Acquisitions (Tables)

9 Months Ended

Sep. 30, 2017

Schedule of Business Acquisitions, by Acquisition

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

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

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

Schedule of Business Acquisitions by Acquisition, Contingent Consideration

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

Reconciliation of Beginning and Ending Balances of Contingent Consideration

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.”