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Note 3 - Acquisitions

6 Months Ended

Jun. 30, 2021

Business Combination Disclosure [Text Block]

3. Acquisitions

SciSafe acquisition

On September 18, 2020, BioLife entered into a Stock Purchase Agreement, by and among the Company, SciSafe Holdings, Inc., a Delaware corporation, and the stockholders of SciSafe (collectively, the “SciSafe Sellers”) in accordance with the Stock Purchase Agreement, pursuant to which the Company agreed to purchase from the SciSafe Sellers one hundred percent (100%) of the issued and outstanding capital shares or other equity interests of SciSafe (the “SciSafe Acquisition”). The SciSafe Acquisition closed October 1, 2020.

Consideration transferred

The SciSafe Acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. As of the closing of the SciSafe Acquisition, the Company agreed to issue to the SciSafe Sellers 611,683 shares of common stock valued at $29.29 per share and a cash payment of $15 million, with $1.5 million held in escrow to account for adjustments for net working capital and as a security for, and a source of payment of, the Company’s indemnity rights. Pending the occurrence of certain events, the Company will issue to the SciSafe Sellers an additional 626,000 shares of common stock, which shall be issuable to SciSafe Sellers upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024. Under the acquisition method of accounting, the assets acquired and liabilities assumed from SciSafe were recorded as of the acquisition date, at their respective fair values, and consolidated with those of BioLife. The fair value of the contingent consideration of $3.7 million was determined using a Monte Carlo simulation. The fair value of the net tangible assets acquired is approximately $2.8 million, the fair value of the deferred tax liability acquired is approximately $3.3 million, the fair value of the intangible assets acquired is approximately $12.1 million, and the residual goodwill is approximately $24.9 million. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Total consideration transferred (in thousands):

Cash consideration	$	15,000
Stock consideration		17,916
Contingent consideration		3,663
Working capital adjustment		(53	)
Total consideration transferred	$	36,526

Fair value of net assets acquired

The table below represents the purchase price allocation to the net assets acquired based on their estimated fair values (amounts in thousands).

Cash	$	500
Accounts receivable, net		945
Prepaid expenses and other current assets		31
Property, plant and equipment, net		3,400
Customer relationships		7,420
Tradenames		4,020
Non-compete agreements		660
Goodwill		24,943
Other assets		1,547
Accounts payable		(885	)
Deferred tax liability		(3,297	)
Other liabilities		(2,758	)
Fair value of net assets acquired	$	36,526

On September 30, 2020, the Company advanced SciSafe $500,000 in cash for working capital purposes. This cash and a payable due to the Company were both assumed in the transaction and are both reflected in the fair value of net assets acquired.

The fair value of SciSafe’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):

	Fair Value		Useful Life (Years)
Customer relationships	$	7,420		14
Tradenames		4,020		19
Non-compete agreements		660		4
Total identifiable intangible assets	$	12,100

Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The estimated fair values of customer relationships were estimated using a multi-period excess earnings approach. The estimated fair value of the tradenames is based on the relief from royalty method which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. The estimated fair values of non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the non-compete agreements were and were not in place. The fair value of property, plant and equipment was determined using the “market approach”. The fair value of the milestone contingent consideration was determined using a scenario analysis valuation method which incorporates BioLife’s assumptions with respect to the likelihood of achievement of certain revenue milestones, revenue volatility, credit risk, timing of earnout share issuances and a risk-adjusted discount rate to estimate the present value of the expected earnout share issuances.

Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset.

Indemnification Asset

In 2020, the Company recognized a $130,000 liability for a non-income tax contingency related to the acquisition of SciSafe. As of the date of acquisition, we recognized an indemnification asset at the same time and on the same basis as the recognized liability, to the extent that collection is reasonably assured, in accordance with ASC 805. When indemnified, subsequent changes in the indemnified item are offset by changes in the indemnification asset. We assess the realizability of the indemnification asset each reporting period. Changes in the principal portion of non-income tax contingencies, as well as changes in any related indemnification asset, are included in operating income. The indemnification asset is included within prepaid expenses and other current assets on the balance sheet.

Acquired goodwill

The goodwill of $24.9 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. The goodwill recorded is not deductible for income tax purposes.

Global Cooling acquisition

General terms and effects

On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”).

On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly-owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”).

Merger consideration

The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders is subject to the withholding of the GCI Escrow Shares (as defined below) and is subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of $374,000. In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments.

Total consideration transferred (in thousands, except number of shares, stock price, and consideration percentage):

BioLife shares outstanding (as of March 19, 2021)		33,401,359
Merger consideration percentage		19.9	%
Merger consideration shares		6,646,870
less: Merger consideration shares withheld to satisfy outstanding GCI stockholder obligations to GCI		10,400
Subtotal		6,636,470
BioLife stock price (as of May 3, 2021)	$	35.07
Value of issued shares	$	232,741
plus: Settlement of BioLife prepaid deposits	$	2,152
plus: Net settlement of BioLife accounts receivable	$	16
Merger Consideration	$	234,909

Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.

Escrow shares

At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the “Escrow Shares”, along with any other dividends, distributions or other income on the GCI Escrow Shares, the “GCI Escrow Property”) otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement to be entered into in connection with the GCI Transactions (the “GCI Escrow Agreement”).

The GCI Escrow Property will be held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims), unless earlier released in accordance with the terms of the GCI Escrow Agreement.

Fair value of net assets acquired

As the Company finalizes its estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months). The initial accounting is incomplete as of June 30, 2021 for the acquired assets and liabilities as the Company is currently in the process of completing the assessment of the tax attributes of the business combination. The finalization of the acquisition accounting valuation assessment may result in a change in the valuation of the deferred tax assets and liabilities and goodwill, which could have a material impact on the Company’s results of operations and financial position.

Under the acquisition method of accounting, the assets acquired and liabilities assumed from Global Cooling were estimated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The estimated fair value of the net tangible assets acquired is approximately $740,000, the estimated fair value of the deferred tax liability acquired is approximately $23.5 million, the estimated fair value of the intangible assets acquired is approximately $120.5 million, and the estimated residual goodwill is approximately $137.2 million. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

The table below represents the estimated fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).

Cash	$	43
Accounts receivable, net		7,076
Inventory		15,547
Prepaid expenses and other current assets		639
Property, plant and equipment, net		3,512
Operating lease right-of-use assets, net		1,741
Financing lease right-of-use assets, net		114
Long-term deposits and other assets		4
Developed technology		18,140
Customer relationships		7,020
Tradenames		26,640
Non-compete agreements		1,240
In-process research and development		67,440
Goodwill		137,215
Accounts payable		(9,837	)
Line of credit		(4,231	)
Lease liabilities, operating		(1,880	)
Lease liabilities, financing		(114	)
Long-term debt		(4,410	)
Deferred tax liability		(23,526	)
Other liabilities		(7,464	)
Fair value of net assets acquired	$	234,909

The fair value of Global Cooling’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):

	Fair Value		Useful Life (Years)
Developed technology	$	18,140		6
Customer relationships		7,020		12
Tradenames		26,640		15
Non-compete agreements		1,240		4
In-process research and development		67,440		N/A
Total identifiable intangible assets	$	120,480

Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The estimated fair values of developed technology and in-process research and development were estimated using a multi-period excess earnings approach. The estimated fair values of customer relationships were estimated using the “distributor method”. The estimated fair value of the tradenames is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. The estimated fair values of non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the non-compete agreements were and were not in place. The fair value of inventory and property, plant and equipment were determined using the “market approach”.

Acquired goodwill

The goodwill of $137.2 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. The goodwill recorded is not deductible for income tax purposes.