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Business Acquisitions and Divestitures Business Acquisitions and Divestitures (Notes) | 12 Months Ended
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Mar. 31, 2023
Business Combinations and Divestitures [Abstract] |
Business Combination Disclosure [Text Block] | 2. BUSINESS ACQUISITIONS AND DIVESTITURES Fiscal 2023Acquisitions During fiscal 2023, we completed several tuck-in acquisitions which continued to expand our product and service offerings in the Applied Sterilization Technologies and Healthcare segments. Total aggregate consideration was approximately $49,842, including potential contingent consideration of $7,269. Purchase price allocations will be finalized within the measurement period not to exceed one year from closing. Fiscal 2022 Acquisition of Cantel Medical LLC On June 2, 2021, we acquired all outstanding equity interests in Cantel Medical LLC ("Cantel") through a U.S. subsidiary. Cantel, formerly 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’s Dental business extended our business into a new Customer segment where there is an increasing focus on infection prevention protocols and processes. This business is reported as the Dental segment. The rest of Cantel was integrated into our existing Healthcare and Life Sciences segments. 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. Total Purchase Consideration The total consideration for Cantel Common Stock and stock 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, 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 6 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 6 titled, "Debt." 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. 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. 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. Goodwill has been allocated to the Healthcare, Dental and Life Sciences 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. During the second quarter of fiscal 2023, in connection with the preparation of our quarterly consolidated financial statements, we identified and recognized a goodwill impairment loss of $490,565 related to goodwill that arose with respect to assets acquired in the Cantel acquisition. For more information on the impairment loss, see Note 3 to our consolidated financial statements titled, "Goodwill and Intangible Assets." The table below presents the allocation of the purchase price to the net assets acquired based on the fair values at the acquisition date.
| March 31, 2022 (As Previously Reported) |  | Adjustments |  | Final
Cash | $ | 169,073 |  |  | $ | — |  |  | $ | 169,073 |
Accounts receivable | 172,226 |  |  | — |  |  | 172,226 |
Inventory | 249,221 |  |  | — |  |  | 249,221 |
Property, plant, and equipment | 267,360 |  |  | (1,282) |  |  | 266,078 |
Lease right-of-use assets | 59,720 |  |  | — |  |  | 59,720 |
Other assets | 72,864 |  |  | — |  |  | 72,864 |
Intangible assets | 2,942,000 |  |  | — |  |  | 2,942,000 |
Goodwill | 1,522,381 |  |  | 22,088 |  |  | 1,544,469 |
Total assets acquired | 5,454,845 |  |  | 20,806 |  |  | 5,475,651 |
Convertible debt, par value | 168,000 |  |  | — |  |  | 168,000 |
Other current liabilities | 247,549 |  |  | 5,595 |  |  | 253,144 |
Long-term lease obligations | 47,856 |  |  | — |  |  | 47,856 |
Deferred income taxes, net | 670,685 |  |  | 15,211 |  |  | 685,896 |
Long-term indebtedness | 721,284 |  |  | — |  |  | 721,284 |
Total liabilities assumed | 1,855,374 |  |  | 20,806 |  |  | 1,876,180 |
Net assets acquired | $ | 3,599,471 |  |  | $ | — |  |  | $ | 3,599,471 |
Cantel Other Intangible Assets The estimated fair values of identifiable intangible assets were prepared using income valuation methodologies, which require a forecast of expected future cash flows using either 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.Values and useful lives are presented in the table below.
|  | Total |  | Useful Life
Customer relationships |  | $ | 2,278,000 |  |  | 9-10 years
Trade names |  | 422,000 |  |  | 11 years
Developed technology |  | 222,000 |  |  | 9 years
Non-compete agreements |  | 20,000 |  |  | 2 years
Total intangible assets acquired |  | $ | 2,942,000 |  |  |
Contingent liabilities assumed totaled $25,000 and were related to contingent consideration associated with a prior acquisition completed by Cantel. Payment was made in June, 2021. Actual and Pro Forma Impact Our consolidated financial statements for fiscal 2022 include Cantel's results of operations from the date of acquisition on June 2, 2021 through March 31, 2022. Net sales and operating income attributable to Cantel from the date of acquisition and included in our consolidated financial statements for the fiscal year ended March 31, 2022 total $974,408 and $41,757, 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 fiscal years ended March 31, 2022 and 2021.
