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Note 2 - Acquisitions and Divestiture | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] |
(2) | Acquisitions and Divestiture
Molded Fiber On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold its former wholly owned subsidiary Moulded Fibre Technology, Inc. (“MFT”) and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $31.5 million. The net book value of the assets sold was approximately $15.4 million and the Company recorded a net gain on the sale of approximately $15.7 million, which was recorded in the year ended December 31, 2022. $2.6 million of the purchase price was held in escrow to indemnify CKF against certain claims, losses, and liabilities. The full escrow balance was released in January 2024. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. Proceeds from the sale were used to pay down debt on the Company’s revolving credit facility, as well as income tax obligations on the related gain. Advant Medical On March 16, 2022, the Company purchased 100% of the outstanding shares of common stock of Advant Medical, Ltd., Advant Medical Inc., and Advant Medical Costa Rica, Limitada, (together Advant), pursuant to a Stock Purchase Agreement and related agreements, for an aggregate purchase price of €19.0 million in cash along with a working capital adjustment at closing. Total consideration in U.S. Dollars amounted to approximately $21.2 million. The Stock Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. Founded in 1993, Advant is headquartered in Galway, Ireland, with operations in Costa Rica and partner manufacturing in Mexico. Advant is a developer and contract manufacturer of medical devices and packaging, primarily for catheters and guide wires. The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value (in thousands):
Fair value of considerations transferred |  |  |  |
Cash paid at closing |  | $ | 23,608 |
Other liability |  |  | 395 |
Cash from Advant |  |  | (2,840 | )
Total consideration |  | $ | 21,163 |
Purchase price allocation |  |  |  |
Accounts receivable |  | $ | 2,299 |
Inventory |  |  | 2,410 |
Other current assets |  |  | 213 |
Property, plant, and equipment |  |  | 5,704 |
Customer contracts & relationships |  |  | 2,925 |
Intellectual property |  |  | 2,127 |
Non-compete agreement |  |  | 259 |
Lease right of use assets |  |  | 289 |
Other assets |  |  | 41 |
Goodwill |  |  | 7,140 |
Total identifiable assets |  | $ | 23,407 |
Accounts payable |  |  | (772 | )
Accrued expenses |  |  | (668 | )
Income taxes |  |  | (66 | )
Deferred taxes |  |  | (449 | )
Lease liabilities |  |  | (289 | )
Net assets acquired |  | $ | 21,163 |
Acquisition costs associated with the transaction were approximately $789 thousand, of which $759 thousand was charged to expense in the year ended December 31, 2022, and $30 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal, investment banking, and valuation services, as well as stamp duty filings and are reflected on the face of the income statement. The amount of revenue and earnings of Advant recognized since the acquisition date, which is included in the condensed consolidated statement of income for the year ended December 31, 2022, was approximately $20.0 million and $2.4 million, respectively. None of the goodwill related to the Advant acquisition is expected to be deductible for tax purposes Pro-forma statements The following table contains an unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2022, and 2021, as if the Advant acquisition had occurred at the beginning of 2021 (in thousands):
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |
|  | (Unaudited) |  |  | (Unaudited) |
Sales |  | $ | 358,196 |  |  | $ | 291,403 |
Operating Income |  | $ | 56,321 |  |  | $ | 29,729 |
Net income |  | $ | 42,311 |  |  | $ | 21,805 |
Earnings per share: |  |  |  |  |  |  |  |
Basic |  | $ | 5.59 |  |  | $ | 2.90 |
Diluted |  | $ | 5.52 |  |  | $ | 2.86 |
The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred had the acquisition occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information. DAS Medical On December 22, 2021, the Company purchased 100% of the outstanding membership interests of DAS Medical Holdings, LLC, (DAS Medical) pursuant to a Securities Purchase Agreement, for a net purchase price of $66.7 million in cash. The purchase price was subject to adjustment based upon DAS Medical’s final working capital at closing, and the purchase price may be increased by up to $20.0 million in earn-out payments based upon the achievement of certain EBITDA and/or revenue targets of DAS Medical for the years ended December 31, 2022, 2023, 2024 and 2025. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. As a result of the final working capital adjustment, the total consideration was reduced by approximately $115 thousand. In connection with its entry into the Purchase Agreement, the Company also entered into an Agreement for the Purchase and Sale of Personal Goodwill (the “Goodwill Agreement”) with the purchase price beneficiaries. Pursuant to the terms of the Goodwill Agreement, on December 22, 2021, the Company purchased from the beneficiaries their personal goodwill, including business relationships, trade secrets and knowledge in connection with DAS Medical’s business, for a purchase price of $20 million in cash. The Company has also entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners. Founded in 2010, DAS Medical is headquartered in Atlanta, Georgia, with manufacturing in the Dominican Republic. DAS Medical is a medical device contract manufacturer specializing in the design, development and production of single-use surgical equipment covers, robotic draping systems and fluid control pouches. The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value (in thousands):
