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ACQUISITIONS AND DIVESTITURES | 6 Months Ended
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Jun. 25, 2022
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS AND DIVESTITURES | ACQUISITIONS AND DIVESTITURES Fiscal 2022 Acquisition Explora BioLabs Holdings, Inc. On April 5, 2022, the Company acquired Explora BioLabs Holdings, Inc. (Explora BioLabs), a provider of contract vivarium research services, providing biopharmaceutical clients with turnkey in vivo vivarium facilities, management and related services to efficiently conduct their early-stage research activities. The acquisition of Explora BioLabs complements the Company’s existing Insourcing Solutions business, specifically the CRADL (Charles River Accelerator and Development Lab) footprint, and offers incremental opportunities to partner with an emerging client base, many of which are engaged in cell and gene therapy development. The preliminary purchase price of Explora BioLabs was $284.5 million, net of $6.6 million in cash. The acquisition was funded through proceeds from the Company’s credit facility (Credit Facility). This business is reported as part of the Company’s RMS reportable segment. Fiscal 2021 Acquisitions Vigene Biosciences, Inc. On June 28, 2021, the Company acquired Vigene Biosciences, Inc. (Vigene), a gene therapy CDMO, providing viral vector-based gene delivery solutions. The acquisition enables clients to seamlessly conduct analytical testing, process development, and manufacturing for advanced modalities with the same scientific partner. The purchase price of Vigene was $323.9 million, net of $2.7 million in cash. Included in the purchase price are contingent payments fair valued at $34.5 million, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $57.5 million based on future performance). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s Manufacturing reportable segment. As of June 25, 2022, the fair value of the contingent consideration was zero as certain financial targets have not and are not expected to be achieved. Retrogenix Limited On March 30, 2021, the Company acquired Retrogenix Limited (Retrogenix), an early-stage contract research organization providing specialized bioanalytical services utilizing its proprietary cell microarray technology. The acquisition of Retrogenix enhances the Company’s scientific expertise with additional large molecule and cell therapy discovery capabilities. The purchase price of Retrogenix was $53.9 million, net of $8.5 million in cash. Included in the purchase price are contingent payments fair valued at $6.9 million, which is the maximum potential payout, and was based on a probability-weighted approach. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment. Cognate BioServices, Inc. On March 29, 2021, the Company acquired Cognate BioServices, Inc. (Cognate), a cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for the production of plasmid DNA and other inputs in the CDMO value chain. The acquisition of Cognate establishes the Company as a scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research and discovery through cGMP production. The purchase price of Cognate was $877.9 million, net of $70.5 million in cash and includes $15.7 million of consideration for an approximate 2% ownership interest not acquired, which was redeemed in April 2022 with the ultimate payout tied to performance in 2021. The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility and senior notes (Senior Notes) issued in fiscal 2021. This business is reported as part of the Company’s Manufacturing reportable segment. Distributed Bio, Inc. On December 31, 2020, the Company acquired Distributed Bio, Inc. (Distributed Bio), a next-generation antibody discovery company with technologies specializing in enhancing the probability of success for delivering high-quality, readily formattable antibody fragments to support antibody and cell and gene therapy candidates to biopharmaceutical clients. The acquisition of Distributed Bio expands the Company’s capabilities with an innovative, large-molecule discovery platform, and creates an integrated, end-to-end platform for therapeutic antibody and cell and gene therapy discovery and development. The purchase price of Distributed Bio was $97.0 million, net of $0.8 million in cash. The total consideration includes $80.8 million cash paid, settlement of $3.0 million in convertible promissory notes previously issued by the Company during