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BUSINESS COMBINATIONS
 12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
BUSINESS COMBINATIONS

3.

BUSINESS COMBINATIONS:

On June 23, 2016, the Company entered into an agreement to acquire Adesis, Inc., a privately held contract research organization (CRO) with 43 employees specializing in organic and organometallic synthetic research, development, and commercialization. Adesis is a technology vendor to companies in the pharmaceutical, fine chemical, biomaterials, and catalyst industries, and has worked with the Company over the last few years to help advance and accelerate a number of the Company’s product offerings. The transaction closed on July 11, 2016. Under the terms of the agreement, the Company’s subsidiary, UDC, Inc., acquired all outstanding shares of Adesis in a merger for $33.9 million in cash, and up to an additional $2.4 million in cash contingent upon Adesis’ achievement of certain milestones within two years of the acquisition. The acquisition was funded through use of existing cash and investments.

Preliminary Purchase Price Allocation

The Company accounted for Adesis using the acquisition method of accounting in accordance with applicable U.S. GAAP whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The contingent consideration arrangement requires the Company to pay up to $1.2 million of additional consideration to the former shareholders of Adesis if revenues exceed certain threshold levels at the end of each twelve-month period ending December 31, 2016 and December 31, 2017. The fair value of the contingent consideration was derived using a Monte Carlo simulation model based on management’s projections of future revenue levels. The initial accounting for the business combination is not complete because the evaluation necessary to assess the fair values of certain assets acquired is still in process. The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

Cash consideration

 

$

33,872

 

Contingent consideration

 

 

1,670

 

 

 

$

35,542

 

Allocation of purchase price:

 

 

 

 

Current assets, including cash of $492

 

$

2,204

 

Property and equipment

 

 

1,869

 

Accounts payable and accrued liabilities

 

 

(906

)

Net tangible assets

 

 

3,167

 

Identifiable intangible assets

 

 

16,840

 

Goodwill

 

 

15,535

 

Total purchase price

 

$

35,542

 

 

The purchase price exceeded the fair value of the net tangible assets and identifiable intangible assets acquired and, as a result, the Company recorded goodwill in connection with this transaction. This difference includes a going concern element that represents the Company’s ability to earn a higher rate of return on this group of assets than would be expected on the separate assets as determined during the valuation process.

Transaction costs of $360,000 for the year ended December 31, 2016 were recorded and charged to selling, general and administrative expense on the accompanying consolidated statements of income.

The fair value of the contingent consideration was remeasured at December 31, 2016 to reflect the achievement of the $1.2 million earn-out payment for 2016 and updated analysis of achievement for 2017. The liability was $1.9 million at December 31, 2016, and the $195,000 increase from the $1.7 million recorded in purchase accounting was charged to selling, general and administrative expense in the accompanying consolidated statement of income for the year ended December 31, 2016.

Intangible Assets Identified

The following table presents the intangible assets identified in the transaction:

 

Category

 

Estimated fair value

(in thousands)

 

 

Estimated useful life

(in years)

 

Customer relationships

 

 

10,520

 

 

 

11.5

 

Internally-developed IP, processes and recipes

 

 

4,820

 

 

 

15.0

 

Trade name/Trademarks

 

 

1,500

 

 

 

10.0

 

Total identifiable intangible assets

 

$

16,840

 

 

 

 

 

 

The preliminary fair value of the customer relationships asset was determined using the income approach through an excess earnings analysis which estimates value based on the present value of future economic benefits. The customer relationships intangible asset represents relationships between Adesis and its customers. The fair value of the internally-developed IP, processes and recipes was determined by utilizing the relief-from-royalty methodology. The preliminary fair value of the Adesis trade name asset was determined using the income approach through a relief-from-royalty analysis. The determination of useful lives was based upon consideration of market participant assumptions and transaction specific factors.

Impact on Operating Results

The results of Adesis’ operations have been included in the Company’s consolidated financial statements since the July 11, 2016 date of acquisition. The following unaudited pro forma information assumes the acquisition of Adesis occurred at the beginning of the respective periods presented (in thousands):

 

 

 

Year Ended December 31,

 

Unaudited Pro Forma Information

 

2016

 

 

2015

 

Revenue

 

$

202,547

 

 

$

197,375

 

Net income

 

 

44,718

 

 

 

12,661

 

 

The unaudited pro forma information presented is for illustrative purposes only and does not reflect future events that may occur after December 31, 2016, or any operating efficiencies or inefficiencies that may result from the Adesis acquisition. Additionally, this unaudited pro forma information includes certain one-time costs associated with the Company’s integration of the acquired Adesis operations. Therefore, the information is not necessarily indicative of the results that would have been achieved had the business been combined during the periods presented or the results that the Company will experience going forward.