5. Acquisitions

Acquisition Completed in Fiscal Year 2019

Acquisition of GENEWIZ

On November 15, 2018, the Company acquired all the outstanding capital stock of GENEWIZ Group (“GENEWIZ”), a leading global genomics service provider headquartered in South Plainfield, New Jersey. GENEWIZ provides genomics services that enable research scientists to advance their discoveries within the pharmaceutical, academic, biotechnology, agriculture and other markets. It provides gene sequencing and synthesis services for more than 4,000 institutional customers worldwide supported by their global network of laboratories spanning the United States, China, Japan, Germany and the United Kingdom. This transaction added a new and innovative platform which the Company expects to leverage, along with its core capabilities, to add even more value to samples under the Company’s care.

The total cash purchase price for the acquisition was $442.4 million, net of cash acquired. The total purchase price is subject to working capital, and other adjustments, e.g., adjustment for cash and debt. The Company used the proceeds of the incremental loan described in Note 8, “Debt” to pay a portion of the purchase price.

On the acquisition date, the Company paid $32.3 million to escrow accounts related to the satisfaction of the seller's indemnification obligations with respect to their representations and warranties and other indemnities. The Company also retained an amount equal to $1.5 million (adjustment holdback) as collateral for any adjustment shortfall in determining the final merger consideration. The final settlement of the adjustment hold back is expected to be determined during the second quarter of the Company’s 2019 fiscal year.

The Company recorded the following assets acquired and liabilities assumed related to GENEWIZ at their fair values as of the acquisition date, from a market participant’s perspective (in thousands). While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The finalization of the assignment of fair values will be completed within one year.


	Fair Value of
	Assets and
	Liabilities
Accounts receivable, net	$	26,952
Inventories		4,370
Prepaid expenses and other current assets		11,210
Property, plant and equipment, net		36,379
Goodwill		236,504
Intangible assets, net		188,524
Other assets		15,998
Current portion of long-term debt		(3,170)
Accounts payable		(6,522)
Deferred revenue		(67)
Accrued compensation and benefits		(5,145)
Other current liabilities		(6,771)
Long-term debt		(2,482)
Long-term tax reserves		(13,400)
Long-term deferred tax liabilities		(37,415)
Other long-term liabilities		(2,602)
Total purchase price, net of cash acquired	$	442,363

The Company applied variations of the income approach to estimate the fair values of the intangibles assets acquired. The identifiable intangible assets include customer relationships (excess earnings method) of $125.4 million with a useful life of 14 years, completed technology (relief from royalty method) of $44.1 million with useful lives from 10 to 15 years and trademarks (relief from royalty method) of $19.0 million with a useful life of 13 years. The intangible assets acquired are amortized over the total weighted average period of 13.3 years using methods that approximate the pattern in which the economic benefits are expected to be realized.

Goodwill of $236.5 million largely reflects the potential synergies and expansion of the Company’s core technologies and offerings in the Life Sciences business. The goodwill from this acquisition is reported within the Brooks Life Sciences segment and is not tax deductible.

The revenues and net income from GENEWIZ included in the Company's consolidated results for the reporting period since acquisition were $16.4 million and $0.9 million, respectively. During the three months ended December 31, 2018, net income included $1.6 million related to amortization expense of acquired intangible assets. The Company incurred $10.0 million in transaction costs related to the acquisition of which $6.3 million was incurred during the three months ended December 31, 2018.

The following unaudited pro forma information reflects our consolidated results of operations as if the acquisition had taken place on October 1, 2017. The unaudited pro forma information is not necessarily indicative of the results of operations that we would have reported had the transaction actually occurred at the beginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements (in thousands).


	Three Months Ended December 31, 2018		Three Months Ended December 31, 2017

Revenue	$	196,021		170,033
Net income (loss)		(35,325)		(8,714)

The unaudited pro forma financial information presented in the table above has been adjusted to give effect to adjustments that are (1) directly related to the acquisition; (2) factually supportable; and (3) expect to have a continuing impact. These adjustments include, but are not limited to, the application of our accounting policies, elimination of related party transactions, depreciation and amortization related to fair value adjustments to property, plant and equipment and intangible assets, and interest expense on acquisition related debt.

Revenue for the three months ended December 31, 2018 is recognized in accordance with ASC 606, while results for the three months ended December 31, 2017 have not been restated and are reported in accordance with the governing revenue recognition standards applicable to that period. Pro forma revenue for the three months ended December 31, 2018 has been decreased by $0.4 million for the adoption of ASC 606.

