ACQUISITIONS OF BUSINESSES

3 Months Ended

Mar. 31, 2021

ACQUISITIONS OF BUSINESSES [Abstract]

2. ACQUISITIONS OF BUSINESSES

On March 31, 2021, the Company acquired a 70% interest in a five-clinic physical therapy practice, with a sixth clinic in the process of development, in the first quarter of 2021, with the practice founder retaining 30%. The purchase price for the 70% interest was approximately $12.0 million, of which $11.7 million was paid in cash and $0.3 million in a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on March 31, 2023.

The purchase price plus the fair value of the non-controlling interests for the acquisitions in 2021 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 March 31, 2021 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 acquisition in 2021, the estimated 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 2021 acquisitions has been preliminarily allocated as follows (in thousands):

Cash paid, net of cash acquired	$	11,748
Seller note		300
Total consideration	$	12,048

Estimated fair value of net tangible assets acquired:
Total current assets	$	-
Total non-current assets		300
Total liabilities		-
Net tangible assets acquired	$	300
Referral relationships		1,549
Non-compete		275
Tradename		671
Goodwill		14,416
Fair value of non-controlling interest (classified as redeemable non-controlling interests)		(5,163	)
	$	12,048

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 $8.9 million (net of cash acquired), of which $8.6 million was paid in cash and $0.3 million in the form of a note payable 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 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 two 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 note payable. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022.

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 2021 and 2020 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 2020 acquisitions has been allocated as follows (in thousands):

Cash paid, net of cash acquired	$	23,912
Seller note		1,121
Total consideration	$	25,033

Estimated fair value of net tangible assets acquired:
Total current assets	$	1,271
Total non-current assets		384
Total liabilities		(555	)
Net tangible assets acquired	$	1,100
Referral relationships		4,497
Non-compete		522
Tradename		1,557
Goodwill		28,655
Fair value of non-controlling interest (classified as redeemable non-controlling interests)		(11,298	)
	$	25,033

The purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2020 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 the three months ended March 31, 2020.

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 weighted average amortization period was 11.0 years at December 31, 2020. For non-compete agreements, the weighted average amortization period was 6.0 years at December 31, 2020. 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 2021 and 2020 have not been included, as the results, individually and in the aggregate, were not material to current operations.