Acquisitions of Businesses

12 Months Ended

Dec. 31, 2020

Acquisitions of Businesses [Abstract]

3. Acquisitions of Businesses

During 2020, 2019 and 2018, the Company acquired a majority interest in the following physical therapy practices:

Acquisition	Date	% Interest Acquired		Number of Clinics
November 2020 Acquisition	November 30, 2020	75%		3
September 2020 Acquisition	September 30, 2020	70%		*
February 2020 Acquisition	February 27, 2020	65%	**	4
September 2019 Acquisition	September 30, 2019	67%		11
August 2018 Acquisition	August 31, 2018	70%		4

* The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired.

** The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction.

On November 30, 2020, the Company acquired a 75% interest in a three-clinic physical therapy practice. The purchase price for the 75% interest was $9.1 million, of which $8.8 million was paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $162,500 each. The first principal payment plus accrued interest will be paid on November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum.

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 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 operated 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 $12.3 million, of which $11.9 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 for the 2020 physical therapy operations acquisitions has been preliminarily allocated as follows (in thousands):

Cash paid, net of cash acquired ($500)	$	23,907
Seller note		1,121
Total consideration	$	25,028

Estimated fair value of net tangible assets acquired:
Total current assets	$	1,271
Total non-current assets		134
Total liabilities		(555	)
Net tangible assets acquired	$	850
Referral relationships		3,597
Non-compete		1,012
Tradename		2,326
Goodwill		28,540
Fair value of non-controlling interest (classified as redeemable non-controlling interests)		(11,297	)
	$	25,028

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 ($12.6 million less cash acquired of $0.2 million), of which $12.3 million was paid in cash and $0.3 million in a seller note payable in two principal installments totaling $150,000 each, plus accrued interest. A payment of $150,000 plus accrued interest was paid in September 2020 and a second payment is due 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 acquired 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. The Company intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.

The purchase price for the 2019 acquisitions were allocated as follows (in thousands):

	IIPS*			Physical Therapy Operations			Total
Cash paid, net of cash acquired ($890)	$	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			394			1,242
Total liabilities		(2,978	)		(191	)		(3,169	)
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

On August 31, 2018, the Company acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the 70% interest was $7.3 million in cash and $0.4 million in a seller note that was payable in two principal installments totaling $200,000 each, plus accrued interest. The first installment was paid in cash in August 2019 and the second installment was paid in August 2020.

On April 30, 2018, the Company acquired a 65% interest in another business in the industrial injury prevention sector. The aggregate purchase price for the 65% interest was $8.6 million in cash and $400,000 in a seller note that was paid on April 30, 2019. On April 30, 2018, the Company combined its two businesses. After the combination, the Company owned a 59.45% interest in the combined business, Briotix Health. See discussion above regarding an additional acquisition on April 11, 2019 in the industrial injury prevention business.

In addition, during 2018, the Company, through several of its majority owned Clinic Partnerships, acquired five separate clinic practices. These practices operate as satellites of the existing Clinic Partnership. The aggregate purchase price was $1.0 million inclusive of cash of $850,000 and a note payable of $150,000. The note accrued interest at 4.5% and the principal and accrued interest, was paid in cash on August 31, 2019.

The purchase price for the 2018 acquisitions were allocated as follows (in thousands):

Cash paid, net of cash acquired ($372)	$	16,367
Seller note		950
Total consideration	$	17,317

Estimated fair value of net tangible assets acquired:
Total current assets	$	1,633
Total non-current assets		305
Total liabilities		(525	)
Net tangible assets acquired	$	1,413
Referral relationships		2,926
Non-compete		298
Tradename		990
Goodwill		19,835
Fair value of non-controlling interest (classified as redeemable non-controlling interests)		(8,145	)
	$	17,317

The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2019 and 2018 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. For the acquisitions in 2020, the Company is in the process of completing its formal valuation analysis 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 December 31, 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 values assigned to tradenames are tested annually for impairment.

For the acquisitions in 2019 and 2018, 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 10.54 and 10.10 years at December 31, 2019 and December 31, 2018, respectively. For non-compete agreements, the weighted average amortization period was 6.00 and 5.16 years at December 31, 2019 and December 31, 2018, respectively. Generally, the values assigned to tradenames are tested annually for impairment.

For the 2020, 2019 and 2018 acquisitions, total current assets primarily represent patient accounts receivable. Total non-current assets are fixed assets, primarily equipment, used in the practices.

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 2020, 2019 and 2018 acquisitions have not been included as the results, individually and in the aggregate.