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Acquisitions | 9 Months Ended
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Sep. 30, 2017
Business Combinations [Abstract] |
Acquisitions | Acquisitions In support of our strategic growth initiatives, on May 2, 2017, we acquired the remaining 51% equity interests in Caisson Interventional, LLC (“Caisson”) for a purchase price of up to $72.0 million, net of $6.3 million of debt forgiveness, consisting of $18.0 million paid at closing, $14.4 million to be paid after 12 months, and contingent consideration of up to $39.6 million to be paid on a schedule driven primarily by regulatory approvals and a sales-based earnout. Caisson, a clinical-stage medical device company based in Maple Grove, Minnesota, is focused on the design, development and clinical evaluation of a novel transcatheter mitral valve replacement (“TMVR”) implant device with a fully transvenous delivery system. The following table presents the acquisition date fair-value of the consideration transferred and the fair value of our interest in Caisson prior to the acquisition (in thousands):
Cash (1) |  | $ | 15,660 |
Debt forgiven (2) |  | 6,309 |
Deferred consideration (1) |  | 12,994 |
Contingent consideration (1) |  | 29,303 |
Fair value of consideration transferred |  | 64,266 |
Fair value of our interest prior to the acquisition (2) |  | 52,505 |
Fair value of total consideration |  | $ | 116,771 |
(1) | Concurrent with the acquisition, we recognized $5.8 million of post-combination compensation expense. Of this amount, $2.4 million is reflected as a reduction of $18.0 million in cash paid at closing of the acquisition, while $3.4 million increased the deferred consideration and contingent consideration liabilities recognized at the date of the acquisition to a total of $14.1 million and $31.7 million, respectively.
(2) | On the acquisition date, we remeasured the notes receivable from Caisson and our existing investment in Caisson at fair value and recognized a pre-tax non-cash gain of $1.3 million and $38.1 million, respectively, which are included in ‘Gain on acquisition of Caisson Interventional, LLC’ in the condensed consolidated statements of income (loss).
The following table presents the preliminary purchase price allocation at fair value for the Caisson acquisition (in thousands):
Cash and cash equivalents |  | $ | 1,468 |
In-process research and development |  | 89,000 |
Goodwill |  | 42,417 |
Other assets |  | 918 |
Current liabilities |  | 1,023 |
Deferred income tax liabilities, net |  | 16,009 |
Net assets acquired |  | $ | 116,771 |
Acquired goodwill of $9.6 million is expected to be deductible for tax purposes. Additionally, $3.0 million of the initial cash payment was deposited in escrow for future claims indemnification. Of this amount, $2.0 million is included in ‘Prepaid expenses and other current assets’ and the remaining $1.0 million is included in ‘Other long-term assets’ on the condensed consolidated balance sheet as of September 30, 2017. We recognized acquisition-related expenses of approximately $1.0 million for legal and valuation expenses during the nine months ended September 30, 2017. These expenses are included within ‘Selling, general and administrative’ expenses in the condensed consolidated statements of income (loss). Additionally, the results of Caisson for the period of May 2, 2017 through September 30, 2017 added no revenue and $16.9 million in expenses in our condensed consolidated statement of income (loss). The contingent consideration arrangements are composed of potential cash payments upon the achievement of certain regulatory milestones and a sales-based earnout associated with sales of products covered by the purchase agreement. The sales-based earnout was valued using projected sales from our internal strategic plans. Both arrangements are Level 3 fair value measurements and include the following significant unobservable inputs (in thousands):
Caisson Acquisition |  | Fair value at May 2, 2017 |  | Valuation Technique |  | Unobservable Input |  | Ranges
Regulatory milestone-based payments |  | $ | 14,883 |  |  | Discounted cash flow |  | Discount rate |  | 2.6% - 3.4%
|  |  |  |  |  | Probability of payment |  | 90-95%
|  |  |  |  |  | Projected payment years |  | 2018-2023
Sales-based earnout |  | 16,805 |  |  | Monte Carlo simulation |  | Discount rate |  | 11.5-12.7%
|  |  |  |  |  | Sales volatility |  | 36.9%
|  |  |  |  |  | Projected years of sales |  | 2019-2033
|  | $ | 31,688 |  |  |  |  |  |  |
The following table provides a reconciliation of the beginning and ending balance of the contingent consideration liability, which consisted of arrangements that arose from the Caisson acquisition and other previous acquisitions that also included contingent consideration (in thousands):
Balance at December 31, 2016 |  | $ | 3,890 |
Purchase price - Caisson contingent consideration |  | 31,688 |
Payments |  | (1,841 | )
Changes in fair value |  | 231 |
Effect of changes in foreign currency exchange rates |  | 249 |
Balance at September 30, 2017 (1) |  | $ | 34,217 |
(1) | The contingent consideration liability represents contingent payments related to three acquisitions: the first and second acquisitions, in September 2015, were Cellplex PTY Ltd. in Australia and the commercial activities of a local distributor in Colombia. The contingent payments for the first acquisition are based on achievement of sales targets by the acquiree through June 30, 2018 and the contingent payments for the second acquisition are based on sales of cardiopulmonary disposable products and heart lung machines of the acquiree through December 2019. The third acquisition, Caisson, occurred in May 2017 and is discussed above. Refer to “Note 6. Fair Value Measurements.”

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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