Fair value of considerations transferred |  |  |  |
Cash paid at closing |  | $ | 95,000 |
Contingent liability (Earn-out) |  |  | 5,188 |
Non-compete agreements |  |  | 8,855 |
Cash from DAS |  |  | (8,316 | )
Working capital adjustment |  |  | (115 | )
Total consideration |  | $ | 100,612 |
Purchase price allocation |  |  |  |
Accounts receivable |  | $ | 2,351 |
Inventory |  |  | 7,570 |
Other current assets |  |  | 68 |
Property, plant, and equipment |  |  | 3,314 |
Customer contracts & relationships |  |  | 36,730 |
Intellectual property |  |  | 2,380 |
Non-compete agreement |  |  | 4,697 |
Lease right of use assets |  |  | 1,221 |
Goodwill |  |  | 51,742 |
Total identifiable assets |  | $ | 110,073 |
Accounts payable |  |  | (5,238 | )
Accrued expenses |  |  | (2,995 | )
Deferred revenue |  |  | (7 | )
Lease liabilities |  |  | (1,221 | )
Net assets acquired |  | $ | 100,612 |
Acquisition costs associated with the transaction were approximately $448 thousand, of which $155 thousand was charged to expense in the year ended December 31, 2022, and $293 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement. The amount of revenue and net income of DAS Medical recognized since the acquisition date, which is included in the condensed consolidated statement of income for the year ended December 31, 2021, was approximately $1.4 million and $0.1 million, respectively. Contech Medical On October 12, 2021, the Company purchased 100% of the outstanding shares of common stock of Contech Medical, Inc., pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of $9.5 million in cash, the assumption of a contingent liability of $0.5 million plus up to an additional $5 million based upon the achievement of certain EBITDA targets of Contech for the 12-month period ended June 30, 2022. The purchase price was subject to adjustment based upon Contech’s working capital at closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. Founded in 1987, Contech is based in Providence, Rhode Island with partner manufacturing in Costa Rica. Contech is a global leader in the design, development, and manufacture of Class III medical device packaging primarily for catheters and guide wires. The Company has leased the Providence location from a realty trust owned by the selling shareholders and affiliates. The lease is for five years with one five-year renewal option. The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value (in thousands):
Fair value of consideration transferred: |  |  |  |
Cash paid at closing |  | $ | 9,766 |
Contingent liability (Earn-out) |  |  | 4,543 |
Other liability |  |  | 500 |
Cash from Contech |  |  | (266 | )
Total consideration |  | $ | 14,543 |
Purchase Price Allocation: |  |  |  |
Accounts receivable |  | $ | 2,851 |
Inventory |  |  | 2,320 |
Other current assets |  |  | 37 |
Property, plant and equipment |  |  | 1,170 |
Customer Contracts & Relationships |  |  | 3,043 |
Intellectual Property |  |  | 2,247 |
Non-Compete agreement |  |  | 86 |
Lease right of use assets |  |  | 1,523 |
Goodwill |  |  | 4,278 |
Total identifiable assets |  | $ | 17,555 |
Accounts payable |  |  | (1,015 | )
Accrued expenses |  |  | (414 | )
Deferred revenue |  |  | (60 | )
Lease liabilities |  |  | (1,523 | )
Net assets acquired |  | $ | 14,543 |
Acquisition costs associated with the transaction were approximately $153 thousand, of which $113 thousand was charged to expense in the year ended December 31, 2022, and $40 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement. The amount of revenue and net income of Contech recognized since the acquisition date, which is included in the condensed consolidated statement of income for the year ended December 31, 2021, was approximately $4.5 million and $0.5 million, respectively. 100% of the goodwill related to the DAS Medical and Contech acquisitions is expected to be deductible for tax purposes. Pro-forma statement The following table contains an unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2021, as if both acquisitions had occurred at the beginning of 2021 (in thousands):
|  | Year Ended December 31, |
|  | 2021 |
|  | (Unaudited) |
Sales |  | $ | 269,932 |
Operating Income |  | $ | 25,878 |
Net Income |  | $ | 20,562 |
Earnings per share: |  |  |  |
Basic |  | $ | 2.73 |
Diluted |  | $ | 2.70 |
The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred had both acquisitions occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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