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Acquisitions | 9 Months Ended
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Sep. 30, 2017
Acquisitions | 2. Acquisitions Acquisition of Spectrum LifeSciences, LLC On August 1, 2017, the Company completed the acquisition of Spectrum pursuant to the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 22, 2017 (such acquisition, the “Spectrum Acquisition”). Spectrum is a diversified filtration company with a differentiated portfolio of hollow fiber cartridges, bench-top to commercial scale filtration and perfusion systems and a broad portfolio of disposable and single-use solutions. Spectrum’s products are primarily used for the filtration, isolation, purification and concentration of monoclonal antibodies, vaccines, recombinant proteins, diagnostic products and cell therapies where the company offers both standard and customized solutions to its bioprocessing customers. Spectrum’s filtration products include its KrosFlo® line of hollow-fiber cartridges, tangential flow filtration (TFF) systems and single-use flow path consumables, as well as its Spectra/Por® portfolio of laboratory dialysis products and its Pro-Connex® single-use hollow fiber Module-Bag-Tubing (MBT) sets. Outside of filtration, the company sells its Spectra/Chrom® liquid chromatography products for research applications. These bioprocessing products account for the majority of Spectrum revenues. Spectrum also offers a line of operating room products. The Spectrum Acquisition was accounted for as a purchase of a business under ASC 805, Business Combinations. The Spectrum Acquisition was funded through payment of approximately $122.9 million in cash, 6,153,995 unregistered shares of the Company’s common stock totaling $247.6 million and an estimated working capital adjustment of approximately $1.0 million for a total purchase price of $371.5 million. Consideration Transferred The Company accounted for the Spectrum Acquisition as a purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of Spectrum were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. The fair value of the net assets acquired was approximately $371.5 million. The estimated consideration and preliminary purchase price information has been prepared using a preliminary valuation. The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable; however, actual results may differ from these estimates. The total consideration transferred follows (in thousands):
Cash consideration |  | $ | 122,932 |
Equity consideration |  |  | 247,575 |
Working capital adjustment |  |  | 955 |
Net assets acquired |  | $ | 371,462 |
Acquisition-related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company has incurred $3,378,000 and $5,761,000 in costs related to the Spectrum Acquisition for the three- and nine-month periods ended September 30, 2017, respectively. These costs are primarily included in selling, general and administrative expenses in the consolidated statements of operations. Fair Value of Net Assets Acquired The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of August 1, 2017, based on the preliminary valuation. The components and allocation of the purchase price consists of the following amounts (in thousands):
Cash and cash equivalents |  | $ | 9,990 |
Accounts receivable |  |  | 5,124 |
Inventory |  |  | 13,774 |
Prepaid expenses and other assets |  |  | 547 |
Fixed assets |  |  | 6,015 |
Deferred tax assets |  |  | 1,102 |
Customer relationships |  |  | 78,400 |
Developed technology |  |  | 38,560 |
Trademark and tradename |  |  | 2,160 |
Non-competition agreements |  |  | 960 |
Goodwill |  |  | 265,084 |
Accounts payable |  |  | (1,142 | )
Unrecognized tax benefit |  |  | (576 | )
Accrued liabilities |  |  | (5,535 | )
Deferred tax liabilities, net |  |  | (43,001 | )
Fair value of net assets acquired |  | $ | 371,462 |
Of the consideration paid, $78.4 million represents the fair value of customer relationships that will be amortized over the weighted average determined useful life of 16 years, and $38.6 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $960,000 represents the fair value of non-competition agreements that will be amortized over a determined life of 3 years. $2.2 million represents the fair value of trademarks and trade names that are determined to have an indefinite useful life. The aforementioned intangible assets will be amortized on a straight-line basis. The goodwill of $265.1 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes. The purchase price allocation is subject to adjustment as purchase accounting is preliminary as of September 30, 2017. The final purchase price allocation will be determined upon completion of a final valuation analysis, and the fair value allocation of assets acquired and liabilities assumed could differ materially from the preliminary valuation analysis. The final allocation may include, but not be limited to, changes in the fair value of property, plant and equipment; changes in allocations to intangible assets and goodwill; changes in deferred tax assets and liabilities; and changes in the values of other assets and liabilities. Revenue, Net Income and Pro Forma Presentation The Company recorded revenue from Spectrum of $7,550,000 from August 1, 2017 through September 30, 2017. The Company has included the operating results of Spectrum in its consolidated statements of operations since the August 1, 2017 acquisition date. The following table presents unaudited supplemental pro forma information as if the Spectrum Acquisition had occurred as of January 1, 2016 (in thousands, except per share data):