To present our consolidated results of operations as if the acquisition had taken place on October 1, 2017, the unaudited pro forma earnings for the period from October 31, 2018 to December 31, 2018 and the three months ended December 31, 2017 have been adjusted to include the following additional expenses related to the acquisition: $1.6 million and $3.3 million, respectively, of property, plant, and equipment, leases, and intangible asset step-up depreciation and amortization expense, and $2.0 million and $4.8 million, respectively, of interest expense related to financing activities. The net loss of $35.3 million for the quarter ended December 31, 2018 is mainly due to the one-time option, bonus, and transaction costs of $43.9 million incurred by GENEWIZ and one-time transaction costs of $6.3 million incurred by Brooks.

Acquisitions Completed in Fiscal Year 2018

Acquisition of Tec-Sem

On April 6, 2018, the Company acquired approximately 93% of the outstanding capital stock of Tec-Sem Group AG (“Tec-Sem”), a Switzerland-based manufacturer of semiconductor fabrication automation equipment with a focus on reticle management. During the fourth quarter of fiscal year 2018, the Company acquired the remaining 7% noncontrolling interest upon the completion of certain procedural steps. The total cash payment to acquire the business was $15.6 million, net of cash acquired and subject to working capital adjustments. The acquisition of Tec-Sem has expanded the Company’s contamination control solutions business within the Brooks Semiconductor Solutions Group segment.

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


	Fair Value of Assets and Liabilities
Accounts receivable (approximates contractual value)	$	988
Inventories		4,297
Prepaid expenses and other current assets		4,038
Property, plant and equipment		85
Intangible assets		10,694
Goodwill		7,665
Accounts payable		(1,049)
Accrued liabilities		(6,962)
Deferred tax liabilities		(1,391)
Accrued pension liability		(2,800)
Total purchase price, net of cash acquired	$	15,565

The Company applied variations of the income approach to estimate the fair values of the intangibles assets acquired. The identifiable intangible assets include completed technology (excess earnings method) of $8.4 million with a useful life of 10 years, backlog (excess earnings method) of $1.6 million with a useful life of 1 year, and customer relationships (distributor method) of $0.7 million with a useful life of 9 years. The intangible assets acquired are amortized over the total weighted average period of 8.6 years using methods that approximate the pattern in which the economic benefits are expected to be realized.

Goodwill of $7.7 million largely reflects the potential synergies and expansion of technical capabilities to the Company's existing contamination control solutions business. The goodwill from this acquisition is reported within the Brooks Semiconductor Solutions Group segment and is not tax deductible.

As part of the acquisition, the Company assumed all the assets and liabilities of Tec-Sem’s Swiss defined benefit plan, which covered substantially all its full-time employees. At acquisition date, the plan was fully funded for each employee’s pension contribution plus an expected rate of return equal to the statutory discount rate. Total plan assets and plan liability were $5.1 million and $7.9 million, respectively, at acquisition date. The Company recorded a liability of $2.8 million for the unfunded projected benefit obligation related to each plan participant’s future services.

The Company reports the results of operations for Tec-Sem in the Brooks Semiconductor Solutions Group segment starting from the acquisition date. The revenues and net income from Tec-Sem included in the Company's consolidated results for the three months ended December 31, 2018 were $9.3 million and $1.7 million, respectively. During the three months ended December 31, 2018, the net income included $0.2 million related to the step-up in value of the acquired inventories and $0.9 million related to amortization expense of acquired intangible assets.

The escrow at closing had a balance of $2.6 million which consisted of $1.8 million related to satisfaction of the sellers' indemnification obligations with respect to their representations and warranties and other indemnities. The remaining $0.8 million of the escrow balance is related to a performance obligation that the Company assumed at the acquisition date for the transfer of non-core wafer stocker technology to an unrelated third party. Upon successful delivery of such technology, the Company expects to collect a portion of the $0.8 million which will represent reimbursement of costs incurred to complete development.

The Company did not present a pro forma information summary for its consolidated results of operations for the three months ended December 31, 2018 and 2017 as if the acquisition of Tec-Sem occurred on October 1, 2016 because such results were immaterial.

Acquisition of 4titude Limited

On October 5, 2017, the Company acquired all the outstanding capital stock of 4titude Limited (“4titude”), a U.K.-based manufacturer of scientific consumables for biological sample materials used in a variety of genomic and DNA analytical applications. The acquisition of 4titude will expand the Company’s existing offerings of consumables and instruments within the Brooks Life Sciences segment. The aggregate purchase price of $65.1 million, net of cash acquired, consisted primarily of a cash payment of $64.8 million subject to working capital adjustments and the assumption of the seller’s liabilities of $0.4 million.

