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Acquisition of C Technologies, Inc | 3 Months Ended
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Mar. 31, 2020
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. 805, “Business Combinations” (“ASC 805 ”) . 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 was $ 6.8 million, the fair value of the intangible assets acquired was $ 90.8 million, and the residual goodwill was $ 142.3 million. The consideration and purchase price information has been prepared using a valuation that 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 , h owever, 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 $4.0 million in transaction costs in 2019. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of comprehensive income. 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. For the period ended March 31, 2020, the Company recognized $2.2 million of compensation expense associated with this amount due to employees. The Company has recognized a total of $7.5 million of compensation expense associated with this amount due to employees since 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 |  |  | 142,314 |
Deferred taxes |  |  | 895 |
Accounts payable |  |  | (436 | )
Accrued liabilities |  |  | (2,767 | )
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 $ 142.3 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. Pursuant to the Company’s business combination accounting policy included in Note 2 , “Summary of Significant Accounting Policies – Business Combinations, Goodwill and Intangible Assets,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 , the Company recorded goodwill adjustments for the effects on goodwill of changes to net assets acquired during the period that such change is identified, provided that any such change is within the measurement period (up to one year from the date of the acquisition). In December 2019 , the Company recorded a deferred tax asset for the C Technologies Acquisition of $ 0.9 million as an adjustment to goodwill. In March 2020 , the Company recorded an additional adjustment to goodwill of $ 0.3 million related to additional state income tax liabilities to be paid to the seller, which were incurred from the Company’s finalized 338 (h) (10) tax election. 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 $6.6 million for the three months ended March 31, 2020 and $16.4 million from May 31, 2019, the date of acquisition, to December 31, 2019. The Company recorded a net loss from C Technologies’ results of operations of $2.2 million for the three months ended March 31, 2020 and a net loss of $7.4 million from May 31, 2019 to December 31, 2019. The Company has included the operating results of C Technologies in its consolidated statements of comprehensive 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 , 2019 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 amortization expense on the acquired identifiable intangible assets, adjustments to stock-based compensation expense for equity compensation issued to C Technologies employees and the income tax effect of the adjustments made. In addition, acquisition-related transaction costs and an accounting adjustment to record inventory at fair value were excluded from pro forma net income in 2019 . Prior to the C Technologies Acquisition, C Technologies did not generate monthly or quarterly financial statements that were prepared in accordance with GAAP. 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, 2019 or of future results:
|  | Three Months Ended March 31, 2019 |
Total revenue |  | $ | 66,052 |
Net income |  | $ | 10,664 |
Earnings per share: |  |  |  |
Basic |  | $ | 0.24 |
Diluted |  | $ | 0.23 |

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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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