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ACQUISITIONS OF BUSINESSES | 6 Months Ended
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Jun. 30, 2022
ACQUISITIONS OF BUSINESSES [Abstract] |
ACQUISITIONS OF BUSINESSES | 2. ACQUISITIONS OF BUSINESSES On March 31, 2022, the Company acquired a 70% interest in a six-clinic physical therapy practice. The practice’s owners retained 30% of the equity interests. The purchase price for the 70% equity interest was approximately $11.5 million, of which $11.2 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 3.5% per annum and the principal and interest are payable on March 31, 2024. The purchase price for the 2022 acquisition has been preliminarily allocated as follows (in thousands):
|  | Physical Therapy Operations |
Cash paid, net of cash acquired |  | $ | 11,799 |
Seller notes |  |  | 374 |
Contingent payments |  |  | 100 |
Total consideration |  | $ | 12,273 |
Estimated fair value of net tangible assets acquired: |  |  |  |
Total current assets |  | $ | 466 |
Total non-current assets |  |  | 2,655 |
Total liabilities |  |  | (2,664 | )
Net tangible assets acquired |  |  | 457 |
Customer and referral relationships |  |  | 3,742 |
Non-compete agreements |  |  | 247 |
Tradenames |  |  | 659 |
Goodwill |  |  | 12,114 |
Fair value of non-controlling interest (classified as redeemable non-controlling interest) |  |  | (4,946 | )
|  | $ | 12,273 |
On December 31, 2021, the Company acquired a 75% interest in a three-clinic physical therapy practice with the practice founder retaining 25%. The purchase price for the 75% interest was approximately $3.6 million, of which $3.4 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest are payable on December 31, 2023. On November 30, 2021, the Company acquired an approximate 70% interest in a leading provider of industrial injury prevention services. The previous owners retained the remaining interest. The purchase price for the approximate 70% equity interest, not inclusive of a $2.0 million contingent payment, was approximately $65.2 million of which $60.7 million was paid in cash and $1.0 million in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on November 30, 2023. As part of the transaction, the Company also agreed to the potential future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The current owners have the right to put this transaction to the Company in approximately five years, with such right having an initial fair value of $3.5 million value on December 31, 2021, as reflected on the Company’s consolidated balance sheet in Other long-term liabilities. The value of this right will be adjusted in future periods, as appropriate, with any change in value reflected in the Company’s consolidated statement of income. The Company does not currently possess any of the controlling interests in this separate company, does not control this company through contract or governance rights and currently does not exercise significant influence over this separate company. Due to these reasons, and based on current accounting guidance, the Company did not consolidate the separate company through the variable interest or voting interest model. On June 30, 2022, the fair value of this put right was $3.5 million. The increase was reflected in the consolidated statement of income in the line item – Loss on revaluation of put-right liability. On September 30, 2021, the Company acquired a company that specializes in return-to-work and ergonomic services, among other offerings. The Company acquired the company’s assets at a purchase price of approximately $3.3 million (which includes the obligation to pay an amount up to $0.6 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met) and contributed those assets to the industrial injury services business. The initial purchase price, not inclusive of the $0.6 million contingent payment, was approximately $2.7 million, of which $2.4 million was paid in cash, and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest are payable on September 30, 2023. On June 30, 2021, the Company acquired a 65% interest in an eight-clinic physical therapy with the previous owners retaining 35%. The purchase price was approximately $10.7 million, of which $8.6 million was paid in cash, $1.0 million was payable based on the achievement of certain business criteria and $0.3 million is in the form of a note payable. The business criteria were met and accordingly $1.0 million was paid in July 2022. The note accrues interest at 3.25% per annum and the principal and interest are payable on June 30, 2023. Additionally, the Company has an obligation to pay an additional amount up to $0.8 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met. The Company recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment. The earn-out payment will subsequently be remeasured to fair value each reporting date. On March 31, 2021, the Company acquired a 70% interest in a five-clinic physical therapy practice with the previous owners retaining 30%. When acquired, the practice was developing a sixth clinic which has been completed. The purchase price for the 70% interest was approximately $11.6 million, of which $11.3 million was paid in cash and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest are payable on March 31, 2023. The purchase price for the 2021 acquisitions has been preliminarily allocated as follows (in thousands):
|  |  |  |  | Physical Therapy |  |  |  |
|  | IIPS* |  |  | Operations |  |  | Total |
Cash paid, net of cash acquired |  | $ | 63,193 |  |  | $ | 23,544 |  |  | $ | 86,737 |
Seller notes |  |  | 1,250 |  |  |  | 800 |  |  |  | 2,050 |
Contingent payments |  |  | 2,520 |  |  |  | 837 |  |  |  | 3,357 |
Other payable |  |  | - |  |  |  | 1,000 |  |  |  | 1,000 |
Seller put right |  |  | 3,522 |  |  |  | - |  |  |  | 3,522 |
Total consideration |  | $ | 70,485 |  |  | $ | 26,181 |  |  | $ | 96,666 |
Estimated fair value of net tangible assets acquired: |  |  |  |  |  |  |  |  |  |  |  |
Total current assets |  | $ | 5,588 |  |  | $ | 1,891 |  |  | $ | 7,479 |
Total non-current assets |  |  | 12,620 |  |  |  | 7,014 |  |  |  | 19,634 |
Total liabilities |  |  | (4,842 | ) |  |  | (8,399 | ) |  |  | (13,241 | )
Net tangible assets acquired |  | $ | 13,366 |  |  | $ | 506 |  |  | $ | 13,872 |
Customer and referral relationships |  |  | 21,127 |  |  |  | 7,969 |  |  |  | 29,096 |
Non-compete agreements |  |  | 500 |  |  |  | 415 |  |  |  | 915 |
Tradenames |  |  | 5,141 |  |  |  | 2,144 |  |  |  | 7,285 |
Goodwill |  |  | 58,257 |  |  |  | 27,103 |  |  |  | 85,360 |
Fair value of non-controlling interest (classified as redeemable non-controlling interest) |  |  | (27,906 | ) |  |  | (11,956 | ) |  |  | (39,862 | )
|  | $ | 70,485 |  |  | $ | 26,181 |  |  | $ | 96,666 |
* | Industrial injusry prevention services
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 2022 and 2021 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 prices plus the fair value of the non-controlling interests for the acquisitions in 2021 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 2021, the values assigned to the customer and referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For customer and referral relationships, the weighted-average amortization period was 13.8 years. For non-compete agreements, the weighted-average amortization period was 5.6 years at the end of the year. 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 2022 and 2021 have not been included, as the results, individually and in the aggregate, were not material to current operations. The purchase price plus the fair value of the non-controlling interest for the acquisitions in 2022 and those acquired after June 30, 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 on June 30, 2022 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. The purchase price allocation for the March 2021 and the June 2021 Acquisitions have been finalized. The Company continues to evaluate the components for the purchase price allocations for other acquisitions in 2021. For the acquisitions in 2022, the values assigned to the customer and referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 12.0 years. For non-compete agreements, the weighted-average amortization period is 5.0 years. The values assigned to tradenames are tested annually for impairment.

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