Acquisitions

Acquisitions Completed in Fiscal Year 2017

Acquisition of Cool Lab, LLC

On November 28, 2016, the Company acquired 100% of the equity of Cool Lab, LLC ("Cool Lab") from BioCision, LLC ("BioCision"). The Company held a 20% equity ownership interest in BioCision prior to the acquisition. Cool Lab was established as a subsidiary of BioCision on November 28, 2016 upon a transfer of certain assets related to cell cryopreservation solutions with net carrying values of $0.9 million. Cool Lab provides a range of patented and/or patent-pending offerings for sample cooling and freezing, controlled rate freezing, portable cryogenic transport and archival storage solutions for customers with temperature-sensitive workflow process. Cool Lab's offerings assist in managing the temperature stability of therapeutics, biological samples, and related biomaterials in ultra-cold and cryogenic environments. The acquisition of Cool Lab is expected to allow the Company to extend its comprehensive sample management solutions across the cold chain of custody, which is consistent with the other offerings it brings to its life sciences customers. Please refer to Note 6, "Equity Method Investments" for further information on the equity interest in BioCision held by the Company immediately before the acquisition date.

The aggregate purchase price of $15.2 million consisted of a cash payment of $4.8 million, a liability to the seller of $0.1 million and the settlement of certain preexisting relationships with Cool Lab and BioCision, disclosed as non-cash consideration of $10.3 million, which has been measured at fair value on the acquisition date.

The non-cash consideration of $10.3 million consisted of financial instruments of BioCision held by the Company prior to the acquisition of Cool Lab that were subsequently measured at fair value on the acquisition date and delineated as non-cash consideration paid for Cool Lab. Such non-cash consideration was comprised of: (i) the redeemable fair value of the existing 20% equity ownership interest in BioCision of $3.1 million, (ii) convertible debt securities of BioCision and warrants of $5.6 million to purchase BioCision's preferred units, and (iii) term notes of BioCision of $1.6 million including accrued interest. Such pre-acquisition financial instruments had an aggregate carrying value of $8.6 million and were measured at an aggregated fair value of $10.3 million on the acquisition date. As a result of such measurement, the Company recognized a net gain of $1.6 million in its unaudited Consolidated Statements of Operations during the three months ended December 31, 2016. Please refer to Note 6, "Equity Method Investments" and Note 17, "Fair Value Measurements" for further information on the financial instruments included in the non-cash consideration and the valuation techniques and inputs used in fair value measurements.

The Company used a market participant approach to record the assets acquired and liabilities assumed in the Cool Lab acquisition. The purchase price allocation is based on a preliminary valuation and subject to further adjustments within the measurement period as additional information becomes available related to the fair value of such assets acquired and liabilities assumed. As a result of the preliminary valuation, the Company’s estimates and assumptions are subject to change within the measurement period. As of December 31, 2016, the fair values of inventory, intangible assets acquired, tax-related matters and residual goodwill are preliminary. The Company will refine such fair value estimates as new information becomes available during the measurement period. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.

The preliminary amounts recorded were as follows (in thousands):



	Fair Value of Assets and Liabilities
Inventory	$	1,283
Intangible assets	6,100
Goodwill	8,527
Accrued liabilities	(30		)
Other liabilities	(686		)
Total purchase price	$	15,194

Fair values of intangible assets acquired consisted of: (i) a customer relationship intangible asset of $3.6 million attributable to a certain customer, (ii) completed technology of $1.2 million and (iii) other customer relationship intangible assets of $1.3 million. The Company used the income approach in accordance with the excess-earnings method to estimate the fair value of customer relationship intangible assets which is equal the present value of the after-tax cash flows attributable to the intangible asset only. The Company used the income approach in accordance with the relief-from-royalty method to estimate the fair value of the completed technology which is equal to the present value of the after-tax royalty savings attributable to owning that intangible asset. The weighted average amortization periods for intangible assets acquired are 3 years for the customer relationship intangible asset attributable to a certain customer, 8 years for completed technology and 10 years for other customer relationship intangible assets. The intangible assets acquired are amortized over the total weighted average period of 5.5 years using methods that approximate the pattern in which the economic benefits are expected to be realized, including percentage of revenue expected to be generated from sales to a certain customer over the contract term.

Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to the Brooks Life Science Systems segment. Goodwill is primarily the result of expected synergies from combining the operations of Cool Lab with the Company's operations and is deductible for tax purposes.

The Company recorded a liability of $0.7 million in the purchase price allocation that represented a preacquisition contingency incurred on the acquisition date. The obligation is related to a rebate that is due to a particular customer if the annual product sales volume metrics exceed threshold amount under the provisions of the contract assumed by the Company. Fair value of such liability was determined based on a probability weighted discounted cash flow model. Additionally, the Company recognized a customer relationship intangible asset of $3.6 million related to this arrangement, as discussed above.

The operating results of Cool Lab have been reflected in the results of operations for the Brooks Life Science Systems segment from the date of the acquisition, which included approximately one month of activity during the first quarter of fiscal year 2017. During the three months ended December 31, 2016, revenue and net loss from Cool Lab recognized in the Company’s results of operations were $0.3 million and $0.1 million, respectively. During the three months ended December 31, 2016, the net loss included charges of $0.1 million each related to the step-up in value of the acquired inventories and amortization expense related to acquired intangible assets.

During the three months ended December 31, 2016, the Company incurred $0.2 million in non-recurring transaction costs with respect to the Cool Lab acquisition which were recorded in "Selling, general and administrative" expenses within the accompanying unaudited Consolidated Statements of Operations.

The Company did not present a pro forma information summary for its consolidated results of operations for the three months ended December 31, 2016 and 2015 as if the acquisition of Cool Lab occurred on October 1, 2015 because such results were insignificant.

Acquisitions Completed in Fiscal Year 2016

Acquisition of BioStorage Technologies, Inc.

On November 30, 2015, the Company completed its acquisition of BioStorage Technologies, Inc., or BioStorage, an Indiana-based global provider of comprehensive sample management and integrated cold chain solutions for the biosciences industry. These solutions include collection, transportation, processing, storage, protection, retrieval and disposal of biological samples. These solutions combined with the Company's existing offerings, particularly automation for sample storage and formatting, provide customers with fully integrated sample management cold chain solutions which will help them increase productivity, efficiencies and speed to market. This acquisition will allow the Company to access a broader customer base that is storing samples at ultra cold temperatures and simultaneously provide opportunities for BioStorage to use the Company's capabilities to expand into new markets.

The Company acquired 100% of the issued and outstanding shares of BioStorage. A cash payment of $130.7 million, net of the seller's cash of $2.8 million, resulted in a net cash outflow of $128.0 million, including $125.2 million ascribed to the purchase price and $2.5 million for retention arrangements with certain employees based on the completion of a service retention period. The cash payment included a debt repayment of $3.2 million and transaction costs of $2.9 million paid by the Company on behalf of BioStorage.

The Company recorded the assets acquired and liabilities assumed related to BioStorage at their preliminary fair values as of the acquisition date, from a market participant’s perspective. The purchase price allocation was prepared on a preliminary basis and subject to further adjustments within the measurement period as additional information became available concerning the fair value of the assets acquired and liabilities assumed. The preliminary fair values of the tangible and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions that were subject to change within the measurement period. The purchase price allocation for the BioStorage acquisition was finalized within the measurement period.

During fiscal year 2016, the Company reached a settlement with the sellers of BioStorage's stock related to certain working capital adjustments and received $0.2 million of proceeds from the sellers as a result of such settlement which was recorded as a decrease of $0.2 million in the purchase price and goodwill.

The Company recorded the following amounts for the assets acquired and liabilities assumed related to BioStorage at their fair values as of the acquisition date (in thousands):



	Fair Value of Assets and Liabilities
Accounts receivable	$	16,942
Prepaid expenses and other current assets	321
Property, plant and equipment	14,345
Intangible assets	41,460
Goodwill	79,639
Other assets	53
Debt assumed	(385		)
Accounts payable	(1,708		)
Accrued liabilities	(9,423		)
Deferred revenue	(1,766		)
Long-term deferred tax liabilities	(14,169		)
Other liabilities	(61		)
Total purchase price, net of cash acquired	$	125,248