|  | Nine months ended September 30, 2017 |
Total revenue |  | $ | 121,301 |
Net income |  | $ | 14,994 |
Earnings per share: |  |  |  |
Basic |  | $ | 0.36 |
Diluted |  | $ | 0.36 |
Prior to the Spectrum Acquisition, Spectrum did not generate monthly or quarterly financial statements that were prepared in accordance with U.S. GAAP. Therefore, the effort to create Spectrum interim financial information for 2016 would be administratively impracticable. As a result, the unaudited supplemental pro forma information for the nine-month period ended September 30, 2016 has been omitted. The unaudited pro forma information for the nine-month period ended September 30, 2017 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. The unaudited pro forma net income for the nine-month period ended September 30, 2017 was adjusted to exclude acquisition-related transaction costs, retention costs solely related to the acquisition, the impact of the fair value step-up to inventory and the release of the valuation allowance on the Company’s deferred tax assets, as these expenses would have been incurred in the prior year assuming the Spectrum Acquisition closed on January 1, 2016. These pro forma condensed consolidated financial results include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of January 1, 2016. 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 combinations occurred at the beginning of the period presented, or of future results of the consolidated entities. TangenX Technology Corporation On December 14, 2016, the Company acquired TangenX, pursuant to the terms of the Share Purchase Agreement, dated as of December 14, 2016, by and among the Company, John Connors and Novasep Process SAS (such acquisition, the “TangenX Acquisition”). Through the TangenX Acquisition, the Company acquired all outstanding shares and the business of TangenX, including TangenX’s innovative single-use Sius line of tangential flow filtration (“TFF”) cassettes and hardware used in downstream biopharmaceutical manufacturing processes. TangenX™ TFF products are used in the filtration of biological drugs, thereby expanding Repligen’s filtration portfolio and complementing the OPUS® pre-packed column product line in downstream purification. Effective June 30, 2017, TangenX was legally merged with and into the Company. The TangenX Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the TangenX Acquisition was $37.1 million in cash. Consideration Transferred The Company accounted for the TangenX Acquisition as a purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of TangenX were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. The fair value of the net assets acquired was approximately $37.1 million. The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates. The total consideration transferred follows (in thousands):
Cash consideration |  | $ | 37,532 |
Less: working capital adjustment |  |  | (382 | )
Net assets acquired |  | $ | 37,150 |
Acquisition-related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred $0 and $376,000 in transaction costs for the three- and nine-month periods ended September 30, 2017, respectively, and $935,000 in transaction costs for the year ended December 31, 2016 related to the TangenX Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations. Fair Value of Net Assets Acquired The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of December 14, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):
Cash and cash equivalents |  | $ | 1,218 |
Accounts receivable |  |  | 459 |
Other receivables |  |  | 111 |
Inventory |  |  | 936 |
Other current assets |  |  | 50 |
Fixed assets, net |  |  | 215 |
Customer relationships |  |  | 6,192 |
Developed technology |  |  | 6,044 |
Non-competition agreements |  |  | 21 |
Trademark and trade name |  |  | 11 |
Accounts payable and other liabilities assumed |  |  | (3,083 | )
Deferred tax liabilities |  |  | (4,525 | )
Goodwill |  |  | 29,501 |
Net assets acquired |  | $ | 37,150 |
