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Note 3 - Acquisitions | 9 Months Ended
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Sep. 30, 2021
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | 3. Acquisitions Sexton acquisition General terms and effects On August 9, 2021, BioLife entered into an Agreement and Plan of Merger (the “Sexton Merger Agreement”) with BLFS Merger Sub, Inc., a Delaware corporation (“Sexton Merger Sub”), Fortis Advisors LLC, in its capacity as the representative of the stockholders of Sexton (the “Sexton Seller Representative”) and Sexton Biotechnologies, Inc., a Delaware corporation. On September 1, 2021, the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly-owned subsidiary of the Company (the “Sexton Merger”). As consideration for the Sexton Merger (the “Sexton Merger Consideration”), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the “Sexton Participating Holders”), are entitled to receive an aggregate of 530,502 newly issued shares of the Company’s common stock, subject to certain post-closing adjustments, of which 477,452 shares of Common Stock were issued to the Sexton Participating Holders at the Closing, and 53,050 shares of Common Stock, or approximately 10% of the Merger consideration, were deposited into an escrow account for indemnification and post-closing purchase price adjustment purposes. Prior to the merger, the Company held preferred stock in Sexton, which was accounted for using a measurement alternative that measures the securities at cost minus impairment, if any. The Company accounted for the merger as a step acquisition, which required remeasurement of the Company’s existing ownership in Sexton to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value, resulting in the recognition of a non-cash gain of $6.5 million, which was included in the gain on acquisition of Sexton Biotechnologies, Inc. in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021. The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company’s stock price at acquisition. Total consideration transferred (in thousands, except number of shares and stock price):
Merger consideration shares |  |  | 530,502 |
BioLife stock price (as of September 1, 2021) |  | $ | 60.50 |
Value of issued shares |  | $ | 32,095 |
plus: Fair value of BioLife’s existing investment in Sexton |  | $ | 7,951 |
less: Net working capital adjustment |  | $ | (118 | )
Merger Consideration |  | $ | 39,928 |
Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred. Fair value of net assets acquired As the Company finalizes its estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months). The initial accounting is incomplete as of September 30, 2021 for the acquired assets and liabilities as the Company is currently in the process of completing the assessment of intangible assets, goodwill, income taxes, and other assets and liabilities including contractual rights and obligations acquired that continue to be evaluated based on facts that existed as of the acquisition date. Our valuations will be finalized when certain information arranged to be obtained has been received and our review of that information has been completed. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Sexton were estimated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The estimated fair value of the net tangible assets acquired is approximately $4.1 million, the estimated fair value of the deferred tax liability acquired is approximately $1.3 million, the estimated fair value of the intangible assets acquired is approximately $8.8 million, and the estimated residual goodwill is approximately $28.3 million. The gross contractual accounts receivable acquired in the acquisition was $509,000. Of the acquired accounts receivable, $17,000 is estimated to be uncollectable. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. The table below represents the estimated fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).
Cash |  | $ | 1,516 |
Accounts receivable, net |  |  | 492 |
Inventory |  |  | 1,310 |
Prepaid expenses and other current assets |  |  | 670 |
Property, plant and equipment, net |  |  | 737 |
Operating lease right-of-use assets, net |  |  | 470 |
Developed technology |  |  | 4,132 |
Customer relationships |  |  | 2,276 |
Tradenames |  |  | 2,324 |
Non-compete agreements |  |  | 90 |
Goodwill |  |  | 28,273 |
Accounts payable |  |  | (291 | )
Lease liabilities, operating |  |  | (470 | )
Deferred tax liability |  |  | (1,284 | )
Other liabilities |  |  | (317 | )
Fair value of net assets acquired |  | $ | 39,928 |
The fair value of Sexton’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):
|  | Fair Value |  |  | Useful Life (Years) |
Developed technology |  | $ | 4,132 |  |  | 5 | - | 9 |
Customer relationships |  |  | 2,276 |  |  |  | 2 |  |
Tradenames |  |  | 2,324 |  |  |  | 11 |  |
Non-compete agreements |  |  | 90 |  |  |  | 1 |  |
Total identifiable intangible assets |  | $ | 8,822 |  |  |  |  |  |
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The estimated fair values of developed technology were estimated using a multi-period excess earnings approach. The estimated fair values of customer relationships and non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the customer relationships and non-compete agreements were and were not in place. The estimated fair value of the tradenames is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. Acquired goodwill The goodwill of $28.3 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. The goodwill recorded is not deductible for income tax purposes. Global Cooling acquisition General terms and effects On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”). On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly-owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”). Merger consideration The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders is subject to the withholding of the GCI Escrow Shares (as defined below) and is subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of $374,000. In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments. Total consideration transferred (in thousands, except number of shares, stock price, and consideration percentage):
BioLife shares outstanding (as of March 19, 2021) |  |  | 33,401,359 |
Merger consideration percentage |  |  | 19.9 | %
Merger consideration shares |  |  | 6,646,870 |
less: Merger consideration shares withheld to satisfy outstanding GCI stockholder obligations to GCI |  |  | 10,400 |
Subtotal |  |  | 6,636,470 |
BioLife stock price (as of May 3, 2021) |  | $ | 35.07 |
Value of issued shares |  | $ | 232,741 |
plus: Settlement of BioLife prepaid deposits |  | $ | 2,152 |
plus: Net settlement of BioLife accounts receivable |  | $ | 16 |
Merger Consideration |  | $ | 234,909 |
Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred. Escrow shares At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the “Escrow Shares”, along with any other dividends, distributions or other income on the GCI Escrow Shares, the “GCI Escrow Property”) otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement to be entered into in connection with the GCI Transactions (the “GCI Escrow Agreement”). The GCI Escrow Property will be held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims), unless earlier released in accordance with the terms of the GCI Escrow Agreement. Fair value of net assets acquired As the Company finalizes its estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months). The initial accounting is incomplete as of September 30, 2021 for the acquired assets and liabilities as the Company is currently in the process of completing the assessment of the tax attributes of the business combination. The finalization of the acquisition accounting valuation assessment may result in a change in the valuation of the deferred tax assets and liabilities and goodwill, which could have a material impact on the Company’s results of operations and financial position. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Global Cooling were estimated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The estimated fair value of the net tangible assets acquired is approximately $740,000, the estimated fair value of the deferred tax liability acquired is approximately $23.5 million, the estimated fair value of the intangible assets acquired is approximately $120.5 million, and the estimated residual goodwill is approximately $137.2 million. The gross contractual accounts receivable acquired in the acquisition was $7.1 million. Of the acquired accounts receivable, $53,000 was estimated to be uncollectable. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. The table below represents the estimated fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).
