Business Combinations

3 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Combinations

3. Business Combinations

For all business combinations, the Company records all assets and liabilities of the acquired business, including goodwill and other identified intangible assets, at their respective fair values as of the acquisition date. Contingent consideration, if any, is recognized at its fair value on the acquisition date and changes in fair value are recognized in earnings until settlement. Acquisition-related transaction costs are expensed as incurred.

Creagh Medical Ltd.

On November 20, 2015, the Company acquired 100% of the outstanding common shares and voting shares of Creagh Medical Ltd. (“Creagh Medical”) located in Ballinasloe, Ireland. The acquisition was financed with cash on hand and contingent seller financing. The Company acquired Creagh Medical for up to €30 million (approximately $32 million as of the acquisition date), including an upfront payment of €18 million (approximately $19.3 million as of the acquisition date), and up to €12 million (approximately $12.8 million as of the acquisition date) based on achievement of revenue and value-creating operational milestones through September 30, 2018. The payment of the milestones, if any, will occur in the quarter ending December 31, 2018. Total transaction, integration and other costs associated with the Creagh Medical acquisition aggregated $2.4 million for the quarter ended December 31, 2015. The operating results of Creagh Medical have been included in the Company’s Medical Device segment since the acquisition date. The Company realized $0.5 million of revenue and a loss of $0.3 million from the Creagh Medical operations for the three months ended December 31, 2015.

Creagh Medical designs and manufactures high-quality percutaneous transluminal angioplasty (“PTA”) balloon catheters. Since 2006, Creagh Medical has grown its technical and product capability with PTA products approved throughout the world, including Europe, the United States, and Japan. With these resources, the Company is uniquely positioned to offer a total solutions approach from product design and development through in-house extrusion, balloon forming, top-assembly and packaging and regulatory capabilities to approved products for exclusive distribution.

The purchase price of Creagh Medical consisted of the following:

(Dollars in thousands)
Cash paid	$	18,449
Debt assumed		761
Contingent consideration		9,064
Total purchase price		28,274
Less cash and cash equivalents acquired		(251	)
Total purchase price, net of cash acquired	$	28,023

The following table summarizes the final allocation of the purchase price to the fair values assigned to the assets acquired and the liabilities assumed at the date of the Creagh Medical acquisition:

	Fair Value (Dollars in thousands)			Estimated Useful Life (In years)
Current assets	$	896		N/A
Property and equipment		634		1.0-10.0
Trade name		75		N/A
Developed technology		1,787		7.0
In-process research and development		942		N/A
Customer relationships		11,119		7.0-10.0
Other noncurrent assets		81		N/A
Current liabilities		(942	)	N/A
Deferred tax liabilities		(9	)	N/A
Net assets acquired		14,583
Goodwill		13,440		N/A
Total purchase price, net of cash acquired	$	28,023

The Creagh Medical goodwill, which is a result of acquiring and retaining the Creagh Medical existing workforce and expected synergies from integrating their business into the Company’s Medical Device segment, is not deductible for tax purposes.

NorMedix, Inc.

On January 8, 2016, the Company acquired 100% of the shares of NorMedix, Inc. (“NorMedix”), a privately owned design and development company focused on ultra thin-walled, minimally invasive catheter technologies based in Plymouth, Minnesota. The acquisition was financed with cash on hand and contingent seller financing. The Company acquired NorMedix for up to $14.0 million, including an upfront payment of $7.0 million, and up to $7.0 million based on achievement of revenue and value-creating operational milestones through September 30, 2019. Contingent consideration associated with the NorMedix transaction is payable as earned. This acquisition strengthened the Company’s vascular device expertise and Research and Development (“R&D”) capabilities and was a significant component of the Company’s strategy to offer whole-product solutions to medical device customers, while continuing its commitment to consistently deliver innovation in coating technologies. Total transaction, integration and other costs associated with the NorMedix acquisition aggregated $0.1 million for the three months ended December 31, 2015. The operating results for NorMedix have been included in the Medical Device segment since the acquisition date.  

The purchase price of NorMedix consisted of the following:

(Dollars in thousands)
Cash paid	$	6,905
Contingent consideration		3,520
Total purchase price		10,425
Less cash and cash equivalents acquired		(17	)
Total purchase price, net of cash acquired	$	10,408

The following table summarizes the final allocation of the purchase price to the fair values assigned to the assets acquired and the liabilities assumed at the date of the NorMedix acquisition:

	Fair Value (Dollars in thousands)			Estimated Useful Life (In years)
Net current assets	$	113		N/A
Property and equipment		60		N/A
Developed technology		6,850		10.0-14.0
Customer relationships		900		4.0
Deferred tax asset		690		N/A
Other noncurrent asset		13		N/A
Accounts payable		(187	)	N/A
Deferred tax liabilities		(2,483	)	N/A
Net assets acquired		5,956
Goodwill		4,452		N/A
Total purchase price, net of cash acquired	$	10,408

The NorMedix goodwill is a result of acquiring and retaining the NorMedix existing workforce and expected synergies from integrating their business into the Medical Device segment. The goodwill is not deductible for tax purposes.

On a pro forma basis, as if the Creagh medical and NorMedix acquisitions had occurred as of the beginning of fiscal 2016, the Company’s consolidated revenues and net income would have been $17.6 million and $4.2 million for the three months ended December 31, 2015, with basic and diluted earnings per share of $0.32. This unaudited pro forma financial information includes adjustments for additional amortization expense on identifiable intangible assets of $0.4 million and contingent consideration accretion expense of $0.3 million, eliminating non-recurring transactional professional fees of $2.5 million, and tax effect impact of $0.3 million. The tax impact of the adjustments in all periods reflects no tax benefit from contingent consideration accretion as well as a significant portion of our transaction related costs in fiscal 2016 as they are not deductible for tax purposes.  Further, Creagh Medical amortization expense does not reflect an Irish tax benefit as we acquired a net operating loss carryforward as of the acquisition date that was offset in the aggregate by deferred tax liabilities and valuation allowance.  Therefore, the amortization of Creagh Medical intangible assets results in a decrease in deferred tax liabilities with a corresponding increase to a deferred tax valuation allowance. NorMedix amortization expense reflects a tax benefit based on our incremental U.S. tax rate.