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Acquisitions and Strategic Investments | 12 Months Ended
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Dec. 31, 2023
Business Combinations [Abstract] |
ACQUISITIONS AND STRATEGIC INVESTMENTS | NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS Our 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 consolidated financial statements. Further, transaction costs were immaterial to our consolidated financial statements and were expensed as incurred. On January 8, 2024, we announced our entry into a definitive agreement to acquire 100 percent of Axonics, Inc. (Axonics), a publicly traded medical technology company primarily focused on the development and commercialization of devices to treat urinary and bowel dysfunction. The purchase price is $71.00 in cash per share, or approximately $3.670 billion. The transaction is expected to close in the first half of 2024, subject to customary closing conditions. The Axonics business will be integrated into our Urology division. 2023 Acquisitions On February 20, 2023, we completed the acquisition of a majority stake investment in Acotec, a publicly traded Chinese manufacturer of drug-coated balloons and other products used in the treatment of vascular and other diseases. We consolidated this majority stake investment in Acotec based on the conclusion we control the entity, and recorded a noncontrolling interest for the portion we do not own. 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. 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 transaction consisted of an upfront cash payment of $636 million, net of cash acquired. The Apollo business is being integrated into our Endoscopy division. On November 17, 2023, we completed our acquisition of 100 percent of the outstanding equity of Relievant Medsystems, Inc. (Relievant), a privately held medical technology company that developed and commercialized the Intracept® Intraosseous Nerve Ablation System to treat vertebrogenic pain, a form of chronic low back pain. The transaction consisted of an upfront cash payment of $794 million, net of cash acquired, and additional sales-based milestones over the 3 years following the transaction close. These milestones, certain of which are uncapped, are estimated to have a fair value of $273 million. The Relievant business is being integrated into our Neuromodulation division. Purchase Price Allocation We accounted for these transactions as business combinations in accordance with FASB ASC Topic 805, Business Combinations (FASB ASC Topic 805). The preliminary purchase prices were comprised of the amounts presented below:
(in millions) | Acotec(1) | Apollo | Relievant |
Payment for acquisition, net of cash acquired (2) | $ | 381 |  | $ | 636 |  | $ | 794 |  |
Fair value of contingent consideration | — |  | — |  | 273 |  |
| $ | 381 |  | $ | 636 |  | $ | 1,067 |  |
(1) Excludes approximately $140 million of cash on hand at the closing of the transaction (2) Related to Acotec, represents our majority stake investment We recorded the assets acquired, liabilities assumed and specific to Acotec, the noncontrolling interest, at their respective fair values as of the closing date of the transaction. The preliminary purchase price allocations were comprised of the components presented below, which represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed, as well as goodwill. 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) | Acotec | Apollo | Relievant
Goodwill | $ | 337 |  | $ | 378 |  | $ | 731 |
Amortizable intangible assets | 334 |  | 248 |  | 325 |
Other assets acquired | 93 |  | 50 |  | 24 |
Liabilities assumed | (48) |  | (33) |  | (15) |
Net deferred tax liabilities | (76) |  | (5) |  | 1 |
Fair value of noncontrolling interest | (259) |  | — |  | — |
| $ | 381 |  | $ | 636 |  | $ | 1,067 |
The fair value of Acotec's 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 consolidated balance sheets. Goodwill was primarily established for Acotec due to opportunities for collaboration in research and development, manufacturing and commercial strategies, and for Apollo and Relievant, due to synergies expected to be gained from leveraging our existing operations, as well as revenue and cash flow projections associated with future technologies, none of which 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
Acotec: |  |  |  |  |
Amortizable intangible assets: |  |  |  |  |
Technology-related | $ | 308 |  |  | 11 |  | 14%
Customer relationships | 15 |  |  | 11 |  | 14%
Other intangible assets | 11 |  |  | 13 |  | 14%
| $ | 334 |  |  |  |  |
Apollo: |  |  |  |  |
Amortizable intangible assets: |  |  |  |  |
Technology-related | $ | 222 |  |  | 11 |  | 12%
Customer relationships | 26 |  |  | 11 |  | 12%
| $ | 248 |  |  |  |  |
Relievant |  |  |  |  |
Amortizable intangible assets: |  |  |  |  |
Technology-related | $ | 287 |  |  | 12 |  | 12%
Customer relationships | 38 |  |  | 12 |  | 12%
| $ | 325 |  |  |  |  |
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 Baylis Medical 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. 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 was 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 |  |  |  |  |
Our technology-related intangible assets consist of technical processes, intellectual property and institutional understanding with respect to products and processes that we intend to leverage in future products or processes and will carry forward from one product generation to the next. We used the multi-period excess earnings method, a form of the income approach, to derive the fair value of the technology-related intangible assets and are amortizing them on a straight-line basis over their assigned estimated useful lives. Contingent Consideration Changes in the fair value of our contingent consideration liability during 2023 and 2022 associated with current and prior period acquisitions were as follows:
(in millions) |
Balance as of December 31, 2021 | $ | 486 |
Contingent consideration net expense (benefit) | 35 |
Contingent consideration payments | (371) |
Balance as of December 31, 2022 | $ | 149 |
Amount recorded related to current year acquisitions | 273 |
Contingent consideration net expense (benefit) | 58 |
Contingent consideration payments | (76) |
Balance as of December 31, 2023 | $ | 404 |
In 2023, payments were primarily related to our acquisition of Farapulse, Inc. (Farapulse) following the achievement of revenue milestones. In 2022, payments were primarily related to our acquisition of Farapulse and Preventice Solutions, Inc., following the achievement of revenue and/or regulatory milestones. The net expense of $58 million and $35 million recorded in 2023 and 2022, respectively, related primarily to an increase in expected revenue-based payments as a result of over-achievement of net sales performance, primarily related to our acquisition of Farapulse. In both periods, this increase was partially offset by a reduction in the contingent consideration liability for certain acquisitions for which we reduced the probability of achievement of associated regulatory and commercialization-based milestones upon which payment is conditioned. The maximum amount for certain contingent consideration is not determinable as it is uncapped and based on a percent of certain sales. As of December 31, 2023, the fair value of such uncapped contingent consideration is estimated at $177 million. As of December 31, 2023, the maximum amount that we could be required to pay under our other contingent consideration arrangements (undiscounted) is approximately $398 million. 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 December 31, 2023 | Valuation Technique | Unobservable Input | Range | Weighted Average(1)
Revenue-based Payments and Milestones | $404 million | Discounted Cash Flow | Discount Rate | 6 | % | - | 12% | 10%
Probability of Payment | 90% | - | 100% | 98%
Projected Year of Payment | 2024 | - | 2027 | 2025
(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 our revenue-based payments and milestones 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 December 31, 2023. Strategic Investments The aggregate carrying amount of our strategic investments was comprised of the following:
| As of December 31,
(in millions) | 2023 |  | 2022
Equity method investments | $ | 219 |  |  | $ | 188 |
Measurement alternative investments(1, 2) | 194 |  |  | 219 |
| $ | 413 |  |  | $ | 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 consolidated statements of operations. (2) Includes publicly-held equity securities and convertible notes measured at fair value with changes in fair value recognized in Other, net within our consolidated statements of operations. These investments are classified as Other long-term assets within our consolidated balance sheets, in accordance with GAAP and our accounting policies. In 2023, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $261 million, which represents amortizable intangible assets, 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://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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