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Acquisition of C Technologies, Inc | 9 Months Ended
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Sep. 30, 2019
Acquisition of C Technologies, Inc. |
3. | Acquisition of C Technologies, Inc.
On April 25, 2019, Repligen agreed to acquire C Technologies, pursuant to the terms of a Stock Purchase Agreement (the “Agreement”), by and among Repligen, C Technologies and Craig Harrison, an individual and sole stockholder of C Technologies (such acquisition, the “C Technologies Acquisition”). C Technologies’ business consists of two major product categories (i) biotechnology, or Biotech, and (ii) Legacy and Other. Through its Biotech category, C Technologies sells instruments, consumables and accessories that are designed to allow bioprocessing technicians to measure the protein concentration of a liquid sample using C Technologies’ Slope Spectroscopy method, which eliminates the need for manual sample dilution. C Technologies’ lead product, the SoloVPE instrument platform, was launched in 2008 for off-line and at-line protein concentration measurements conducted in quality control, process development and manufacturing labs in the production of biological therapeutics. C Technologies’ FlowVPE platform, an extension of the SoloVPE technology, was designed to allow end users to make in-line protein concentration measurements in filtration, chromatography and fill-finish applications, designed to allow for real-time process monitoring. Consideration Transferred The C Technologies Acquisition was accounted for as a purchase of a business under Accounting Standards Codification No. (“ASC”) 805, “Business Combinations” . The C Technologies Acquisition was funded through payment of approximately $195.0 million in cash, $186.0 million of which is consideration transferred pursuant to ASC 805, and $9.0 million of which will be compensation expense for future employment, and 779,221 unregistered shares of the Company’s common stock totaling $53.9 million for a total purchase price of $239.9 million. Under the acquisition method of accounting, the assets of C Technologies were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net tangible assets acquired is estimated to be approximately $6.2 million, the fair value of the intangible assets acquired is estimated to be approximately $90.8 million, and the residual goodwill is estimated to be approximately $142.9 million. The estimated consideration and preliminary purchase price information has been prepared using a preliminary valuation. The final purchase price allocation will be completed upon closing of the transaction. 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 Repligen believes to be reasonable. However, actual results may differ from these estimates. Total consideration transferred is as follows (amounts in thousands):
Cash consideration |  | $ | 185,949 |
Equity consideration |  |  | 53,938 |
Fair value of net assets acquired |  | $ | 239,887 |
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 an immaterial amount of acquisition related costs in the third quarter of 2019 and $4.0 million in transaction costs for the nine-month period ended September 30, 2019. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of comprehensive income (loss) . In connection with the transaction, an additional $9.0 million in cash will be due to employees based on their continued employment with the Company one year after the date of the close of the C Technologies Acquisition. Fair Value of Net Assets Acquired The allocation of purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, based on the preliminary valuation. The Company obtains this information during due diligence and through other sources. In the months after closing, the Company may obtain additional information about these assets and liabilities as it learns more about C Technologies and will refine the estimates of fair value to more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. We will make appropriate adjustments to the purchase price allocation, if any, prior to the completion of the measurement period, which is up to one year from the acquisition date. The components and allocation of the purchase price consists of the following amounts (amounts in thousands):
Cash and cash equivalents |  | $ | 3,795 |
Restricted cash |  |  | 26,933 |
Accounts receivable |  |  | 3,044 |
Inventory |  |  | 3,783 |
Prepaid expenses and other current assets |  |  | 93 |
Fixed assets |  |  | 40 |
Operating lease right of use asset |  |  | 3,836 |
Customer relationships |  |  | 59,680 |
Developed technology |  |  | 28,920 |
Trademark and tradename |  |  | 1,570 |
Non-competition agreements |  |  | 660 |
Goodwill |  |  | 142,903 |
Accounts payable |  |  | (436 | )
Accrued liabilities |  |  | (2,461 | )
Accrued bonus |  |  | (26,928 | )
Deferred revenue |  |  | (1,709 | )
Operating lease liability |  |  | (51 | )
Operating lease liability, long-term |  |  | (3,785 | )
Fair value of net assets acquired |  | $ | 239,887 |
Acquired Goodwill The goodwill of $142.9 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. Substantially all of the goodwill recorded is expected to be deductible for income tax purposes. Intangible Assets The following table sets forth the components of the identified intangible assets associated with the C Technologies Acquisition and their estimated useful lives:
|  | Useful Life |  |  | Fair Value |
|  |  |  |  | (Amounts in thousands) |
Customer relationships |  |  | 17 years |  |  | $ | 59,680 |
Developed technology |  |  | 18 years |  |  |  | 28,920 |
Trademark and tradename |  |  | 20 years |  |  |  | 1,570 |
Non-competition agreements |  |  | 4 years |  |  |  | 660 |
|  |  |  |  |  | $ | 90,830 |
Revenue, Net Income and Pro Forma Presentation The Company recorded revenue from C Technologies of $7.0 million and a net loss of $1.2 million for the three months ended September 30, 2019 and revenue of $9.1 million and a net loss of $2.7 million from May 31, 2019 , the date of acquisition , to September 30, 2019. The Company has included the operating results of C Technologies in its consolidated statements of comprehensive (loss) income since the May 31, 2019 acquisition date. The following pro forma financial information presents the combined results of operations of Repligen and C Technologies as if the acquisition had occurred on January 1, 2018 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the C Technologies Acquisition, factually supportable and have a recurring impact. These pro forma adjustments include a $3.6 million and a $4.0 million net increase in amortization expense in 2019 and 2018, respectively, to record amortization expense for the $90.8 million of acquired identifiable intangible assets, adjustments to stock-based compensation of $0.5 million in both years, for equity compensation issued to C Technologies employees and the income tax effect of the adjustments made at the blended federal and state statutory tax rate (approximately 25%). In addition, acquisition-related transaction costs of $4.0 million and a $1.5 million purchase accounting adjustment to record inventory at fair value were excluded from pro forma net income in 2019. The following pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on January 1, 2018 or of future results:
|  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |
|  | (Amounts in thousands, except per share data) |
Pro forma total revenue |  | $ | 209,960 |  |  | $ | 159,173 |
Pro forma net income |  | $ | 21,012 |  |  | $ | 15,205 |
Pro forma earnings per share: |  |  |  |  |  |  |  |
Basic |  | $ | 0.45 |  |  | $ | 0.32 |
Diluted |  | $ | 0.44 |  |  | $ | 0.31 |
Prior to the C Technologies Acquisition, C Technologies did not generate monthly or quarterly financial statements that were prepared in accordance with U.S. GAAP.

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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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