The Company used a market participant approach to record the assets acquired and liabilities assumed in the 4titude acquisition as follows (in thousands):


	Fair Value of
	Assets and
	Liabilities
Accounts receivable (approximates contractual value)	$	1,581
Inventories		2,667
Prepaid expenses and other current assets		140
Property, plant and equipment		1,555
Intangible assets		27,212
Goodwill		38,185
Accounts payable		(286)
Accrued liabilities		(845)
Deferred tax liabilities		(5,090)
Total purchase price, net of cash acquired	$	65,119

The Company applied variations of the income approach to estimate the fair values of the intangibles assets acquired. The identified intangible assets include customer relationships (excess earnings method) of $21.4 million with a useful life of 10 years, completed technology (relief from royalty method) of $5.2 million with a useful life of 13 years, backlog (excess earnings method) of $0.4 million with a useful life of 1 year and trademarks (excess earnings method) of $0.2 million with a useful life of 1 year. The intangible assets acquired are amortized over the total weighted average period of 10.4 years using methods that approximate the pattern in which the economic benefits are expected to be realized.

At the closing of the acquisition of 4titude, a cash payment of $0.4 million was placed into escrow which was ascribed to the purchase price. The escrow was related to potential working capital adjustments and the sellers’ satisfaction of general representations and warranties.

Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired and has been assigned to the Brooks Life Sciences segment. Goodwill is primarily the result of expected synergies from combining the operations of 4titude with the Company’s operations and is not deductible for tax purposes.

The operating results of 4titude have been reflected in the results of operations for the Brooks Life Sciences segment from the date of the acquisition. During the three months ended December 31, 2018, revenue and net income from 4titude recognized in the Company’s results of operations were $3.9 million and less than $0.1 million, respectively. During the three months ended December 31, 2017, revenue and net loss from 4titude recognized in the Company’s results of operations were $3.4 million and $1.1 million, respectively. During the three months ended December 31, 2018 and 2017, the net income or loss included recurring charges of $0.9 million and $1.0 million, respectively, related to amortization expense of acquired intangible assets. During the three months ended December 31, 2017, the net loss also included non-recurring charges of $1.2 million related to the step-up in value of the acquired inventories.

During the three months ended December 31, 2017, the Company incurred $0.5 million in non-recurring transaction costs with respect to the 4titude acquisition, which were recorded in "Selling, general and administrative" expenses within the accompanying unaudited Consolidated Statements of Operations. There were no transaction costs related to the 4titude acquisition during the three months ended December 31, 2018.

The Company did not present a pro forma information summary for its consolidated results of operations for the three months ended December 31, 2018 and 2017 as if the acquisition of 4titude occurred on October 1, 2016 because such results were immaterial.

Other

On April 20, 2018, the Company acquired BioSpeciMan Corporation (“BioSpeciMan”), a Canadian provider of storage services for biological sample materials. BioSpeciMan, founded in 2002, provides temperature controlled biological sample storage services to an attractive mix of pharma, biotech and contract lab customers. This acquisition has expanded customer relationships and geographic reach within its growing sample management storage services business in the Brooks Life Sciences segment. The total cash payment made by the Company was $5.2 million, net of cash acquired and subject to working capital adjustments.

The Company allocated the purchase price of $5.2 million based on the fair value of the assets and liabilities acquired as of the acquisition date, which included $0.3 million of accounts receivable, $2.6 million of customer relationships, $2.7 million of goodwill and $0.7 million of assumed liabilities. The Company applied the excess earnings method, a variation of the income approach to determine the fair value of the customer relationship intangible asset. The purchase price allocation was based on a preliminary valuation which is subject to further adjustments within the measurement period when additional information becomes available. The goodwill from this acquisition is reported within the Brooks Life Sciences segment and is not tax deductible.

At the acquisition date, a cash payment of $0.5 million was held back for potential working capital adjustments and the sellers' satisfaction of general representations and warranties. These holdback payments were ascribed to the purchase price.

The operating results of the acquisition have been reflected in the results of operations for the Brooks Life Sciences segment from the date of the acquisition. The Company did not present a pro forma information summary for its consolidated results of operations for the three months ended December 31, 2018 and 2017 as if the acquisition of BioSpeciMan occurred on October 1, 2016 because such results were immaterial.