Business Combinations

3 Months Ended

Mar. 31, 2021

340B Link Business Acquisition

On October 1, 2020, the Company completed the acquisition of all of the outstanding equity of the 340B Link business (the “340B Link Business”) of Pharmaceutical Strategies Group, LLC pursuant to the terms and conditions of the Equity Purchase Agreement, dated August 11, 2020, as amended, by and among the Company, PSGH, LLC, BW Apothecary Holdings, LLC, the sellers identified therein and the sellers’ representative for total cash consideration of $225.0 million. The 340B Link Business acquisition adds a comprehensive and differentiated suite of software-enabled services and solutions used by certain eligible hospitals, health systems, clinics, and entities to manage compliance and capture 340B drug cost savings on outpatient prescriptions filled through the eligible entity’s pharmacy or a contracted pharmacy partner. The results of the 340B Link Business's operations have been included in the Company's consolidated results of operations, commencing as of the acquisition date.

The Company accounted for the acquisition of the 340B Link Business in accordance with ASC 805, Business Combinations. The tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The preliminary fair values assume management's best estimates based on information available at the acquisition date and may change over the measurement period, which will end no later than one year from the acquisition date, as additional information is received. The following table represents the preliminary allocation of the purchase price to the assets acquired and the liabilities assumed by the Company as part of the acquisition included in the Company's Condensed Consolidated Balance Sheets, and is reconciled to the purchase price transferred:


	340B Link Business (Preliminary)

	(In thousands)

Accounts receivable and unbilled receivables	$	8,197
Prepaid expenses	232
Other current assets	22,747
Total current assets	31,176
Property and equipment	531
Operating lease right-of-use assets	3,138
Goodwill	161,117
Intangible assets	62,800
Total assets	258,762
Accounts payable	568
Accrued liabilities	23,787
Long-term deferred tax liabilities	6,818
Long-term operating lease liabilities	2,589
Total liabilities	33,762
Total purchase price	$	225,000

The $161.1 million of goodwill arising from the 340B Link Business acquisition is primarily attributed to sales of future software-enabled services and solutions and the 340B Link Business’s assembled workforce. Goodwill that is expected to be deductible for tax purposes is approximately $93.9 million.

Intangible assets eligible for recognition separate from goodwill were those that satisfied either the contractual/legal criterion or the separability criterion in the accounting guidance. The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows:


	304B Link Business
	Fair value		Useful life (years)

	(In thousands, except for years)
Customer relationships	$	53,000	21
Acquired technology	9,000		5

Trade names	200		1
Non-compete agreements	600		3

Total purchased intangible assets	$	62,800

The customer relationships intangible asset represents the fair value of the underlying relationships and agreements with the 340B Link Business’s customers. The acquired technology intangible asset represents the fair value of the 340B Link Business's portfolio of software and solutions that have reached technological feasibility and were part of the 340B Link Business’s offerings at the date of acquisition. The trade names intangible asset represents the fair value of brand and name recognition associated with the marketing of the 340B Link Business's software-enabled services and solutions. The non-compete agreements intangible asset represents the fair value of non-compete agreements with former key members of the 340B Link Business's management.

The fair value of the customer relationships intangible asset was determined based on the excess earnings method; the fair values of the acquired technology and trade names intangible assets were determined based on the relief-from-royalty

method; and the fair value of the non-compete agreements intangible asset was determined based on the lost profits method. The key assumptions used in estimating the fair values of intangible assets included forecasted financial information; customer attrition rates; royalty rates of 10.0% and 0.5% for the acquired technology and trade names intangible assets, respectively; a discount rate of 14.0% for all intangible assets; and certain other assumptions.

The customer relationships and acquired technology intangible assets are being amortized using a double-declining method of amortization as such method better represents the economic benefits to be obtained. The trade names and non-compete agreements are being amortized over their estimated useful lives using the straight-line method of amortization.

The Company believes that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that market participants would use. Actual results may differ from these estimates and assumptions.

Pro Forma Financial Information

The following table presents certain unaudited pro forma information for illustrative purposes only, for the three months ended March 31, 2020 as if this acquisition had been completed on January 1, 2019. The pro forma information is not indicative of what would have occurred had the acquisition taken place on January 1, 2019. The unaudited pro forma information combines the historical results of the acquisition with the Company’s consolidated historical results and includes certain adjustments including, but not limited to, amortization and depreciation of intangible assets and property and equipment acquired; imputed interest, interest expense, and amortization of debt issuance costs for the indebtedness incurred to complete the acquisition; and acquisition-related costs incurred.


	Three Months Ended
	March 31, 2020

	(In thousands, except per share data)
Pro forma revenues	$	238,647
Pro forma net income	$	10,694