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Acquisitions, Divestitures and Strategic Investments | 3 Months Ended
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Mar. 31, 2023
Business Combinations [Abstract] |
ACQUISITIONS AND STRATEGIC INVESTMENTS | NOTE B – ACQUISITIONS, DIVESTITURES AND STRATEGIC INVESTMENTS Our accompanying unaudited consolidated financial statements include the operating results for acquired entities from the respective dates of acquisition. We have not presented supplemental pro forma financial information for completed acquisitions or divestitures given their results are not material to our accompanying unaudited consolidated financial statements. Further, transaction costs were immaterial to our accompanying unaudited consolidated financial statements and were expensed as incurred. 2023 Acquisitions On April 4, 2023, we completed our acquisition of 100 percent of the outstanding equity of Apollo Endosurgery, Inc. (Apollo), a public company which offers a portfolio of devices used during endoluminal procedures to close gastrointestinal defects, manage gastrointestinal complications and aid in weight loss for patients suffering from obesity. The agreement consisted of an upfront cash payment of $10.00 per share, or approximately $615 million. The Apollo business is being integrated into our Endoscopy division. On February 20, 2023, we completed the acquisition of a majority stake investment in Acotec, a publicly traded Chinese manufacturer of drug-coated balloons used in the treatment of vascular and other diseases. We acquired approximately 65 percent of the outstanding shares of Acotec, for an upfront cash payment of HK$20.00 per share, or $519 million at foreign currency exchange rates at closing. The Acotec portfolio complements our existing Peripheral Interventions portfolio. Purchase Price Allocation We accounted for the Acotec transaction as a business combination in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations (FASB ASC Topic 805). The preliminary purchase price was comprised of the amount presented below:
(in millions) |  |  |
Payment for majority interest acquisition, net of cash acquired (1) | $ | 375 |  |  |
| $ | 375 |  |  |
(1) Excludes approximately $140 million of cash on hand at the closing of the transaction. We recorded the assets acquired, liabilities assumed and the noncontrolling interest at their respective fair values as of the closing of the transaction. The preliminary purchase price allocation was comprised of the following components and the final determination of the fair value of certain assets and liabilities will be completed within the measurement period in accordance with FASB ASC Topic 805:
(in millions) |
Goodwill | $ | 336 |
Amortizable intangible assets | 334 |
Other assets acquired | 61 |
Liabilities assumed | (23) |
Net deferred tax liabilities | (74) |
Fair value of noncontrolling interest | $ | (259) |
| $ | 375 |
The fair value of the noncontrolling interest was based on the publicly traded market value of the remaining 35 percent of the outstanding shares we did not acquire as of the transaction date and is presented within Stockholders' equity within our accompanying unaudited consolidated balance sheets. Goodwill was primarily established due to opportunities for collaboration in research and development, manufacturing and commercial strategies, and is not deductible for tax purposes. We allocated a portion of the purchase price to the specific intangible asset categories as follows:
| Amount Assigned (in millions) |  | Weighted Average Amortization Period (in years) |  | Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets: |  |  |  |  |
Technology-related | $ | 308 |  |  | 11 |  | 14%
Customer relationships | 15 |  |  | 11 |  | 14%
Other intangible assets | 11 |  |  | 13 |  | 14%
| $ | 334 |  |  |  |  |
2022 Acquisition On February 14, 2022, we completed our acquisition of Baylis Medical Company Inc. (Baylis Medical), a privately-held company which developed the radiofrequency (RF) NRG™ and VersaCross™ Transseptal Platforms as well as a family of guidewires, sheaths and dilators used to support left heart access, which expanded our electrophysiology and structural heart product portfolios. The transaction consisted of an upfront cash payment of $1.463 billion, net of cash acquired, subject to closing adjustments. We are integrating the Baylis Medical business into our Cardiology division. Purchase Price Allocation We accounted for the acquisition of Baylis Medical as a business combination in accordance with FASB ASC Topic 805, Business Combinations. The final purchase price was comprised of the amount presented below:
(in millions) |
Payment for acquisition, net of cash acquired | $ | 1,463 |
| $ | 1,463 |
We recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The final purchase price allocation was comprised of the following components:
(in millions) |  |
Goodwill | $ | 988 |  |
Amortizable intangible assets | 657 |  |
Other assets acquired | 112 |  |
Liabilities assumed | (287) |  |
Net deferred tax liabilities | (7) |  |
| $ | 1,463 |  |
Goodwill was primarily established due to synergies expected to be gained from leveraging our existing operations, as well as revenue and cash flow projections associated with future technologies, and is deductible for tax purposes. We allocated a portion of the purchase price to the specific intangible asset categories as follows:
| Amount Assigned (in millions) |  | Weighted Average Amortization Period (in years) |  | Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets: |  |  |  |  |
Technology-related | $ | 622 |  |  | 11 |  | 11%
Other intangible assets | 36 |  |  | 11 |  | 11%
| $ | 657 |  |  |  |  |
Contingent Consideration None of our acquisitions that closed during the first quarters of 2023 or 2022 contained contingent consideration arrangements. Changes in the fair value of our contingent consideration liability during the first quarter of 2023 associated with prior period acquisitions were as follows:
(in millions) |
Balance as of December 31, 2022 | $ | 149 |
Contingent consideration net expense (benefit) | 12 |
Contingent consideration payments | (68) |
Balance as of March 31, 2023 | $ | 93 |
The payments made during the first quarter of 2023 were primarily related to our 2021 acquisition of Farapulse, Inc. As of March 31, 2023, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay associated with our completed acquisitions was approximately $359 million. Refer to Note B – Acquisitions and Strategic Investments to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information. The recurring Level 3 fair value measurements of our contingent consideration liability that we expect to be required to settle include the following significant unobservable inputs:
Contingent Consideration Liability | Fair Value as of March 31, 2023 | Valuation Technique | Unobservable Input | Range | Weighted Average(1) |  |
R&D, Regulatory and Commercialization-based Milestones | $13 million | Discounted Cash Flow | Discount Rate | 1% | - | 2% | 2% |  |
Probability of Payment | 10% | - | 25% | 22% |  |
Projected Year of Payment | 2023 | - | 2025 | 2024 |  |
Revenue-based Payments | $80 million | Discounted Cash Flow | Discount Rate | 6% | - | 14% | 7% |  |
Probability of Payment | 100% | 100% |  |
Projected Year of Payment | 2023 | - | 2024 | 2023 |  |
(1) Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average. Projected contingent payment amounts related to research and development (R&D), regulatory and commercialization-based milestones and revenue-based payments are discounted back to the current period, primarily using a discounted cash flow model. Significant increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement as of March 31, 2023. Strategic Investments The aggregate carrying amount of our strategic investments was comprised of the following:
| As of
(in millions) | March 31, 2023 |  | December 31, 2022
Equity method investments | $ | 166 |  |  | $ | 188 |
Measurement alternative investments(1, 2) | 219 |  |  | 219 |
| $ | 385 |  |  | $ | 407 |
(1) Measurement alternative investments are privately-held equity securities without readily determinable fair values that are measured at cost less impairment, if any, adjusted to fair value for any observable price changes in orderly transactions for the identical or a similar investment of the same issuer, recognized in Other, net within our accompanying unaudited consolidated statements of operations. (2) Includes publicly-held securities measured at fair value with changes in fair value recognized in Other, net within our accompanying unaudited consolidated statements of operations. These investments are classified as Other long-term assets within our accompanying unaudited consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. As of March 31, 2023, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $209 million, which represents amortizable intangible assets, in-process research and development (IPR&D), goodwill and deferred tax liabilities.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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