Business Acquisitions

6 Months Ended

Dec. 31, 2020

BUSINESS ACQUISITIONS

Counsyl

On July 31, 2018, the Company completed the acquisition of Counsyl, Inc. (“Counsyl”), a leading provider of genetic testing and DNA analysis services, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated May 25, 2018. Pursuant to the terms of the Merger Agreement, Myriad Merger Sub, Inc., a newly created wholly-owned subsidiary of the Company, was merged with and into Counsyl, with Counsyl continuing as the surviving corporation and a wholly-owned subsidiary of Myriad. The Company believes the acquisition allows for further entry into the high-growth reproductive testing market, with the ability to become a leader in women’s health genetic testing.

The Company acquired Counsyl for total consideration of $405.9 million, consisting of $278.5 million in cash, financed in part by the Amendment No. 1 to the Facility (see Note 7) and 3.0 million shares of common stock issued, valued at $127.4 million. The shares were issued and valued as of July 31, 2018 at a per share market closing price of $42.53.

Of the cash consideration, $5.0 million was deposited into an escrow account to fund any post-closing adjustments payable to Myriad based upon differences between the estimated working capital and the actual working capital of Counsyl at closing. The working capital was finalized during the fiscal year ended June 30, 2019 as described below.

Consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. Management estimated the fair value of tangible and intangible assets and liabilities in accordance with the applicable accounting guidance for business combinations and utilized the services of third-party valuation consultants. The significant assumptions used in the model to estimate the value of the intangible assets included projected cash flows, discount rates, net working capital and long-term growth rate. The initial allocation of the consideration transferred is based on a preliminary valuation and is subject to adjustments. Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible), liabilities assumed, as well as tax-related matters. During the measurement period, the Company may record adjustments to the provisional amounts recognized. During the fiscal year ended June 30, 2019, $1.1 million of this escrow was returned to Myriad as a result of a working capital adjustment which reduced the total consideration and goodwill. There was also a reduction in the intangible assets of $2.9 million due to updated assumptions related to contributory asset charges associated with the related acquired asset, a $1.9 million decrease in the deferred tax liability, and a $0.7 million reduction to equipment due to updated valuations. The offset for the intangible asset, deferred tax liability and equipment changes was a $4.4 million increase in goodwill. The allocation of the consideration transferred was finalized within the measurement period.

The following table details the estimated fair value of total consideration transferred:


(in millions)	Estimated Fair Value
Current assets	$	42.5
Intangible assets	290.0
Equipment	18.2
Other assets	0.1
Goodwill	99.3
Current liabilities	(19.6)
Long term liabilities	(0.1)
Deferred tax liability	(9.2)
Total fair value purchase price	$	421.2
Less: Cash acquired	(15.3)
Total consideration transferred	$	405.9

Identifiable Intangible Assets

The Company acquired intangible assets that consisted of developed screening processes, which had an estimated fair value of $290.0 million. The fair values of these developed screening processes and related useful lives were determined using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows were discounted using a discount rate of 12.5%, which is based on the estimated internal rate of return for the acquisition and represents the rate that market participants might use to value the intangible assets. The Company will amortize the intangible assets on a straight-line basis over their estimated useful lives of 12 years.

Goodwill

The goodwill represents the excess of consideration transferred over the fair value of assets acquired and liabilities assumed and is attributable to the benefits expected from combining the Company’s expertise with Counsyl’s technology, customer insights, and ability to effectively integrate genetic screening into clinical practice with OBGYNs. Changes in goodwill since the initial purchase are shown below:


(in millions)	Carrying amount
Balance September 30, 2018	$	94.9
Fair value adjustment to equipment	0.7
Intangible adjustment	2.9
Working capital adjustment	(1.1)
Change in deferred tax liability	1.9
Ending balance December 31, 2020	$	99.3

This goodwill is not deductible for income tax purposes.

Pro Forma Information (Unaudited)

The unaudited pro-forma results presented below include the effects of the Counsyl acquisition as if it had been consummated as of July 1, 2017, with adjustments to give effect to pro forma events that are directly attributable to the acquisition, which includes adjustments related to the amortization of acquired intangible assets, interest income and expense, and depreciation.

The unaudited pro forma results do not reflect any operating efficiency or potential cost savings that may result from the consolidation of Counsyl with the Company. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operation of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations and are not necessarily indicative of results that might have been achieved had the acquisition been consummated as of July 1, 2017.


	Years Ended June 30,
(in millions)	2019		2018
Revenue	$	861.3	$	881.8
Income from operations	17.9		74.3
Net income	13.8		73.0
Net income per share, basic	$	0.19	$	1.01
Net income per share, diluted	$	0.18	$	0.98

To complete the purchase transaction, the Company incurred approximately $6.8 million of acquisition costs, which are recorded as selling, general and administrative expenses in the period incurred. For the fiscal year ended June 30, 2019, Counsyl contributed revenue of approximately $104.9 million. For the fiscal year ended June 30, 2019, operating expenses related to Counsyl were approximately $67.6 million.