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Acquisition of C Technologies, Inc | 6 Months Ended
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Jun. 30, 2020
Acquisition of C Technologies, Inc. |
3. | Acquisition of C Technologies, Inc.
On May 31, 2019, Repligen acquired 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”). 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 for the six months ended June 30, 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 was paid to employees in the quarter ended June 30, 2020, based on their continued employment with the Company one year after the date of the close of the C Technologies Acquisition. For the three and six months ended June 30, 2020, the Company recognized $1.5 million and $3.7 million of compensation expense associated with this amount due to employees. The Company has recognized a total of $9.0 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 obtained this information during due diligence and through other sources. In the months after closing, the Company obtained additional information about these assets and liabilities as it learned more about C Technologies. The Company refined the estimates of fair value to more accurately allocate the purchase price. Only items identified as of the acquisition date were considered for subsequent adjustment. We made appropriate adjustments to the purchase price allocation during the measurement period, which was 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 the Company’s 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 March 2020, the Company recorded an 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. Revenue, Net Income and Pro Forma Presentation The Company recorded revenue from C Technologies of $7.7 million and $14.3 million for the three and six months ended June 30, 2020, respectively, 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 $0.7 million and $2.9 million for the three and six months ended June 30, 2020, respectively, 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 (amounts in thousands, except per share data):
|  | Six Months Ended June 30, 2019 |
Total revenue |  | $ | 140,515 |
Net income |  | $ | 20,560 |
Earnings per share: |  |  |  |
Basic |  | $ | 0.46 |
Diluted |  | $ | 0.43 |

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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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