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Acquisitions and Divestitures
 12 Months Ended
Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Acquisitions and Divestitures Acquisitions and Divestiture
2023 acquisition
On October 10, 2023, we completed the acquisition of Palette Life Sciences AB (“Palette”), a privately held medical device company that sells a portfolio of hyaluronic acid gel-based products primarily utilized in the treatment of urology diseases including a rectal spacing product used in connection with radiation therapy treatment of prostate cancer. The acquisition complements our interventional urology product portfolio. The fair value of consideration transferred was $621.9 million, consisting of net cash payments of $594.9 million and $27.0 million in estimated fair value of contingent consideration. The contingent consideration liability represents the estimated fair value of our obligations, under the acquisition agreement, to make two milestone payments up to $50 million in aggregate if certain commercial milestones are met. The milestone payments are based on net sales growth over the two-year period beginning January 1, 2024. The fair value of the contingent consideration was estimated using a Monte Carlo valuation approach. See Note 12 for additional information on the fair value measurement of the contingent consideration. The acquisition was financed using borrowings under our revolving credit facility and cash on hand.
The following table presents the fair value of the assets acquired and liabilities assumed with respect to the Palette acquisition:
Assets
Accounts receivable
$8,898 
Inventories5,750 
Other current assets897 
Current assets15,545 
Property, plant and equipment, net2,180 
Intangible assets333,500 
Goodwill357,025 
Deferred tax assets2,026 
Other assets1,557 
Noncurrent assets696,288 
Total assets711,833 
Liabilities
Current liabilities18,683 
Deferred tax liabilities69,389 
Other liabilities1,909 
Liabilities89,981 
Net assets acquired$621,852 
The goodwill resulting from the Palette acquisition primarily reflects synergies currently expected to be realized from the integration of the acquired business and is not tax deductible. See Note 17 for additional detail regarding a liability established as part of the Palette acquisition related to certain foreign tax liabilities that had not been properly recognized and paid by Palette prior to our acquisition.
The following table sets forth the components of identifiable intangible assets acquired and the ranges of the useful lives as of the date of the Palette acquisition:
Fair valueUseful life (years)
Intellectual property$264,000 12
Trade names40,500 25
Customer relationships29,000 15
For the year ended December 31, 2023, we incurred $10.6 million in transaction expenses associated with the Palette acquisition, which are included in selling, general and administrative expenses in the consolidated statement of income. We are continuing to evaluate the fair value of the acquired assets and liabilities assumed in connection with the acquisition. Additionally, the purchase accounting for this acquisition remains incomplete with respect to the consideration transferred as we have not reached an agreement on the closing statement adjustments with the seller. Adjustments during the measurement period will be recognized in the reporting period when they are settled.
The following unaudited pro forma combined financial presentation of Net income and Earnings per share for the years ended December 31, 2023 and 2022, respectively, gives effect to the Palette acquisition as if it was completed at the beginning of the earliest period presented. Revenues are not significant to the periods presented and have not been included. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have occurred under our ownership and management.
Year Ended December 31,
20232022
(Unaudited)
Net income$310,356 $282,425 
Basic earnings per share:
Net income$6.61 $6.02 
Diluted earnings per share:
Net income$6.56 $5.97 
The unaudited pro forma combined financial information presented above includes the accounting effects of the Palette acquisition, including, to the extent applicable, amortization charges from acquired intangible assets; interest expense associated with borrowings to finance the acquisition; the revaluation of inventory; and the related tax effects. The unaudited pro forma financial information also includes non-recurring charges specifically related to the Palette acquisition. For the year ended December 31, 2023 we recognized a post acquisition pre-tax operating loss of $5.6 million related to Palette.
2022 acquisition
On September 27, 2022, we completed the acquisition of Standard Bariatrics, Inc. (“Standard Bariatrics”), a privately-held medical device company that commercialized a powered stapling technology for bariatric surgery that complements our surgical product portfolio. The acquisition included an initial cash purchase price of $173 million, with the potential to make three milestone payments up to $130 million upon achievement of certain commercial milestones. The purchase price was allocated based on the fair values of the assets and liabilities, including goodwill of $71.4 million and intangible assets of $154.5 million.
Divestiture
On May 15, 2021, we entered into a definitive agreement to sell certain product lines within our global respiratory product portfolio (the "Divested respiratory business") to Medline Industries, Inc. (“Medline”) for consideration of $286.0 million, reduced by $12.0 million in working capital not transferring to Medline, which is subject to customary post close adjustments (the "Respiratory business divestiture"). In connection with the Respiratory business divestiture, we also entered into several ancillary agreements with Medline to help facilitate the transfer of the business, which provide for transition support, quality, supply and manufacturing services, including a manufacturing and supply transition agreement (the "MSTA").
On June 28, 2021, we completed the initial phase of the Respiratory business divestiture, pursuant to which we received cash proceeds of $259.0 million. On December 4, 2023 we completed the second and final phase of the Respiratory business divestiture with the transfer of certain additional manufacturing assets to Medline, which resulted in $15.0 million of additional cash proceeds and the recognition of a gain on sale of $4.4 million.
Net revenues attributable to our divested respiratory business recognized prior to the Respiratory business divestiture are included within each of our geographic segments and were $60.7 million for the year ended December 31, 2021. Net revenues attributed to services provided to Medline in accordance with the MSTA, which are presented within our Americas reporting segment, were $75.7 million, $79.1 million and $51.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Supplemental cash flow information
Year Ended December 31,
202320222021
Non cash investing and financing activities of continuing operations:
Acquisition of businesses$27,000 $43,168 $—