(1,705		)
Notes receivable from shareholder for formation of noncontrolling interest	1,375			(1,298		)	—
Preferred stock issued	(258		)	—			—
Fair value of pre-existing investment	—			—			(2,014		)
Total	$	373,048		$	170,717		$	135,266


⁽¹⁾	Identifiable intangible assets include customer relationships, trademarks, covenants-not-to-compete and client lists. The weighted-average amortization period for the total identifiable intangible assets is approximately five years. The

weighted-average amortization period for customer relationships, trademarks, covenants-not-to-compete and client lists is approximately five, eight, five and three years, respectively.


⁽²⁾	We expect that $263.4 million, $100.1 million and $62.5 million of the goodwill recorded in 2016, 2015 and 2014, respectively, will be fully deductible for income tax purposes.

Included in the table above is Antech Diagnostics, Inc.'s March 31, 2015 acquisition of Abaxis Veterinary Reference Laboratory ("AVRL") for total consideration of $21.0 million, and the acquisition of two additional independent animal hospitals acquired by CAPNA subsequent to its May 2016 acquisition for total consideration of $5.4 million.



4.	Acquisitions, continued

2016 CAPNA Acquisition

On May 1, 2016, we acquired an 80% ownership interest in CAPNA for a purchase price of $350.4 million. CAPNA, founded in 2010, is located in Las Vegas, Nevada, and at the time of its acquisition, operated a network of 56 free standing animal hospitals in 18 states.

The following table summarizes the purchase price and the preliminary allocation of the purchase price (in thousands):



Consideration:
Cash	$	352,829
Cash acquired	(3,405		)
Cash, net of cash acquired	$	349,424
Holdbacks	1,000
Fair value of total consideration transferred	$	350,424

Allocation of the Purchase Price:
Tangible assets	$	25,063
Identifiable intangible assets ⁽¹⁾	102,300
Goodwill ⁽²⁾	336,950
Other liabilities assumed	(27,889		)
Fair value of assets acquired and liabilities assumed	$	436,424
Noncontrolling interest	(86,000		)
Total	$	350,424

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⁽¹⁾	Identifiable intangible assets primarily include customer relationships, trademarks and covenants-not-to-compete. The weighted-average amortization period for the total identifiable intangible assets is approximately seven years. The amortization periods for customer relationships, trademarks and covenants is seven years, five years and five years, respectively.


⁽²⁾	As of December 31, 2016, we expect that $270.3 million of goodwill recorded for this acquisition will be deductible for income tax purposes.

The purchase price allocation for CAPNA is preliminary and is pending the valuation of certain items including, but not limited to, capital leases, operating leases and deferred income taxes. The final valuation of the net assets acquired and liabilities assumed is expected to be completed as soon as practicable, but no later than one year from the date of acquisition. During the three months ended December 31, 2016, measurement period adjustments were recorded for capital leases, operating lease liabilities and deferred income taxes.

Subsequent to the May 1, 2016 acquisition, CAPNA acquired two additional independent animal hospitals for total consideration of $5.4 million. These hospitals are excluded from the table above, but are included in the Animal Hospital and Laboratory Acquisitions table.



4.	Acquisitions, continued

Pro Forma Information

The following pro forma financial information for the years ended December 31, 2016 and 2015 presents, (i) the actual results of operations of our 2016 acquisitions and (ii) the combined results of operations for our Company and our 2016 acquisitions as if those acquisitions had been completed on January 1, 2015, the first day of the comparable prior annual reporting period. The pro forma financial information considers principally (i) our Company’s financial results, (ii) the historical financial results of our acquisitions, and (iii) select pro forma adjustments to the historical financial results of our acquisitions. Such pro forma adjustments represent principally estimates of (i) the impact of the hypothetical amortization of acquired intangible assets, (ii) the recognition of fair value adjustments relating to tangible assets, (iii) adjustments reflecting the new capital structure, including additional financing or repayments of debt as part of the acquisitions and (iv) the tax effects of the acquisitions and related adjustments as if those acquisitions had been completed on January 1, 2015. The pro forma financial information is not necessarily indicative of what our consolidated results of operations would have been had we completed the acquisition at the beginning of the comparable prior annual reporting period. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of our Company.



	Revenue		Net Income
(In thousands):
Results of acquired businesses included in our year ended December 31, 2016 actuals	$	230,612	$	12,914
2016 supplemental pro forma from January 1, 2016 to December 31, 2016 ⁽¹⁾	$	2,648,242	$	217,906
2015 supplemental pro forma from January 1, 2015 to December 31, 2015 ⁽¹⁾	$	2,512,807	$	223,135

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⁽¹⁾	2016 supplemental pro forma net income was adjusted to exclude $1.4 million of acquisition-related costs incurred in 2016. 2015 supplemental pro forma net income was adjusted to include these charges.