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Note 2 - Acquisition

9 Months Ended

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.