prior fiscal years, and $14.1 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $21.0 million based on future performance and milestone achievements over a one-year period). The acquisition was funded through a combination of available cash and proceeds from the Company’s Credit Facility. This business is reported as part of the Company’s DSA reportable segment. During the three months ended June 25, 2022, $7.0 million of contingent consideration was paid as certain operational milestones were achieved. Other financial targets associated with the contingent consideration were not met and the fair value of the remaining contingent consideration is zero. Other Acquisition On March 3, 2021, the Company acquired certain assets from a distributor that supports the Company’s DSA reportable segment. The purchase price was $35.4 million, which includes $19.5 million in cash paid ($5.5 million of which was paid in fiscal 2020), and $15.9 million of contingent consideration, which was estimated using a Monte Carlo Simulation model (the maximum contingent contractual payments are up to $17.5 million based on future performance over a three-year period). The fair value of the net assets acquired included $17.3 million of goodwill, $15.2 million attributed to supplier relationships (to be amortized over a 4-year period), and $3.0 million of property, plant, and equipment. The business is reported as part of the Company’s DSA reportable segment. As of June 25, 2022, the fair value of the contingent consideration was zero as certain operational targets were not achieved. Purchase price information The purchase price allocation was as follows:
| Explora (1) |  | Vigene |  | Retrogenix |  | Cognate |  | Distributed Bio
| April 5, 2022 |  | June 28, 2021 |  | March 30, 2021 |  | March 29, 2021 |  | December 31, 2020
| (in thousands)
Trade receivables | $ | 7,679 |  |  | $ | 3,548 |  |  | $ | 2,266 |  |  | $ | 18,566 |  |  | $ | 2,722 |
Other current assets (excluding cash) | 1,067 |  |  | 1,657 |  |  | 209 |  |  | 14,128 |  |  | 221 |
Property, plant and equipment | 37,369 |  |  | 7,649 |  |  | 400 |  |  | 52,082 |  |  | 2,382 |
Operating lease right-of-use asset, net | 48,613 |  |  | 22,507 |  |  | 1,385 |  |  | 34,349 |  |  | 1,586 |
Goodwill (2) | 216,324 |  |  | 239,681 |  |  | 34,489 |  |  | 611,555 |  |  | 71,585 |
Definite-lived intangible assets | 70,100 |  |  | 93,900 |  |  | 22,126 |  |  | 270,900 |  |  | 24,540 |
Other long-term assets | 556 |  |  | 694 |  |  | — |  |  | 6,098 |  |  | 469 |
Deferred revenue | (3,507) |  |  | (4,260) |  |  | (434) |  |  | (20,539) |  |  | (1,319) |
Other current liabilities (3) | (15,507) |  |  | (6,319) |  |  | (1,141) |  |  | (45,388) |  |  | (1,504) |
Operating lease right-of-use liabilities (Long-term) | (57,193) |  |  | (21,220) |  |  | (1,205) |  |  | (31,383) |  |  | (1,123) |
Deferred tax liabilities | (19,173) |  |  | (13,958) |  |  | (4,174) |  |  | (32,503) |  |  | (2,529) |
Other long-term liabilities | (1,807) |  |  | — |  |  | — |  |  | — |  |  | — |
Total purchase price allocation | $ | 284,521 |  |  | $ | 323,879 |  |  | $ | 53,921 |  |  | $ | 877,865 |  |  | $ | 97,030 |
(1) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
(2) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses and the assembled workforce of the acquirees, thus is not deductible for tax purposes. Explora BioLabs had $5.0 million of goodwill due to a prior asset acquisition that is not deductible for tax purposes.
(3) In connection with its acquisitions of businesses, the Company routinely records liabilities related to indirect state and local taxes for preacquisition periods when such liabilities are estimable and deemed probable. The Company may or may not be indemnified for such indirect tax liabilities under terms of the acquisitions. As these indirect tax contingencies are resolved, actual obligations, and any indemnifications, may differ from the recorded amounts and any differences are reflected in reported results in the period in which these are resolved. Specifically for Cognate, as of March 29, 2021, the Company recorded an estimated liability of $17 million pertaining to indirect state sales taxes. During the three months ended June 25, 2022, the Company received a favorable ruling from the applicable state in which the indirect state sales tax liability arose and, accordingly, this liability was reduced in full, resulting in a gain recorded through selling, general and administrative expenses in the period.
