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Business Combinations | 12 Months Ended
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May 31, 2022
Business Combinations | 3. Business Combinations The Consolidated Statements of Income reflect the results of operations for business acquisitions since the respective dates of purchase. All are accounted for using the acquisition method. Goodwill recognized in the acquisitions described below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings. Fiscal 2020 On January 1, 2020, the Company acquired all of the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Argentina. This acquisition gives Neogen a direct sales presence in Argentina. Consideration for the purchase was $3,776,000 in net cash, with $3,237,000 paid at closing and $540,000 payable to the former owner on January 1, 2022, and up to $979,000 of contingent consideration, payable in one year, based upon an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $603,000, inventory of $446,000, machinery and equipment of $36,000, other current assets of $221,000, accounts payable of $383,000, other current liabilities of $312,000, contingent consideration accrual of $640,000, non-current deferred tax liabilities of $441,000, intangible assets of $1,471,000 (with an estimated life of 5-10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $530,000 of contingent consideration based on the achievement of sales targets; the remaining $110,000 accrued but not earned was recorded as a gain in Other Income in the third quarter of fiscal 2021. In January 2022 , the former owner was paid the remaining $540,000 of the purchase price. This operation continues to operate in Buenos Aires, Argentina, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation. On January 1, 2020, the Company acquired all of the stock of Productos Quimicos Magiar, a distributor of Neogen’s Food Safety products for the past 20 years, located in Uruguay. This acquisition gives Neogen a direct sales presence in Uruguay. Consideration for the purchase was $1,488,000 in net cash, with $1,278,000 paid at closing and $210,000 payable to the former owner on January 1, 2022, and up to $241,000 in contingent consideration, payable in one year, based upon an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $280,000, inventory of $174,000, machinery and equipment of $16,000, other current assets of $68,000, accounts payable of $204,000, other current liabilities of $11,000, contingent consideration accrual of $159,000, non-current deferred tax liabilities of $99,000, intangible assets of $398,000 (with an estimated life of 5-10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $158,000 of contingent consideration based on the achievement of sales targets; the remaining $1,000 accrued but not earned was recorded as a gain in Other Income in the third quarter of fiscal 2021. In January 2022, the former owner was paid $184,000, after deducting $26,000 from the final payment for uncollectable accounts receivable balances. This operation continues to operate in Montevideo, Uruguay, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation. On January 9, 2020, the Company acquired all of the stock of Diessechem Srl, a distributor of food and feed diagnostics for the past 27 years, located in Italy. This acquisition gives Neogen a direct sales presence in Italy. Consideration for the purchase was $3,455,000 in net cash. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $780,000, inventory of $5,000, other current assets of $160,000, accounts payable of $140,000, other current liabilities of $305,000, non-current deferred tax liabilities of $294,000, intangible assets of $1,225,000 (with an estimated life of 5-10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. This operation continues to operate in Milan, Italy, reporting within the Food Safety segment. It is managed through Neogen’s Scotland operation. On January 31, 2020, the Company acquired all of the stock of Abtek Biologicals Limited, a manufacturer and supplier of culture media supplements and microbiology technologies. This acquisition enhances the Company’s culture media product line offering for the worldwide industrial microbiology markets. Consideration for the purchase was $1,401,000 in net cash, with $1,282,000 paid at closing and $119,000 payable to the former owner on January 31, 2021. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $135,000, inventory of $207,000, machinery and equipment of $105,000, prepayments of $6,000, accounts payable of $118,000, other current liabilities of $34,000, non-current deferred tax liabilities of $92,000, intangible assets of $484,000 (with an estimated life of 5-10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. The final $119,000 owed was paid to the former owner in January 2021. This manufacturing operation continues to operate in Liverpool, England, reporting within the Food Safety segment. It is managed through Neogen’s Scotland operation. On February 28, 2020, the Company acquired the assets of Cell BioSciences, an Australian distributor of food safety and industrial microbiology products. This acquisition gives Neogen a direct sales presence across Australasia for its entire product portfolio. Consideration for the purchase was $3,768,000 in cash, with $3,596,000 paid at closing and $172,000 payable in one year. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $420,000, unearned revenue liability of $13,000, intangible assets of $1,338,000 (with an estimated life of 3 to 10 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. The final $172,000 owed was paid to the former owner in March 2021. The business operates in Gatton, Australia, reporting within the Australian operations in the Animal Safety segment. On March 26, 2020, the Company acquired the assets of Chile-based Magiar Chilena, a distributor of food, animal and plant diagnostics, including Neogen products. This acquisition gives Neogen a direct sales presence in Chile. Consideration for the purchase was $400,000 in cash, with $350,000 paid at closing and $50,000 payable to the former owner on March 26, 2021. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $164,000, machinery and equipment of $53,000, and intangible assets of $183,000 (with an estimated life of 5-10 years). In April 2021, the former owner was paid $33,000, after deducting $17,000 from the final payment for inventory adjustments. The business continues to operate in Santiago, Chile, reporting within the Food Safety segment. It is managed through Neogen’s Latin America operation. Fiscal 2021 On July 31, 2020, the Company acquired the U.S. (including territories) rights to Elanco’s StandGuard Pour-on for horn fly and lice control in beef cattle, and related assets. This product line fits in well with Neogen’s existing agricultural insecticide portfolio and organizational capabilities. Consideration for the purchase was $2,351,000 in cash, all paid at closing. The final purchase price allocation, based upon the fair value of these assets determined using the income approach, included inventory of $51,000 and intangible assets of $2,300,000 (with an estimated life of 15 years). This product line is currently being toll manufactured for the Company but is eventually expected to be manufactured at Neogen’s operation in Iowa; the sales are reported within the Animal Safety segment. On December 30, 2020, the Company acquired all of the stock of Megazyme, Ltd, an Ireland-based company, and its wholly-owned subsidiaries, U.S.-based Megazyme, Inc. and Ireland-based Megazyme IP. Megazyme is a manufacturer and supplier of diagnostic assay kits and enzymes to measure dietary fiber, complex carbohydrates and enzymes in food and beverages as well as animal feeds. This acquisition will allow Neogen to expand its commercial relationships across food, feed and beverage companies, and provide additional food quality diagnostic products to commercial labs and food science research institutions. Consideration for the purchase was net cash of $39.8 million paid at closing, $8.6 million of cash placed in escrow payable to the former owner in two installments in two and four years, $4.9 million of stock issued at closing, and up to $2.5 million of contingent consideration, payable in two installments over the next year, based upon an excess net sales formula. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $1,376,000, inventory of $5,595,000, net property, plant and equipment of $12,599,000, prepayments of $69,000, accounts payable of $4,000, other current liabilities of $1,815,000, contingent consideration accrual of $2,458,000, non-current liabilities of $319,000, non-current deferred tax liabilities of $3,306,000, intangible assets of $22,945,000 (with an estimated life of 15-20 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $1,229,000 for the first installment of contingent consideration, based upon the achievement of sales targets. In January 2022, the former owner was paid $1,120,000 for the second installment of contingent consideration, also based upon the achievement of sales targets, less a deduction of $120,000 related to a prior period tax adjustment. The Irish companies continue to operate in Bray, Ireland, reporting within the Food Safety segment and are managed through Neogen’s Scotland operation. The Company’s U.S. business is managed by our Lansing-based Food Safety team. Fiscal 2022 On September 17, 2021, the Company acquired all of the stock of CAPInnoVet, Inc., a companion animal health business that provides pet medications to the veterinary market. This acquisition provides entry into the retail parasiticide market and enhances the Company’s presence in companion animal markets. Consideration for the purchase was net cash of $17.9 million paid at closing, including $150,000 of cash placed in escrow payable to the former owners in twelve months. There is also the potential for performance milestone payments to the former owners of up to $6.5 million and the Company could incur up to $14.5 million in future royalty payments. The preliminary purchase allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $308,000, inventory of $531,000, prepayments of $296,000, accounts payable of $120,000, other current liabilities of $84,000, non-current liabilities of $6.5 million (contingent consideration accrual calculated using a Monte Carlo simulation utilizing inputs such as probability and timing of milestone achievements, revenue forecasts and volatility, and estimated discount rates relating to estimated future cash flows of the business), intangible assets of $19.2 million (with an estimated life of 15-20 years) and the remainder to goodwill (deductible for tax purposes). These values are Level 3 fair value measurements. The business is operated from our location in Lexington, KY, reporting within the Animal Safety segment. On November 30, 2021, the Company acquired all of the stock of Delf (U.K.) Ltd., a United Kingdom-based manufacturer and supplier of animal hygiene and industrial cleaning products, and Abbott Analytical Ltd., a related service provider. This acquisition will expand the Company’s line of dairy hygiene products and will enhance our cleaner and disinfectant product portfolio. Consideration for the purchase was net cash o f $9.5 million paid at closing, including $722,000 of cash placed in escrow payable to the former owner in one year. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $1,059,000, inventory of $972,000, net property, plant and equipment of $152,000, prepayments of $31,000, accounts payable of $497,000, other current liabilities of $378,000, non-current deferred tax liabilities of $780,000, intangible assets of $3.1 million (with an estimated life of 10-15 years) and the remainder to goodwill (non-deductible for tax purposes). These values are Level 3 fair value measurements. The companies continue to operate in Liverpool, England, reporting within the Food Safety segment and are managed through Neogen’s Scotland operation. On December 9, 2021, the Company acquired all of the stock of Genetic Veterinary Sciences, Inc., a companion animal genetic testing business providing genetic information for dogs, cats and birds to animal owners, breeders and veterinarians. This acquisition will further expand the Company’s presence in the companion animal market. Consideration for the purchase was $11.4 million in net cash. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $38,000, net inventory of $292,000, net property, plant and equipment of $399,000, prepayments of $54,000, accounts payable of $325,000, unearned revenue of $1.9 million, other current liabilities of $321,000, intangible assets of $5.5 million (with an estimated life of 5-15 years) and the remainder to goodwill (deductible for tax purposes). These values are Level 3 fair value measurements. The business continues to operate in Spokane, Washington, reporting within the Animal Safety segment. Subsequent to the end of the fiscal year, on July 1, 2022, Neogen acquired all of the stock of Thai-Neo Biotech Co., Ltd., a longstanding distributor of Neogen’s food safety products to Thailand and Southeast Asia. This acquisition gives Neogen a direct sales presence in Thailand. Consideration for the purchase was $1,558,000, with $1,324,000 paid at closing and $234,000 payable on October 1, 2023. Due to the timing of the transaction, the details of the preliminary purchase price allocation are not available. The business continues to operate in Bangkok, Thailand, reporting within the Food Safety segment. For the acquisitions listed above, revenues in the aggregate were $38.0 million, $27.0 million a nd $ 6.1 million in fiscal years 2022, 2021 and 2020, respectively. Earnings in the aggregate were $5.4 million, $4.2 million and $520,000 in fiscal years 2022, 2021 and 2020, respectively. 3M Food Safety transaction On December 13, 2021, Neogen, 3M, and Garden Spinco, a newly formed subsidiary of 3M created to carve out 3M’s Food Safety business, entered into a number of agreements , including the merger agreement, pursuant to which, among other things, 3M’s Food Safety business will combine with Neogen in a Reverse Morris Trust transaction, intended to be tax-efficient to 3M and its shareholders for U.S. federal income tax purposes. Immediately following the transaction, Garden SpinCo stockholders will own, in the aggregate, approximately 50.1% of the issued and outstanding shares of Neogen common stock and pre-Merger Neogen shareholders will own, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock. The transaction implies an enterprise value for 3M’s Food Safety business of approximately $3.4 billion based on Neogen’s stock price at July 22, 2022 , including $1 billion in new debt to be incurred by 3M’s Food Safety business. 3M’s Food Safety business will fund to 3M consideration valued at approximately $1 billion, subject to closing and other adjustments. On June 30, 2022, Garden Spinco entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650.0 million and a five-year senior secured revolving facility in the amount of $150.0 million (collectively, the “Credit Facilities”), which, subject to customary closing conditions, will be available in connection with the merger and related transactions. The Credit Facilities, together with the Notes below, when incurred, represent the financing contemplated in connection with the Merger. In July 2022 Garden SpinCo closed on an offering of $350.0 million aggregate principal amount of 8.625% senior notes due 2030 (the “Notes”) in a private placement at par. The Notes will initially be issued by Garden SpinCo to 3M and are expected to be transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. SpinCo will not receive any proceeds from the sale of the Notes by the selling securityholder. Prior to the distribution of the shares of SpinCo’s common stock to 3M stockholders, the Notes will be guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M will be released from all obligations under its guarantee. Upon the effectiveness of the Merger, the Notes will be guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen. The transaction is expected to close by the end of the third calendar quarter in 2022, subject to approval by Neogen shareholders, receipt of required regulatory approvals and the satisfaction of other customary closing conditions.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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