Of the consideration paid, $6.2 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $6.0 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $21,000 represents the fair value of non-competition agreements that will be amortized over a determined life of 2 years. $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 5 years. The aforementioned intangible assets will be amortized on a straight-line basis. The goodwill of $29.5 million represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes. Atoll GmbH On April 1, 2016, the Company’s subsidiary, Repligen Sweden, acquired Atoll GmbH (“Atoll”) from UV-Cap GmbH & Co. KG (“UV Cap”) pursuant to a Share Purchase Agreement (the “Atoll Share Purchase Agreement”), dated as of March 31, 2016 (such acquisition, the “Atoll Acquisition”), by and among Repligen Sweden, UV Cap, and the Company, in its capacity as guarantor of the obligations of Repligen Sweden under the Atoll Share Purchase Agreement. The Atoll Acquisition was subject to certain closing conditions that did not occur until April 1, 2016. Payment for the Atoll Acquisition was denominated in Euros but is reflected here in U.S. dollars for presentation purposes. In connection with the Atoll Acquisition, the Company issued and contributed 538,700 shares of the Company’s common stock, par value of $0.01 per share valued at $14.1 million (the “Atoll Stock Consideration”) to Repligen Sweden through a transfer by the Company on behalf of Repligen Sweden to fulfill Repligen Sweden’s obligation to deliver the Atoll Stock Consideration under the Atoll Share Purchase Agreement. The issuance of the Atoll Stock Consideration was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act. The Atoll Stock Consideration was based on the fair value of the Company’s common stock on April 1, 2016. This acquisition strengthened Repligen’s bioprocessing business by adding a complementary extension to an existing product line while expanding its direct sales presence worldwide. On September 20, 2016, Atoll changed its name to Repligen GmbH. The Atoll Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the Atoll Acquisition was $25.3 million, consisting of an upfront cash payment of $10.2 million, less $74,000 as a result of the final determination of working capital, issuance of the Atoll Stock Consideration, and a milestone payment of $1.1 million for achievement of specific revenue growth targets met for 2016. The $1.1 million potential contingent consideration had an initial probability weighted fair value at the time of the closing of the Atoll Acquisition of approximately $952,000. Consideration Transferred The Company accounted for the Atoll Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of Atoll were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. The fair value of the net assets acquired was approximately $25.3 million. The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates. The total consideration transferred follows (in thousands):
Cash consideration, less $74 of working capital adjustments |  | $ | 10,176 |
Equity consideration |  |  | 14,138 |
Estimated fair value of contingent consideration |  |  | 952 |
Total consideration transferred |  | $ | 25,266 |
The fair value of contingent consideration was determined based upon a probability weighted analysis of expected future milestone and settlement payments to be made to UV Cap. Pursuant to the terms of the Atoll Share Purchase Agreement, the Company would make a contingent consideration payment of $1.1 million if specific revenue growth targets were met for 2016. Because the specified revenue growth targets were met for 2016, the Company made the contingent consideration payment in March 2017. No further measurement of this liability is required as of September 30, 2017. Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred $1,307,000 in transaction costs in 2016 related to the Atoll Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations. Fair Value of Net Assets Acquired The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of April 1, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):
Cash and cash equivalents |  | $ | 1,409 |
Accounts receivable |  |  | 697 |
Inventory |  |  | 155 |
Other current assets |  |  | 169 |
Fixed assets, net |  |  | 114 |
Customer relationships |  |  | 5,318 |
Developed technology |  |  | 2,175 |
Non-competition agreements |  |  | 57 |
Trademark and trade name |  |  | 11 |
Deferred tax assets |  |  | 885 |
Accounts payable and other liabilities assumed |  |  | (599 | )
Deferred tax liabilities |  |  | (2,202 | )
Goodwill |  |  | 17,077 |
Net assets acquired |  | $ | 25,266 |
Of the consideration paid, $5.3 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $2.2 million represents the fair value of developed technology that will be amortized over a determined useful life of 14 years. $57,000 represents the fair value of non-competition agreements and $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 2 years. The aforementioned intangible assets will be amortized on a straight-line basis. The goodwill of $17.1 million represents future economic benefits expected to arise from synergies from combining operations, utilizing the Company’s existing sales infrastructure to increase market presence and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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