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Note 2. Acquisition
On September 29, 2010, we completed the acquisition of all of the outstanding capital stock of Pandora, a provider of analytical software for medication diversion detection and regulatory compliance, for $6.0 million in cash. Pandora solutions are installed in over 700 acute care hospitals in the United States and interface with all major medication management systems in the market.
In connection with the acquisition, we recorded $3.6 million of goodwill, equal to the excess of the fair value of the purchase consideration over the fair values of the net tangible and intangible assets acquired, which is tax-deductible over a fifteen-year period. The following table summarizes the fair value acquisition accounting for Pandora on the September 29, 2010 purchase date (in thousands):
|
|
|
Fair Values |
|
|
|
|
Acquired |
|
|
|
|
|
|
|
Cash |
|
$ |
297 |
|
|
Accounts receivable |
|
416 |
|
|
Indemnification asset |
|
1,000 |
|
|
Intangibles |
|
2,420 |
|
|
Goodwill |
|
3,561 |
|
|
Deferred tax asset |
|
108 |
|
|
Total assets |
|
7,802 |
|
|
|
|
|
|
|
Accrued compensation/other |
|
292 |
|
|
Deferred service revenue |
|
510 |
|
|
Litigation contingency |
|
1,000 |
|
|
Total liabilities |
|
1,802 |
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
6,000 |
|
|
|
|
|
|
|
Cash consideration, fair value |
|
$ |
6,000 |
|
The $0.4 million fair value of accounts receivable consists of gross contractual commitments from customers less the amount not expected to be collected. The $0.5 million of deferred service revenue represents the fair value, using estimated discounted cash flows, of acquired remaining performance obligations under service contracts.
Additionally, an acquired legal contingency related to a contractual dispute between Pandora and a third party resulted in a liability accrual of $1.0 million, measured under ASC 450, Contingencies, guidance. An indemnification asset of $1.0 million was also recorded, since the former shareholders of Pandora had agreed to indemnify Omnicell against losses related to the litigation and a portion of the purchase price was placed in escrow to secure the indemnification obligations of the former Pandora shareholders.
This lawsuit was settled on February 17, 2011 for $1.2 million, the settlement amount of which was paid entirely from the selling shareholders’ escrow account. As this is considered a new development, rather than evidence of conditions existing at the September 29, 2010 acquisition date, the disclosure of this dispute in the original purchase price allocation was not adjusted. However, as a recognized subsequent event, on our balance sheet as of December 31, 2010 we recorded the updated $1.2 million values for the acquired legal contingency and the indemnification asset. Furthermore, during the three months ended March 31, 2011, the $1.2 million asset and $1.2 million liability were reversed after settlement from the seller’s escrow account. There was no impact on net income for either 2010 or 2011.
The fair values and useful lives for the identified intangible assets in the table below were determined by management, with assistance of valuation specialists. No residual values were assumed for the acquired intangible assets.
|
|
|
Fair Value (in thousands) |
|
Useful Life (years) |
|
|
Trade name |
|
$ |
90 |
|
3 |
|
|
Customer relationships |
|
1,290 |
|
16 |
|
|
Non-compete agreements |
|
60 |
|
3 |
|
|
Acquired technology |
|
980 |
|
7 |
|
|
Finite-lived intangibles acquired |
|
$ |
2,420 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average life of intangibles |
|
|
|
11.5 |
|
Operating results of Pandora have been combined with our operating results from the date of acquisition. Pro forma combined operating results for Omnicell and Pandora have been omitted since the results of operations of Pandora were not material. |