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ACQUISITIONS OF BUSINESSES | 9 Months Ended
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Sep. 30, 2020
ACQUISITIONS OF BUSINESSES [Abstract] |
ACQUISITIONS OF BUSINESSES | 2. ACQUISITIONS OF BUSINESSES On September 30, 2020, the Company acquired a 70% interest in an entity which holds six-management contracts that have been in place for a number of years. Currently, these contracts have a five year remaining term. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of the notes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020. On February 27, 2020, the Company acquired interests in a four-clinic physical therapy practice. The four clinics are in four separate partnerships. The Company’s interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction.The aggregate purchase price was $11.9 million, of which $11.6 million was paid in cash and $0.3 million in the form of a seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022. The purchase price plus the fair value of the non-controlling interests for the acquisitions in 2020 was allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e. tradenames, referral relationships and non-compete agreements, and liabilities assumed based on the estimated fair values at the acquisition date, with the amount in excess of fair values being recorded as goodwill. The Company is in the process of completing its formal valuation analysis of the acquisitions, to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used at September 30, 2020 based on additional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material. For the acquisitions in 2020, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For referral relationships, the amortization period is 11.0 years. For non-compete agreements, the amortization period is 6.0 years. The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition. The purchase price for the 2020 acquisitions has been preliminarily allocated as follows (in thousands):
|  | Physical Therapy Operations |
Cash paid, net of cash acquired |  | $ | 15,322 |
Seller note |  |  | 796 |
Total consideration |  | $ | 16,118 |
Estimated fair value of net tangible assets acquired: |  |  |  |
Total current assets |  | $ | 778 |
Total non-current assets |  |  | 400 |
Total liabilities |  |  | (469 | )
Net tangible assets acquired |  | $ | 709 |
Referral relationships |  |  | 1,600 |
Non-compete |  |  | 750 |
Tradename |  |  | 1,500 |
Goodwill |  |  | 19,824 |
Fair value of non-controlling interest (classified as redeemable non-controlling interests) |  |  | (8,265 | )
|  | $ | 16,118 |
On September 30, 2019, the Company acquired a 67% interest in an eleven-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million, of which $12.1 million was paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $150,000 each, plus accrued interest. The first principal payment and accrued interest was paid in September 2020 and the second payment plus accrued interest remains due to be paid in September 2021. The note accrues interest at 5.0% per annum. On April 11, 2019, the Company acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven client locations. The business was then combined with Briotix Health, the Company’s industrial injury prevention operation, increasing the Company’s ownership position in the Briotix Health partnership to approximately 76.0%. The purchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest is payable, on April 9, 2021. The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition. For the 2019 acquisitions, a majority of total current assets primarily represents accounts receivable. Total non-current assets are fixed assets and equipment used in the practice. The purchase price for the 2019 acquisitions has been allocated as follows (in thousands):
|  | IIPS* |  |  | Physical Therapy Operations |  |  | Total |
Cash paid, net of cash acquired |  | $ | 18,428 |  |  | $ | 12,170 |  |  | $ | 30,598 |
Payable to shareholders of seller |  |  | 485 |  |  |  | - |  |  |  | 485 |
Seller note |  |  | 4,000 |  |  |  | 300 |  |  |  | 4,300 |
Total consideration |  | $ | 22,913 |  |  | $ | 12,470 |  |  | $ | 35,383 |
Estimated fair value of net tangible assets acquired: |  |  |  |  |  |  |  |  |  |  |  |
Total current assets |  | $ | 1,641 |  |  | $ | 650 |  |  | $ | 2,291 |
Total non-current assets |  |  | 848 |  |  |  | 3,019 |  |  |  | 3,867 |
Total liabilities |  |  | (2,978 | ) |  |  | (2,816 | ) |  |  | (5,794 | )
Net tangible assets acquired |  | $ | (489 | ) |  | $ | 853 |  |  | $ | 364 |
Referral relationships |  |  | 3,400 |  |  |  | 2,600 |  |  |  | 6,000 |
Non-compete |  |  | 250 |  |  |  | 270 |  |  |  | 520 |
Tradename |  |  | 1,300 |  |  |  | 740 |  |  |  | 2,040 |
Goodwill |  |  | 18,452 |  |  |  | 14,237 |  |  |  | 32,689 |
Fair value of non-controlling interest (classified as redeemable non-controlling interests) |  |  | - |  |  |  | (6,230 | ) |  |  | (6,230 | )
|  | $ | 22,913 |  |  | $ | 12,470 |  |  | $ | 35,383 |
* Industrial injury prevention services The purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2019 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e. trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill. The Company has completed its formal valuation analyses for the acquisitions in 2019. For the acquisitions in 2019, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For referral relationships, the weighted average amortization period was 11.0 years at December 31, 2019. For non-compete agreements, the weighted average amortization period was 6.0 years at December 31, 2019. The values assigned to tradenames are tested annually for impairment. The consideration paid for each of the acquisitions was derived through arm’s length negotiations. Funding for the cash portions was derived from proceeds from the Company’s revolving credit facility. The results of operations of the acquisitions have been included in the Company’s consolidated financial statements since their respective date of acquisition. Unaudited proforma consolidated financial information for the acquisitions in the 2020 and 2019 acquisitions have not been included as the results, individually and in the aggregate, were not material to current operations. During 2019, the Company acquired additional interests in four partnerships which are included in non-controlling interest. The additional interests purchased in each of the partnerships ranged from 1% and 55%. Also in 2019, the Company sold a 1% interest in a partnership. The net after tax difference between the payments and the portion of undistributed earnings of $196,000 was credited to additional paid-in capital.

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