At the closing of the acquisition of BioStorage, a cash payment of $5.4 million was placed into escrow which consisted of $2.9 million ascribed to the purchase price and $2.5 million related to retention arrangements with certain employees. The payment of $2.9 million included $1.9 million related to satisfaction of the sellers' indemnification obligations with respect to BioStorage's representations and warranties and other indemnities, as well as $1.0 million related to potential purchase price adjustments which was reduced by the full amount subsequent to the acquisition date as a result of reaching a settlement with the sellers. The escrow balance of $2.5 million was payable to certain employees upon completion of a service retention period. Such retention payments were not considered a part of the purchase price, but rather recorded as a separate asset acquired and included within "Prepaid expenses and other current assets" in the accompanying unaudited Consolidated Balance Sheets. The escrow balance related to such retention payments was reduced by the full amount of $2.5 million and released to applicable employees subsequent to the acquisition date. Total escrow balance related to the satisfaction of the sellers' indemnification obligations was $1.9 million as of December 31, 2016.

The fair value of customer relationship intangible assets of $36.6 million was estimated based on the income approach in accordance with the excess-earnings method. The weighted average amortization period for the customer relationships intangible assets acquired in the BioStorage acquisition is 11.0 years. The fair value of the trademark intangible assets acquired of $4.9 million was estimated based on the income approach in accordance with the relief-from-royalty method. The weighted average amortization period for the trademark intangible assets acquired in the BioStorage acquisition is 8.0 years. The intangible assets acquired are amortized over the total weighted average period of 10.6 years using an accelerated depreciation method which approximates the pattern in which the economic benefits are expected to be realized.

Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to Brooks Life Science Systems segment. Goodwill is primarily the result of expected synergies from combining the operations of BioStorage with the Company and is not deductible for tax purposes.

The operating results of BioStorage have been reflected in the results of operations for the Brooks Life Science Systems segment from the date of the acquisition, which included one month of activity during the first quarter of fiscal year 2016. During the three months ended December 31, 2016, revenue and net income from BioStorage recognized in the Company’s results of operations were $16.6 million and $1.5 million, respectively. During the three months ended December 31, 2015, revenue and net loss from BioStorage recognized in the Company’s results of operations were $6.5 million and $0.6 million, respectively. During the three months ended December 31, 2016 and 2015, the net income (loss) included amortization expense of $1.1 million and $0.3 million, respectively, related to acquired intangible assets, as well as $0.1 million of charges related to the step-up in value of the acquired fixed assets incurred during the three months ended December 31, 2015.

During the three months ended December 31, 2016 and 2015, the Company incurred $0.1 million and $2.9 million, respectively, in non-recurring transaction costs with respect to the BioStorage acquisition which were recorded in "Selling, general and administrative" expenses within the unaudited Consolidated Statements of Operations. The retention payment of $2.5 million was recorded within prepaid expenses and other current assets at the acquisition date and is recognized as compensation expense over the service period or upon a triggering event in the underlying change in control agreements. During the three months ended December 31, 2016 and 2015, the Company recorded $0.1 million and $0.7 million, respectively, of compensation expense related to this arrangement. The retention payment balance was $0.1 million at September 30, 2016. There was no balance related to the retention payment at December 31, 2016.

The following unaudited proforma financial information represents a summary of the consolidated results of operations for the Company and BioStorage for the three months ended December 31, 2015 as if the acquisition of BioStorage occurred on October 1, 2014 (in thousands):



	Three Months Ended, December 31, 2015
Revenue	$	131,001
Net loss	(71		)

Basic loss per share	$	—
Diluted loss per share	$	—

Weighted average shares outstanding used in computing net loss per share:
Basic	68,130
Diluted	68,130

The unaudited pro forma information presented above reflects historical operating results of the Company and BioStorage and includes the impact of certain adjustments directly attributable to the business combination. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition of BioStorage had taken place on October 1, 2014. The adjustments reflected in the unaudited pro forma information included amortization expense of $0.5 million and the related tax effects of $0.5 million. Additionally, transaction costs of $2.9 million and restructuring charges of $0.8 million were excluded from the proforma net loss during the three months ended December 31, 2015. The Company did not present unaudited pro forma financial information for the three months ended December 31, 2016 since the results of BioStorage were included in the Company's consolidated results of operations during the period then ended.