Cash |  | $ | 43 |
Accounts receivable, net |  |  | 7,076 |
Inventory |  |  | 15,547 |
Prepaid expenses and other current assets |  |  | 639 |
Property, plant and equipment, net |  |  | 3,512 |
Operating lease right-of-use assets, net |  |  | 1,741 |
Financing lease right-of-use assets, net |  |  | 114 |
Long-term deposits and other assets |  |  | 4 |
Developed technology |  |  | 18,140 |
Customer relationships |  |  | 7,020 |
Tradenames |  |  | 26,640 |
Non-compete agreements |  |  | 1,240 |
In-process research and development |  |  | 67,440 |
Goodwill |  |  | 137,215 |
Accounts payable |  |  | (9,837 | )
Line of credit |  |  | (4,231 | )
Lease liabilities, operating |  |  | (1,880 | )
Lease liabilities, financing |  |  | (114 | )
Long-term debt |  |  | (4,410 | )
Deferred tax liability |  |  | (23,526 | )
Other liabilities |  |  | (7,464 | )
Fair value of net assets acquired |  | $ | 234,909 |
The fair value of Global Cooling’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):
|  | Fair Value |  |  | Useful Life (Years) |
Developed technology |  | $ | 18,140 |  |  |  | 6 |
Customer relationships |  |  | 7,020 |  |  |  | 12 |
Tradenames |  |  | 26,640 |  |  |  | 15 |
Non-compete agreements |  |  | 1,240 |  |  |  | 4 |
In-process research and development |  |  | 67,440 |  |  |  | N/A |
Total identifiable intangible assets |  | $ | 120,480 |  |  |  |  |
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The estimated fair values of developed technology and in-process research and development were estimated using a multi-period excess earnings approach. The estimated fair values of customer relationships were estimated using the “distributor method”. The estimated fair value of the tradenames is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. The estimated fair values of non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the non-compete agreements were and were not in place. The fair value of inventory and property, plant and equipment were determined using the “market approach”. Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. Acquired goodwill The goodwill of $137.2 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. The goodwill recorded is not deductible for income tax purposes. The Company recorded revenue from Sexton of $425,000 and a net loss of $227,000 from September 1, 2021, the date of acquisition, to September 30, 2021. The Company recorded revenue from Global Cooling of $28.5 million and a net loss of $7.6 million from May 3, 2021, the date of acquisition, to September 30, 2021. The Company has included the operating results of the acquisitions in its Unaudited Condensed Consolidated Statements of Operations since their respective acquisition date. The following unaudited pro forma financial information presents the combined results of operations of Sexton as if the acquisition had occurred on January 1, 2020 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(In thousands) |  | 2021 (unaudited) |  |  | 2020 (unaudited) |  |  | 2021 (unaudited) |  |  | 2020 (unaudited) |
Total revenue |  | $ | 34,524 |  |  | $ | 11,697 |  |  | $ | 85,189 |  |  | $ | 34,707 |
Net (loss) income |  | $ | (685 | ) |  | $ | (1,850 | ) |  | $ | 4,612 |  |  | $ | 2,056 |
The following unaudited pro forma financial information presents the combined results of operations of Global Cooling as if the acquisition had occurred on January 1, 2020 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, amortization of increased inventory basis, depreciation expense, lease expense, transaction costs, interest expense, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(In thousands) |  | 2021 (unaudited) |  |  | 2020 (unaudited) |  |  | 2021 (unaudited) |  |  | 2020 (unaudited) |
Total revenue |  | $ | 33,800 |  |  | $ | 21,204 |  |  | $ | 106,427 |  |  | $ | 58,056 |
Net income (loss) |  | $ | 79 |  |  | $ | (3,393 | ) |  | $ | (1,939 | ) |  | $ | 4,912 |

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