Acquisitions

3 Months Ended

Mar. 31, 2012

3. Acquisitions. On March 20, 2012, On Assignment entered into an Agreement of Merger (the Merger Agreement) with Apex Systems, Inc., a Virginia corporation (Apex), OA Acquisition Corp., a Virginia corporation (Merger Sub), and Jeffrey E. Veatch as the Shareholder Representative. Pursuant to the Merger Agreement, the Merger Sub will merge with and into Apex (the Merger), with Apex continuing as the surviving entity. As a result of the Merger, Apex will become a wholly owned subsidiary of On Assignment. As more fully described in our Proxy Statement, filed with the SEC on April 13, 2012, and in the Merger Agreement, under the Merger Agreement the aggregate consideration to be received by Apex shareholders is $217 million of On Assignment common stock and $383 million in cash, subject to adjustment in certain circumstances. The obligation of On Assignment and Merger Sub to complete the Merger is subject to the satisfaction or waiver of a number of conditions set forth in the Merger Agreement, including the approval by On Assignment's shareholders of the issuance of common stock to Apex shareholders in the Merger, the receipt of proceeds by On Assignment of debt financing in the aggregate principal amount of $540 million and other customary closing conditions. In connection with the execution of the Merger Agreement, On Assignment obtained a commitment for a new $540 million senior secured credit facility. The credit facility provides for a $75 million revolving credit facility, $100 million term loan A and $365 million term loan B. The proceeds of the credit facility, which are to be funded in connection with the completion of the Merger, will be used to finance the cash portion of the purchase price, to repay existing indebtedness of On Assignment and Apex Systems and to pay fees and expenses in connection with the transaction. The Merger is expected to close during the second quarter of 2012. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to the Current Report on Form 8-K filed on March 26, 2012.

On February 28, 2011, the Company acquired all of the outstanding shares of Valesta, a privately-owned provider of specialized clinical research staffing headquartered in Belgium. The primary reasons for the acquisition were to expand the Life Sciences business operations and to leverage the Company's infrastructure. The purchase price for Valesta totaled $23.7 million comprised of $16.8 million in cash paid at closing, plus potential future earn-out consideration of $6.9 million (the maximum earn-out is capped at a Euro value of 5.0 million or approximately $6.7 million at March 31, 2012 exchange rates) based on estimated financial performance of Valesta through 2013. Acquisition costs related to this transaction totaled approximately $0.4 million and were expensed in 2011. Goodwill is not deductible for tax purposes. The results of operations for the acquisition have been combined with those of the Company since the acquisition date.

On July 31, 2011, the Company acquired all of the outstanding shares of HealthCare Partners (HCP), a privately-owned provider of physician staffing headquartered in Atlanta, Georgia. The primary reasons for the acquisition were to expand the Physician segment business operations geographic coverage and to leverage the Company's infrastructure. The estimated purchase price for HCP was approximately $19.1 million comprised of $15.7 million in cash paid at closing, plus potential future earn-out consideration of $3.4 million (the maximum earn-out is capped at $3.7 million) based on estimated financial performance of HCP through 2013. Acquisition costs related to this transaction totaled approximately $57,000 and were expensed in 2011. Goodwill is deductible for tax purposes. The results of operations for the acquisition have been combined with those of the Company since the acquisition date.

Assets and liabilities of the acquired companies were recorded at their estimated fair values at the dates of acquisition. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired has been allocated to goodwill. The fair value assigned to identifiable intangible assets was determined primarily by using a discounted cash flow method. The Company intends to discontinue the use of the HCP tradename during 2012. The Company's allocation of the purchase price for HCP is preliminary, as the amounts related to working capital and income taxes are still being finalized. Any measurement period adjustments will be recorded retrospectively to the acquisition date. During the quarter ended March 31, 2012, the Company adjusted Valesta's purchase price allocation. The adjustment was to recognize the tax impact of the amortization of identifiable intangible assets. The adjustment was not material and had no impact on the consolidated statement of operations; accordingly it is not presented retrospectively.

The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the respective purchase agreements. See Note 6 for further information regarding the fair value of earn-outs and the level 3 rollforward disclosure.

The following table summarizes (in thousands) the purchase price allocation for the acquisitions of HCP, which is subject to finalization during the measurement period and Valesta:

	2011 Acquisitions
	HCP		Valesta		Total
Current assets	$	3,941	$	6,332	$	10,273
Property and equipment		123		299		422
Goodwill		14,407		17,088		31,495
Identifiable intangible assets		1,784		5,679		7,463
Long-term deposits		13		26		39
Total assets acquired	$	20,268	$	29,424	$	49,692

Current liabilities	$	1,070	$	4,774	$	5,844
Other long-term liabilities		49		991		1,040
Total liabilities assumed		1,119		5,765		6,884
Total purchase price	$	19,149	$	23,659	$	42,808

The following table summarizes (in thousands) the intangible asset allocation, in connection with the purchase price allocation for the acquisitions of HCP, which is subject to finalization during the measurement period and Valesta:

		Intangible Asset Value
		2011 Acquisitions
	Useful life	HCP		Valesta		Total
Contractor relations	2 - 3 years	$	814	$	266	$	1,080
Customer relations	2 - 10 years		950		2,395		3,345
Non-compete agreements	2 years		20		440		460
Trademarks	indefinite		-		2,578		2,578
Total intangible assets acquired		$	1,784	$	5,679	$	7,463

The summary below (in thousands, except for per share data) presents pro forma consolidated results of operations for the three months ended March 31, 2011 as if the acquisitions of HCP and Valesta occurred on January 1, 2010. The pro forma financial information gives effect to certain adjustments, including: the amortization of intangible assets and interest expense on acquisition-related debt and changes in the management fees as a result of the acquisition. Acquisition-related costs are assumed to have occurred at the beginning of the year prior to acquisition. The pro-forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated as of the date indicated, nor are they necessarily indicative of future operating results.

	Three Months Ended March 31, 2011
Revenues	$	138,774
Operating income	$	7,448
Net income	$	3,535

Basic earnings per share	$	0.10
Diluted earnings per share	$	0.09

Weighted average number of shares outstanding		36,623
Weighted average number of shares and dilutive shares outstanding		37,429