|  | Fiscal Year Ended March 31, |
|  | (unaudited) |
|  | 2022 |  | 2021 |  |  |
Net revenues |  | $ | 4,790,161 |  |  | $ | 4,190,244 |  |  |  |
Net income from continuing operations |  | 449,382 |  |  | 5,849 |  |  |  |
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 depreciation and amortization to be reported based on the latest draft of 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. Other Fiscal 2022 Acquisitions In addition to the acquisition of Cantel, we completed three other tuck-in acquisitions during fiscal 2022, which continued to expand our product and service offerings in the Healthcare segment. Total aggregate consideration for these transactions was approximately $3,146, net of cash acquired and including deferred consideration of $50. Fiscal 2021 Acquisitions On January 4, 2021, we purchased the remaining outstanding shares of an entity in which we had initially made an equity investment in fiscal 2019. Total consideration was approximately $78,045, net of cash acquired and subject to any working capital adjustments. Total non-cash consideration for this transaction was $41,771, which consisted of the settlement of outstanding principal and interest on a loan receivable, the initial equity investment, and receivables related to capital equipment purchases that existed at the acquisition date. The business has been integrated into our Applied Sterilization Technologies business segment and we funded the transaction through a combination of cash on hand and credit facility borrowings. On November 18, 2020, we acquired all of the outstanding units and equity of Key Surgical, LLC ("Key Surgical"). Key Surgical is a global provider of sterile processing, operating room and endoscopy consumable products serving hospitals and surgical facilities. Key Surgical has been integrated into our Healthcare segment. The total purchase price of the acquisition was $853,203, net of cash acquired and remains subject to customary working capital adjustments. The purchase price for the acquisition was financed with a combination of cash on hand, credit facility borrowings and proceeds from borrowings under a then new Term loan agreement. Please refer to Note 6 titled, "Debt" for more information. We also completed two other tuck-in acquisitions during fiscal 2021, which continued to expand our product and service offerings in the Healthcare segment. Total aggregate consideration for these transactions was approximately $20,909, net of cash acquired and including deferred consideration of approximately $1,194. Fair Value of Assets Acquired and Liabilities Assumed The table below summarizes the allocation of the purchase price to the net assets acquired based on fair values at the acquisition dates for our fiscal 2023, 2022 and 2021 acquisitions.
| Fiscal Year 2023(1) |  | Fiscal Year 2022 |  | Fiscal Year 2021(2)
(dollars in thousands) | All Acquisitions |  | Other Acquisitions (Excluding Cantel) |  | Key Surgical |  | Other Acquisitions
Cash | $ | — |  |  | $ | — |  |  | $ | 12,615 |  |  | $ | 9,159 |
Accounts receivable | 2,405 |  |  | — |  |  | 13,967 |  |  | 9,621 |
Inventory | 12,342 |  |  | — |  |  | 21,414 |  |  | 22,123 |
Property, plant, and equipment | 2,131 |  |  | — |  |  | 6,030 |  |  | 26,363 |
Lease right-of-use assets, net | 667 |  |  | — |  |  | 4,907 |  |  | 4,420 |
Other assets | 177 |  |  | — |  |  | 6,680 |  |  | 3,378 |
Intangible assets (2) | 27,576 |  |  | 1,578 |  |  | 356,999 |  |  | 28,188 |
Goodwill | 7,024 |  |  | 1,602 |  |  | 527,675 |  |  | 42,808 |
Total assets | 52,322 |  |  | 3,180 |  |  | 950,287 |  |  | 146,060 |
Current liabilities | (2,007) |  |  | (34) |  |  | (21,599) |  |  | (28,245) |
Non-current liabilities | (473) |  |  | — |  |  | (62,870) |  |  | (9,704) |
Total liabilities | (2,480) |  |  | (34) |  |  | (84,469) |  |  | (37,949) |
Net assets | $ | 49,842 |  |  | $ | 3,146 |  |  | $ | 865,818 |  |  | $ | 108,111 |
(1) Purchase price allocation is still preliminary as of March 31, 2023 for certain acquisitions, as valuations have not been finalized, pending further analyses of the significant drivers of fair value. (2) The Fiscal 2021 amount includes $315,575, related to the fair value of the Customer relationships intangible asset obtained in the acquisition of Key Surgical. The estimation of fair value was determined under an income approach using discounted cash flows. The estimate requires assumptions including forecasted revenue growth rates, forecasted profit margins, and Customer attrition rates. 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. The deductible portion of goodwill for tax purposes recognized as a result of the fiscal 2023, 2022 and fiscal 2021 acqu isitions wa s $4,863, $427,035 and $197,344, respectively. Acquisition related transaction and integration costs totaled $24,196, $205,788, and $35,634 for the fiscal years ended March 31, 2023, 2022, and 2021, respectively. Fiscal 2022 acquisition and integration expenses were primarily related to the acquisition of Cantel. These costs are included in Selling, general, and administrative expenses in the Consolidated Statements of Income. Divestitures Fiscal 2023 Divestitures. In April 2022, we entered into an Asset Purchase Agreement to sell certain assets of our Animal Health business to Veterinary Orthopedic Implants, LLC. We recorded net proceeds of $5,228 and recognized a pre-tax loss on the sale of $4,852 in the Selling, general, and administrative expenses line of the Consolidated Statements of Income. The business generated annual revenues of approximately $12,000. Fiscal 2022 In December 2021, we entered into an Asset Purchase Agreement to sell our Renal Care business to Evoqua Water Technologies Corp., for cash consideration of approximately $196,000, subject to certain potential adjustments, including a customary working capital adjustment and contingent consideration of $12,300. We recognized a pre-tax gain on the sale of $4,919. The transaction closed on January 3, 2022. We acquired the Renal Care business as part of the Cantel transaction, which closed on June 2, 2021, and had been integrated into STERIS's Healthcare segment. The Renal Care business generated annual revenues of approximately $180,000. The proceeds from the sale received at closing were used to repay outstanding debt. During the third quarter of fiscal 2023, we received an additional $1,396 in working capital settlements related to the sale of this business. Fiscal 2021 During fiscal 2021, we sold an Applied Sterilization Technologies laboratory that was located in the Netherlands. We recorded proceeds of $518, net of cash divested, and recognized a pre-tax loss on the sale of $2,024 in the Selling, general, and administrative expenses line of the Consolidated Statements of Income. The business generated annual revenues of approximately $6,000.

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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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