The definite-lived intangible assets acquired were as follows:
| Explora BioLabs |  | Vigene |  | Retrogenix |  | Cognate |  | Distributed Bio
Definite-Lived Intangible Assets | (in thousands)
Client relationships | $ | 64,000 |  |  | $ | 87,500 |  |  | $ | 17,340 |  |  | $ | 257,200 |  |  | $ | 16,080 |
Other intangible assets | 6,100 |  |  | 6,400 |  |  | 4,786 |  |  | 13,700 |  |  | 8,460 |
Total definite-lived intangible assets | $ | 70,100 |  |  | $ | 93,900 |  |  | $ | 22,126 |  |  | $ | 270,900 |  |  | $ | 24,540 |
Weighted Average Amortization Life | (in years)
Client relationships | 13 |  | 12 |  | 13 |  | 13 |  | 9
Other intangible assets | 4 |  | 2 |  | 3 |  | 2 |  | 4
Total definite-lived intangible assets | 12 |  | 11 |  | 11 |  | 13 |  | 7
| Three Months Ended |  | Six Months Ended
| June 25, 2022 |  | June 26, 2021 |  | June 25, 2022 |  | June 26, 2021
| (in thousands)
Transaction and Integration Costs |  |  |  |  |  |  |
Selling, general and administrative expenses | $ | 4,426 |  |  | $ | 14,694 |  |  | $ | 11,539 |  |  | $ | 23,411 |
Pro forma information The following selected unaudited pro forma consolidated results of operations are presented as if the Cognate and Vigene acquisitions had occurred as of the beginning of the period immediately preceding the period of acquisition, which is December 29, 2019, after giving effect to certain adjustments. For the three and six months ended June 26, 2021, these adjustments included additional amortization of intangible assets and depreciation of fixed assets of $4.0 million and $13.3 million, additional interest expense on borrowing of $2.2 million and $5.6 million, elimination of intercompany activity and other one-time costs, and the tax impacts of these adjustments. All other acquisitions have not been included because that information is not material to the consolidated financial statements.
| June 26, 2021
| Three Months Ended |  | Six Months Ended
| (in thousands)
| (unaudited)
Revenue | $ | 923,859 |  |  | $ | 1,782,659 |
Net income attributable to common shareholders | 94,984 |  |  | 132,559 |
These unaudited pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the dates indicated or that may result in the future. No effect has been given for synergies, if any, that may be realized through the acquisition. RMS Japan Divestiture On October 12, 2021, the Company sold its RMS Japan operations to The Jackson Laboratory for a preliminary purchase price of $70.6 million, which included $7.9 million in cash, $3.8 million pension over funding, and certain post-closing adjustments. The RMS Japan business was reported in the Company’s RMS reportable segment. The Company determined that the RMS Japan business was not optimized within the Company’s portfolio at its current scale, and that the capital could be better deployed in other long-term growth opportunities. CDMO Sweden Divestiture On October 12, 2021, the Company sold its gene therapy CDMO site in Sweden to a private investor group for a preliminary purchase price of $59.6 million, net of $0.2 million in cash and other post-closing adjustments that may impact the purchase price. Included in the purchase price are contingent payments fair valued at $15.3 million, which were estimated using a probability weighted model (the maximum contingent contractual payments are up to $25.0 million based on future performance), as well as a purchase obligation of approximately $10.0 million between the parties. The CDMO Sweden business was acquired in March 2021 as part of the acquisition of Cognate and was reported in the Company’s Manufacturing reportable segment. The Company routinely evaluates the strategic fit and fundamental performance of our acquisitions integrated within our global infrastructure. As part of this assessment, the Company determined that this capital could be better deployed in other long-term growth opportunities. The carrying amounts of the major classes of assets and liabilities associated with the divestitures of the businesses were as follows:
| October 12, 2021
| RMS Japan |  | CDMO Sweden
| (in thousands)
Assets |  |  |
Current assets | $ | 26,524 |  |  | $ | 8,187 |
Property, plant, and equipment, net | 17,379 |  |  | 14,339 |
Operating lease right-of-use assets, net | — |  |  | 19,733 |
Goodwill | 4,129 |  |  | 27,764 |
Intangible assets, net | — |  |  | 14,089 |
Other assets | 3,695 |  |  | — |
Total assets | $ | 51,727 |  |  | $ | 84,112 |
Liabilities |  |  |
Current liabilities | $ | 8,705 |  |  | $ | 6,386 |
Operating lease right-of-use liabilities | — |  |  | 18,221 |
Long-term liabilities | 94 |  |  | — |
Total liabilities | $ | 8,799 |  |  | $ | 24,607 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 + Details
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