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Note 2 - Acquisition | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
(2) | Acquisitions
Marble Medical On June 24, 2024, the Company purchased 100% of the outstanding shares of common stock of Marble Medical, Inc., (“Marble”) pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of $4.5 million in cash, plus up to an additional $0.5 million based upon the achievement of sales targets of Marble for each of the 12-month periods ended December 31, 2024, and 2025. As of the opening balance sheet the contingent consideration had a fair value of approximately $400 thousand. The purchase price was subject to an adjustment based upon Marble’s estimated working capital at closing, which resulted in an increase of approximately $100 thousand and is subject to further adjustment when the final working capital is determined. A portion of the purchase price is being held by the Company 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 1988 and headquartered in Tallahassee, FL, Marble develops and manufactures adhesive based medical components and single-use devices. The purchase price includes certain real estate, which encompasses Marble’s manufacturing, warehouse and office facilities. Marble brings to the Company adhesives expertise as well as precision die cutting capabilities. The following table summarizes the allocation of the total purchase price of approximately $5.0 million, net of cash acquired, to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):
|  | Purchase Price Allocation |
Cash |  | $ | 815 |
Accounts receivable |  |  | 872 |
Inventory |  |  | 494 |
Other current assets |  |  | 24 |
Property, plant, and equipment |  |  | 1,018 |
Customer contracts & relationships |  |  | 250 |
Intellectual property |  |  | 300 |
Non-compete agreement |  |  | 50 |
Goodwill |  |  | 2,564 |
Total assets acquired |  |  | 6,387 |
Accounts payable |  |  | (41 | )
Accrued expenses |  |  | (519 | )
Total liabilities assumed |  |  | (560 | )
Total assets acquired, net of liabilities assumed |  |  | 5,827 |
Less: cash acquired |  |  | (815 | )
Purchase price, net of cash acquired |  | $ | 5,012 |
Acquisition costs associated with the transaction of approximately $146 thousand were charged to expense during the nine months ended September 30, 2024. These costs were primarily for legal services and are reflected on the face of the condensed consolidated statement of comprehensive income. The amount of revenue and pre-tax income of Marble recognized since the acquisition date, which is included in the condensed consolidated statement of comprehensive income for the nine months ended September 30, 2024, was approximately $2.0 million and $0.3 million, respectively. 100% of the goodwill related to the Marble acquisition is expected to be deductible for tax purposes. AJR Enterprises On July 1, 2024, the Company purchased 100% of the issued and outstanding membership interests of AJR Enterprises, LLC, (“AJR”) pursuant to a securities purchase agreement and related agreements, for an aggregate purchase price of $110 million in cash. The purchase price was subject to an adjustment based upon AJR’s estimated working capital at closing, which resulted in a increase of approximately $500 thousand and is subject to further adjustment when the final working capital is determined. A portion of the purchase price is being held by the Company 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 1997 and headquartered in St. Charles, IL, with an additional manufacturing plant in Santiago, Dominican Republic, AJR develops and manufactures single-use patient handling systems. Patient surfaces and transfer devices are a growing market due in part to government guidelines and legislation around safe patient handling. AJR’s ‘cut and sew’ manufacturing capabilities and specialty fabrics expertise supplement the Company’s thermoplastic joining expertise, allowing the Company to offer a comprehensive suite of development, commercialization, and manufacturing services for this market. The following table summarizes the allocation of the total purchase price of approximately $110.5 million, net of cash acquired, to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):
|  | Purchase Price Allocation |
Cash |  | $ | 3,000 |
Accounts receivable |  |  | 17,138 |
Inventory |  |  | 9,229 |
Other current assets |  |  | 210 |
Property, plant, and equipment |  |  | 1,149 |
Customer contracts & relationships |  |  | 40,389 |
Intellectual property |  |  | 8,245 |
Non-compete agreement |  |  | 661 |
Lease right of use assets |  |  | 2,024 |
Goodwill |  |  | 41,710 |
Total assets acquired |  |  | 123,755 |
Accounts payable |  |  | (1,103 | )
Accrued expenses |  |  | (7,092 | )
Lease liabilities |  |  | (2,024 | )
Total liabilities assumed |  |  | (10,219 | )
Total assets acquired, net of liabilities assumed |  |  | 113,536 |
Less: cash acquired |  |  | (3,000 | )
Purchase price, net of cash acquired |  | $ | 110,536 |
Acquisition costs associated with the transaction were approximately $589 thousand charged to expense during the nine months ended September 30, 2024. These costs were primarily for legal, due diligence, and valuation services, and are reflected on the face of the condensed consolidated statement of comprehensive income. The amount of revenue and pre-tax income of AJR recognized since the acquisition date, which is included in the condensed consolidated statement of comprehensive income for the nine months ended September 30, 2024, was approximately $27.7 million and $5.7 million, respectively. 