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Acquisitions and Joint Venture | 6 Months Ended
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Apr. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Joint Venture | Acquisitions and Joint Venture The following is a summary of the allocation of the total purchase consideration for business and asset acquisitions that the Company completed during the six months ended April 30, 2022, and fiscal 2021:
(In millions) | April 30, 2022 |  | October 31, 2021
Technology | $ | 1.8 |  |  | $ | 178.6 |
In-Process Research & Development (IPR&D) | — |  |  | 20.0 |
Customer relationships | 679.7 |  |  | 7.5 |
Trademarks | 55.3 |  |  | 1.3 |
Other | — |  |  | 0.6 |
Total identifiable intangible assets | $ | 736.8 |  |  | $ | 208.0 |
Goodwill | 1,239.2 |  |  | 91.6 |
Net tangible liabilities | (295.6) |  |  | (10.8) |
Fair value of contingent consideration | (1.5) |  |  | (39.1) |
Total closing purchase price | $ | 1,678.9 |  |  | $ | 249.7 |
All acquisitions were funded by cash generated from operations or facility borrowings. For business acquisitions, the Company recorded tangible and intangible assets acquired and liabilities assumed at their fair values as of the applicable date of acquisition. For asset acquisitions, the Company recorded tangible and intangible assets acquired and liabilities assumed at their estimated and relative fair values as of the applicable date of acquisition. The Company believes these acquisitions strengthen CooperSurgical's and CooperVision's businesses through the addition of new distributors or complementary products and services. Fiscal Year 2022 On April 6, 2022, CooperSurgical completed the acquisition of a private cryopreservation services company that specializes in cryogenic services. The purchase price allocation is preliminary, and the Company is in the process of finalizing information primarily related to the valuation of intangible assets and property, plant and equipment and the corresponding impact on goodwill. Refer to "Fiscal Year 2021" below for details on formation of a joint venture with Essilor International and related activities that occurred in fiscal year 2022 following the acquisition of SightGlass Vision, Inc. (SGV) in fiscal year 2021. On February 7, 2022, CooperSurgical entered into a binding letter of intent to acquire Cook Medical's Reproductive Health business, a manufacturer of minimally invasive medical devices focused on the fertility, obstetrics and gynecology markets. The aggregate consideration is $875.0 million in cash, with $675.0 million payable at the closing and the remaining $200.0 million payable in $50.0 million installments following each of the first, second, third and fourth anniversaries of the closing. The transaction is subject to customary closing conditions, including entry into a definitive acquisition agreement and regulatory approvals, and compliance with local consultation requirements. Generate Life Sciences® On December 17, 2021, CooperSurgical completed the acquisition of 100% of the equity interests in Generate Life Sciences (Generate), a privately held leading provider of donor egg and sperm for fertility treatments, fertility cryopreservation services and newborn stem cell storage (cord blood & cord tissue), and paid an aggregate purchase consideration of approximately $1.663 billion, reflecting working capital, and other adjustments. The cash consideration was funded through a combination of $1.5 billion in proceeds from the issuance of a senior unsecured term loan and available cash on hand. The Company has accounted for the acquisition of Generate as a business combination, in accordance with ASC Topic 805, Business Combinations. The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date:
(In millions) |
Current assets: |
Cash and cash equivalents | $ | 58.6 |
Trade accounts receivable, net | 23.3 |
Inventories | 4.0 |
Prepaid expense and other current assets | 29.9 |
Total current assets | 115.8 |
Property, plant and equipment | 35.9 |
Operating lease right-of-use assets | 21.4 |
Goodwill | 1,230.4 |
Customer relationships | 671.9 |
Trademarks | 54.9 |
Deferred tax assets | 15.7 |
Other assets | 0.8 |
Total assets acquired | $ | 2,146.8 |
Current liabilities: |
Accounts payable | $ | 12.6 |
Employee compensation and benefits | 12.3 |
Operating lease liabilities | 2.5 |
Deferred revenue | 68.4 |
Other current liabilities | 15.1 |
Total current liabilities | 110.9 |
Deferred tax liabilities | 140.3 |
Operating lease liabilities | 18.8 |
Deferred revenue | 212.5 |
Other liabilities | 1.2 |
Total liabilities assumed | $ | 483.7 |
Total purchase price | $ | 1,663.1 |
The purchase accounting is incomplete and subject to change during the measurement period, which may result in material changes to the purchase price allocation. The Company is in the process of finalizing information primarily related to the valuation of intangible assets and property, plant and equipment, the measurement of deferred revenue, the associated deferred tax adjustments and the corresponding impact on goodwill. The Company recorded a measurement period adjustment of $62.2 million to goodwill in the second quarter of fiscal 2022 ended April 30, 2022. Deferred revenue was recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers, as a result of the adoption of ASU 2021-08. See Note 1. General for additional information. The Company currently estimates that customer relationships will be amortized over 13 years and trademarks will be amortized over 14 years. Goodwill is primarily attributable to assembled workforce and expected synergies to be achieved. The goodwill recognized is not deductible for tax purposes. The transaction costs associated with the acquisition consisted primarily of legal, regulatory and financial advisory fees, which were expensed as incurred as selling, general and administrative expense. Generate's revenue and net income for the period from the acquisition date to April 30, 2022, were $104.8 million and $4.2 million, respectively. The following unaudited pro forma information summarizes the combined results of operations of the Company and Generate as if the acquisition had been completed at the beginning of the Company’s fiscal 2021:
|  | Three months ended April 30, |  | Six months ended April 30,
(In millions) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Revenue |  | $ | 830.0 |  |  | $ | 788.3 |  |  | $ | 1,653.0 |  |  | $ | 1,532.4 |
Net income |  | $ | 125.8 |  |  | $ | 111.3 |  |  | $ | 205.8 |  |  | $ | 2,222.8 |
