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Business Combinations | 9 Months Ended
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Sep. 28, 2018
Business Combinations [Abstract] |
Business Combinations | 3. Business Combinations 2018 Acquisitions During the nine months ended September 28, 2018, the Company acquired two businesses with total cash considerations of $33.5 million, including the acquisition of Zettlex Holdings Limited ("Zettlex"), for a total purchase price of $32.0 million. The consolidated statements of operations include the operating results of the businesses from the dates of acquisition. Zettlex On May 1, 2018, the Company acquired 100% of the outstanding stock of Zettlex, a Cambridge, United Kingdom-based provider of inductive encoder products that provides absolute and accurate positioning, even in extreme operating environments, to OEMs in the medical and advanced industrial markets. The purchase price of £23.3 million ($32.0 million), net of working capital adjustments, was financed with cash on hand and borrowings under the Company’s revolving credit facility. The addition of Zettlex is expected to broaden the range of components and solutions that the Company can provide to customers by combining its commercial resources and application-specific competencies with Zettlex's technologies and strong team. Zettlex is included in the Company’s Precision Motion reportable segment. The acquisition of Zettlex has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets acquired and liabilities assumed. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Zettlex and the Company. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information obtained with regards to facts and circumstances that existed as of the acquisition date. The purchase price allocation is preliminary as the Company is in the process of collecting additional information for the valuation of intangible assets and unrecognized tax benefits. Based upon a preliminary valuation, the total purchase price was allocated as follows (in thousands):
| Purchase Price |
| Allocation |
Cash | $ | 3,776 |
Accounts receivable |  | 2,237 |
Inventories |  | 928 |
Property, plant and equipment |  | 2,590 |
Intangible assets |  | 14,585 |
Goodwill |  | 11,649 |
Other assets |  | 145 |
Total assets acquired |  | 35,910 |
Accounts payable |  | 509 |
Accrued expenses and other liabilities |  | 894 |
Deferred tax liabilities |  | 2,481 |
Total liabilities assumed |  | 3,884 |
Total assets acquired, net of liabilities assumed |  | 32,026 |
Less: cash acquired |  | 3,776 |
Total purchase price, net of cash acquired | $ | 28,250 |
The fair value of intangible assets is comprised of the following (dollar amounts in thousands):
|  |  |  |  | Weighted Average
| Estimated Fair |  |  | Amortization
| Value |  |  | Period
Developed technologies | $ | 3,027 |  |  | 10 years
Customer relationships |  | 9,494 |  |  | 15 years
Trademarks and trade names |  | 550 |  |  | 10 years
Backlog |  | 1,514 |  |  | 1 year
Total | $ | 14,585 |  |  |
The purchase price allocation resulted in $14.6 million of identifiable intangible assets and $11.6 million of goodwill. As the Zettlex acquisition is an acquisition of outstanding common shares, none of the resulting goodwill is deductible for tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) Zettlex’s ability to grow its business with existing and new customers, including leveraging the Company’s customer base; and (ii) cost improvements due to the integration of Zettlex operations into the Company’s existing infrastructure. The operating results of Zettlex were included in the Company’s results of operations beginning on May 1, 2018. Zettlex contributed revenues of $5.0 million and a loss before income taxes of $1.4 million for the nine months ended September 28, 2018. Loss before income taxes for the nine months ended September 28, 2018 included amortization of purchased intangible assets of $0.8 million and compensation expense of $2.8 million recognized under earn-out agreements. The pro forma financial information reflecting the operating results of Zettlex, as if it had been acquired as of January 1, 2017, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2017. Acquisition Costs Acquisition-related costs are included in restructuring, acquisition and divestiture related costs in the consolidated statements of operations. Acquisition-related costs for current year acquisitions were $0.5 million for the nine months ended September 28, 2018. 2017 Acquisition On July 3, 2017, the Company acquired 100% of the outstanding shares of W.O.M. World of Medicine GmbH (“WOM”), a Berlin, Germany-based provider of medical insufflators, pumps, and related disposables for OEMs in the minimally invasive surgical market, for a total purchase price of €118.1 million ($134.9 million), net of working capital adjustments. WOM is included in the Company’s Vision reportable segment. The unaudited pro forma information presented below includes the effects of business combination accounting resulting from the acquisition of WOM, including amortization of inventory fair value adjustments, amortization of intangible assets, interest expense on borrowings in connection with the acquisition, and the related tax effects, as though the acquisition had been consummated as of January 1, 2016. The unaudited pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place on January 1, 2016.
| Three Months Ended |  |  | Nine Months Ended |
| September 29, |  |  | September 29, |
| 2017 |  |  | 2017 |
Revenue | $ | 146,296 |  |  | $ | 415,134 |
Consolidated net income | $ | 12,547 |  |  | $ | 56,754 |
Earnings per share attributable to Novanta Inc. – Basic | $ | 0.12 |  |  | $ | 1.26 |
Earnings per share attributable to Novanta Inc. – Diluted | $ | 0.12 |  |  | $ | 1.25 |

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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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