100% of the goodwill related to the AJR acquisition is expected to be deductible for tax purposes. Welch Fluorocarbon On July 15, 2024, the Company purchased 100% of the outstanding shares of common stock of Welch Fluorocarbon, Inc., (“Welch”) pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of $34.6 million in cash, plus up to an additional $6.0 million based upon the achievement of certain EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) targets of Welch for each of the 12-month periods ended December 31, 2024, 2025, and 2026. The contingent consideration has a fair value of approximately $800 thousand as of the opening balance sheet. The purchase price was subject to an adjustment based upon Welch’s working capital at closing which resulted in a decrease of approximately $200 thousand. A portion of the purchase price is being held by the Company 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 1985 and headquartered in Dover, NH, Welch develops and manufactures thermoformed, and heat sealed implantable medical device components utilizing thin, high-performance films. Welch brings thin film thermoforming capabilities and expertise in developing and manufacturing components for implantable medical devices. Also on July 15, 2024, pursuant to separate purchase and sale agreements (with separate legal parties), the Company purchased certain real estate in Dover, NH, which encompasses a majority of Welch’s manufacturing, warehousing and office facilities for an aggregate purchase of approximately $3.2 million. The following table summarizes the allocation of the total purchase price of approximately $35.2 million, net of cash acquired, to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):
|  | Purchase Price Allocation |
Cash |  | $ | 3,817 |
Accounts receivable |  |  | 1,506 |
Inventory |  |  | 1,969 |
Other current assets |  |  | 115 |
Property, plant, and equipment |  |  | 824 |
Customer contracts & relationships |  |  | 3,697 |
Intellectual property |  |  | 7,859 |
Non-compete agreement |  |  | 176 |
Lease right of use assets |  |  | 150 |
Goodwill |  |  | 19,367 |
Total assets acquired |  |  | 39,480 |
Accounts payable |  |  | (215 | )
Accrued expenses |  |  | (77 | )
Lease liabilities |  |  | (150 | )
Total liabilities assumed |  |  | (442 | )
Total assets acquired, net of liabilities assumed |  |  | 39,038 |
Less: cash acquired |  |  | (3,817 | )
Net assets acquired, net of cash acquired |  | $ | 35,221 |
Acquisition costs associated with the transaction were approximately $271 thousand charged to expense during the nine months ended September 30, 2024. These costs were primarily for legal and valuation services and are reflected on the face of the condensed consolidated statement of comprehensive income. The amount of revenue and pre-tax income of Welch recognized since the acquisition date, which is included in the condensed consolidated statement of comprehensive income for the nine months ended September 30, 2024, was approximately $3.2 million and $0.2 million, respectively. 100% of the goodwill related to the Welch acquisition is expected to be deductible for tax purposes. AQF On August 23, 2024, the Company purchased 100% of the issued and outstanding membership interests of the parent holding companies of AQF Limited, operating as AQF Medical, (“AQF”) pursuant to a share purchase agreement and related agreements, for an aggregate purchase price of €43 million in cash (total purchase price in U.S. Dollars amounted to approximately $47.8 million). The purchase price was subject to an adjustment based upon AQF’s working capital at closing and the assumption of certain liabilities, which resulted in a decrease of approximately $900 thousand. A portion of the purchase price is being held by the Company 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 2005 and headquartered in Navan, Ireland with additional joint venture operations in Singapore, AQF develops and manufactures custom-engineered foam and thermoplastic components used in a wide range of medical devices and packaging. AQF brings to the Company additional expertise in converting specialty foams and films, an expanded European manufacturing presence, and an Asian market presence in Singapore. The following table summarizes the allocation of the total purchase price of approximately $46.9 million, net of cash acquired, to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):
|  | Purchase Price Allocation |
Cash |  | $ | 3,381 |
Accounts receivable |  |  | 2,237 |
Inventory |  |  | 1,150 |
Other current assets |  |  | 204 |
Property, plant, and equipment |  |  | 976 |
Customer contracts & relationships |  |  | 10,363 |
Intellectual property |  |  | 2,343 |
Non-compete agreement |  |  | 395 |
Lease right of use assets |  |  | 1,723 |
Equity Method Investment |  |  | 5,623 |
Goodwill |  |  | 27,651 |
Total assets acquired |  |  | 56,046 |
Accounts payable |  |  | (1,890 | )
Accrued expenses |  |  | (487 | )
Deferred taxes |  |  | (1,711 | )
Lease liabilities |  |  | (1,723 | )
Total liabilities assumed |  |  | (5,811 | )
Total assets acquired, net of liabilities assumed |  |  | 50,235 |
Less: cash acquired |  |  | (3,381 | )
Purchase price, net of cash acquired |  | $ | 46,854 |
Acquisition costs associated with the transaction were approximately $639 thousand charged to expense during the nine months ended September 30, 2024. These costs were primarily for legal, due diligence, and valuation services and are reflected on the face of the condensed consolidated statement of comprehensive income. The amount of revenue and pre-tax income of AQF recognized since the acquisition date, which is included in the condensed consolidated statement of comprehensive income for the three and nine months ended September 30, 2024,was approximately $2.1 million and $0.5 million, respectively. None of the goodwill related to the AQF 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 three- and nine-month periods ended September 30, 2024 and 2023, as if the Marble and AJR acquisitions had occurred at the beginning of the nine-month periods and as if the Welch and AQF acquisitions had occurred at the beginning of the three- and nine-month periods (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Sales |  | $ | 148,515 |  |  | $ | 128,136 |  |  | $ | 435,494 |  |  | $ | 378,105 |
Operating Income |  | $ | 25,039 |  |  | $ | 17,648 |  |  | $ | 70,567 |  |  | $ | 55,430 |
Net Income |  | $ | 16,433 |  |  | $ | 11,697 |  |  | $ | 47,495 |  |  | $ | 35,492 |
Earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 2.14 |  |  | $ | 1.53 |  |  | $ | 6.20 |  |  | $ | 4.66 |
Diluted |  | $ | 2.11 |  |  | $ | 1.52 |  |  | $ | 6.12 |  |  | $ | 4.61 |
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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