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Business Acquisitions and Divestitures Business Acquisitions and Divestitures (Notes) | 6 Months Ended
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Sep. 30, 2021
Business Acquisitions and Divestitures [Abstract] |
Business Combination Disclosure | Business Acquisitions On June 2, 2021, we acquired all outstanding equity interests of Cantel Medical LLC. ("Cantel") through a U.S. subsidiary. Cantel, headquartered in Little Falls, New Jersey, with approximately 3,700 employees, is a global provider of infection prevention products and services primarily to endoscopy and dental Customers. We believe that the acquisition will strengthen STERIS’s leadership in infection prevention by bringing together two complementary businesse s able to offer a broader set of Customers a more diversified selection of infection prevention, endoscopy and sterilization products and services. Cantel is being integrated into our existing Healthcare and Life Sciences segments. Cantel’s Dental business extends our business into a new Customer segment where there is an increasing focus on infection prevention protocols and processes. This business will be reported as the Dental segment. Additionally, the acquisition is expected to result in cost savings from optimizing global back-office infrastructure, leveraging best-demonstrated practices across locations and eliminating redundant public company costs. Acquisition and integration expenses which were primarily related to the Cantel acquisition totaled $17,404 and $158,400 for the second quarter and first half of fiscal 2022, respectively, and are reported in the selling, general and administrative expenses line of our Consolidated Statements of Income. Acquisition and integration expenses include but are not limited to investment banker, advisory, legal, other professional fees, and certain employee-related expenses. Total Purchase Conside ration The total consideration for Cantel Common Stock and s tock equivalents was $3,599,471. The consideration was comprised of the following:
(shares in thousands) |
Cash consideration $16.93 per Cantel share (42,816 shares) | $ | 716,412 |
Cash consideration for fractional shares | 14 |
STERIS plc ordinary shares (14,297 shares at 188.07 per share) | 2,689,317 |
Consideration related to Cantel equity compensation programs | 18,173 |
Consideration related to equity component of Cantel convertible debt | 175,555 |
Total purchase consideration | $ | 3,599,471 |
In addition to the total purchase consideration, STERIS assumed and repaid $721,284 of existing Cantel debt obligations and assumed Cantel's obligations associated with convertible senior notes issued on May 15, 2020, which is described in note 5 titled, "Debt." We funded the cash portion of the transaction consideration and repayment of a significant amount of Cantel’s existing debt obligations with a portion of the proceeds from new debt, which is described in Note 5 titled, "Debt" and in our Annual Report on Form 10-K for the year ended March 31, 2021, filed with the SEC on May 28, 2021. Fair Value of Assets Acquired and Liabilities Assumed The acquisition of Cantel has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. Acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. The process for estimating the fair values of identifiable intangible assets and certain tangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The entire purchase price allocation for Cantel is preliminary. As we finalize the fair value of assets acquired and liabilities assumed, additional purchase price adjustments will be recorded during the measurement period. 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 our results of operations. The finalization of the purchase accounting assessment will result in changes in the valuation of assets acquired and liabilities assumed and may have a material impact on the our results of operations and financial position. Goodwill will be allocated to the Healthcare, Life Sciences and Dental segments. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. The table below presents the preliminary estimated fair values of assets acquired and liabilities assumed on the acquisition date. These preliminary estimates will be revised during the measurement period as third-party valuations are finalized, additional information becomes available and as additional analyzes are performed, and these differences could have a material impact on our results of operations and financial position.
| Cantel (1)
Cash | $ | 169,073 |
Accounts receivable | 172,226 |
Inventory | 271,132 |
Property, plant and equipment | 227,783 |
Lease right-of-use assets, net | 48,504 |
Other assets | 65,837 |
Intangible assets | 2,190,000 |
Goodwill | 2,149,827 |
Total assets acquired | 5,294,382 |
Convertible debt, par value | 168,000 |
Other current liabilities | 243,331 |
Long-term lease obligations | 40,768 |
Deferred income taxes, net | 521,528 |
Long-term indebtedness | 721,284 |
Total liabilities assumed | 1,694,911 |
Net assets acquired | $ | 3,599,471 |
(1) Purchase price allocation is still preliminary as of September 30, 2021, as valuations have not been finalized. Other Intangible Assets The estimated fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method. The estimated useful lives are based on the historical experience of STERIS, available similar industry data and assumptions made by management. Preliminary values and useful lives are presented in the table below.
|  | Total (1) |  | Useful Life
Customer relationships |  | $ | 2,060,000 |  |  | 10 years
Trade name |  | 130,000 |  |  | 10 years
Total intangible assets acquired |  | $ | 2,190,000 |  |  |
(1) Amounts are preliminary as of September 30, 2021, as valuations have not been finalized. Contingent liabilities assumed totaled $25,000 and were related to contingent consideration associated with a prior acquisition completed by Cantel. Payment of the liability was made in June 2021. Actual and Pro Forma Impact Our consolidated financial statements include Cantel's results of operations from the date of acquisition on June 2, 2021 through September 30, 2021. Net sales and operating income (loss) attributable to Cantel and included in our consolidated financial statements for the three-month period ended September 30, 2021 total $312,903 and $(57,946), respectively. Net sales and operating income (loss) attributable to Cantel from the date of acquisition and included in our consolidated financial statements for the six-month period ended September 30, 2021 total $414,661 and $(191,136), respectively. The following unaudited pro forma information gives effect to our acquisition of Cantel as if the acquisition had occurred on April 1, 2020 and Cantel had been included in our consolidated results of operations for the three-month and six-month periods ended September 30, 2021 and 2020.
|  | Three Months Ended September 30, | Six Months Ended September 30 |
|  | (unaudited) | (unaudited) |
|  | 2021 |  | 2020 | 2021 |  | 2020 |  |  |
Net revenues |  | $ | 1,196,985 |  |  | $ | 1,035,265 |  | $ | 2,370,504 |  |  | $ | 1,905,139 |  |  |  |
Net income (loss) from continuing operations |  | 137,375 |  |  | 58,593 |  | 231,017 |  |  | (62,106) |  |  |  |
The historical consolidated financial information of STERIS and Cantel has been adjusted in the pro forma information to give effect to pro forma events that are directly attributable to the transaction and factually supportable. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the incremental intangible asset amortization to be incurred based on preliminary valuations of assets acquired. Adjustments to financing costs and income tax expense also were made to reflect the capital structure and anticipated effective tax rate of the combined entity. These pro forma amounts are not necessarily indicative of the results that would have been obtained if the acquisition had occurred as of the beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings.

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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 http://asc.fasb.org/topic&trid=2303972 + Details
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