The unaudited pro forma information for the first six months of fiscal 2022 and 2021 was calculated after applying the Company's accounting policies and the impact of acquisition date fair value adjustments. The adjustments primarily include increased amortization for the fair value of acquired intangible assets, increased depreciation for the fair value of acquired property, plant, and equipment, increased revenue as a result of the ASU 2021-08 deferred revenue adjustments, decreased interest expense as a result of the reversal of Generate's historical interest expense partially offset by additional interest expense on the debt obtained to finance the transaction. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at the beginning of fiscal 2021, or of future results of the consolidated entities. Fiscal Year 2021 On May 3, 2021, CooperSurgical completed the acquisition of a privately-held medical device company that develops single-use illuminating medical devices. The purchase price allocation is preliminary, and the Company is in the process of finalizing information primarily related to the valuation of intangible assets and inventory, the associated deferred tax adjustments and the corresponding impact on goodwill. On April 26, 2021, CooperVision completed the acquisition of a privately-held UK contact lens manufacturer focusing on specialty contact lenses. This acquisition expands CooperVision’s specialty eye care portfolio and accelerates its development of myopia management solutions in the UK. On March 1, 2021, CooperSurgical completed the acquisition of a privately-held medical device company that designed and developed an innovative obstetric product for use in urgent obstetrics to reduce risks associated with childbirth. On February 1, 2021, CooperSurgical acquired all of the remaining equity interests of a privately-held medical device company that developed the Mara® Water Vapor Ablation System, which is used for endometrial ablation. The Company accounted for this acquisition as an asset acquisition, whereby the Company allocated the total cost of the acquisition to the net assets acquired on the basis of their estimated relative fair values on the acquisition date with no goodwill recognized. The primary asset acquired in this asset acquisition is Technology. On January 19, 2021, CooperVision acquired all of the remaining equity interests of SGV, a privately-held medical device company that developed spectacle lenses for myopia management. The transaction included potential payments of future consideration that were contingent upon the achievement of the regulatory approval milestone (the regulatory approval payment) and the acquired business reaching certain revenue thresholds over a specified period (the revenue pa yments). The undiscounted range of the contingent consideration was zero to $139.1 million payable to the other former equity interest owners. The fair value of the regulatory approval payment was determined using an option pricing framework based on the expected payment under the contractual terms and the estimates of the probability of achieving the regulatory approval. The fair value of the revenue payments was determined using a Monte Carlo simulation based on the revenue projections and the expected payment for each simulation. In March 2022, the entities amended the terms of the contingent consideration, which resulted in CooperVision paying $42.9 million to the former equity interest owners in exchange for the elimination of the revenue payments. As a result, during the three and six months ended April 30, 2022, CooperVision recognized a net gain of $15.7 million and $12.2 million, respectively. As of April 30, 2022, the remaining contingent liability related to regulatory approval payment was $31.8 million. Further, in March 2022, CooperVision and Essilor International SAS (Essilor) executed the Contribution Agreement and Stock Purchase Agreement (the “Agreements”) whereby Essilor paid CooperVision $52.6 million in exchange for 50% interest in SGV and their proportionate share of the revenue payments. As part of the Agreements, each party contributed their interest in SGV and $10 million in cash to form a new joint venture. CooperVision then remeasured the fair value of its retained equity investment in the joint venture at $90.0 million which resulted in a $57.4 million gain in Other (income) expense on deconsolidation of SGV. The fair value of the joint venture was determined using the income valuation approach. Under the income approach, we used a discounted cash flow model (“DCF”) in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate expected rate of return. The discount rate used for cash flows reflects capital market conditions and the specific risks associated with the business. This valuation approaches is considered a Level 3 fair value measurement. Fair value determination requires complex assumptions and judgment by management in projecting future operating results, selecting guideline companies for comparisons, determining appropriate market value multiples, selecting the discount rate to measure the risks inherent in the future cash flows. Any material changes in key assumptions, including failure to meet business plans, deterioration in the financial market, an increase in interest rate or an increase in the cost of equity financing by market participants within the industry or other unanticipated events and circumstances, may affect such estimates. On December 31, 2020, CooperSurgical completed the acquisition of a privately-held in vitro fertilization (IVF) cryo-storage software solutions company. The pro forma results of operations of these acquisitions have not been presented because the effect of the business combinations described above was not material to the consolidated results of operations. Contingent Consideration Certain of the Company’s business combinations involve potential payments of future consideration that are contingent upon the achievement of regulatory milestones and/or the acquired business reaching certain revenue thresholds. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized in selling, general and administrative expense in the Consolidated Statements of Income and Comprehensive Income. The following table provides a reconciliation of the beginning and ending balances of contingent consideration:
Periods Ended April 30, | Three Months |  | Six Months
(In millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Beginning balance | $ | 100.9 |  |  | $ | 30.2 |  |  | $ | 97.4 |  |  | $ | — |
Purchase price contingent consideration | 1.5 |  |  | 0.6 |  |  | 1.5 |  |  | 30.8 |
Payments | (42.9) |  |  | — |  |  | (42.9) |  |  | — |
Change in fair value | (13.9) |  |  | — |  |  | (10.4) |  |  | — |
Ending balance | $ | 45.6 |  |  | $ | 30.8 |  |  | $ | 45.6 |  |  | $ | 30.8 |

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