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Mergers and Acquisitions | 12 Months Ended
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Dec. 31, 2023
Business Combinations [Abstract] |
Mergers and Acquisitions | 4. Mergers and acquisitions Merger with SeaSpine On January 5, 2023, the Company and SeaSpine completed an all-stock merger of equals (the "Merger") to create a leading global spine and orthopedics company with highly complementary portfolios of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions, and a leading surgical navigation system. As a result of the Merger, each share of SeaSpine common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive 0.4163 shares of Orthofix common stock. The Merger is being accounted for as an acquisition of SeaSpine by Orthofix under the acquisition method of accounting for business combinations in accordance with U.S. GAAP. Therefore, Orthofix is treated as the acquirer for accounting purposes. In identifying the acquirer, Orthofix and SeaSpine considered the structure of the transaction and other actions contemplated by the merger agreement (the "Merger Agreement"), relative outstanding share ownership, market values, the composition of the combined company's Board of Directors, and the relative size of Orthofix and SeaSpine. Under the acquisition method of accounting, the assets and liabilities of SeaSpine and its subsidiaries have been recorded at their respective fair values as of the acquisition date. The total estimated fair value of consideration associated with the Merger as of the acquisition date was comprised of:
(U.S. Dollars, in thousands, except shares and price per share) |  |  |
Share Consideration: |  |  |
Orthofix common shares to be issued in exchange for SeaSpine common shares |  |  | 16,047,315 |
Orthofix closing price per share as of January 4, 2023 |  | $ | 22.76 |
Estimated fair value of shares issued in exchange for SeaSpine common shares |  | $ | 365,237 |
Estimated fair value of Orthofix stock options and RSUs issued in exchange for outstanding SeaSpine equity awards |  |  | 11,508 |
Total estimated fair value of consideration |  | $ | 376,745 |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company finalized its valuation of assets acquired and liabilities assumed during the fourth quarter of 2023. Certain acquired assets and liabilities assumed were valued utilizing Level 3 inputs and assumptions.
(U.S. Dollars, in thousands) |  | Previously Reported |  |  | Adjustments |  |  | Final Acquisition Date Fair Value |  |  | Assigned Useful Life
Assets acquired: |  |  |  |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 29,419 |  |  | $ | — |  |  | $ | 29,419 |  |  |
Accounts receivable, net |  |  | 35,313 |  |  |  | — |  |  |  | 35,313 |  |  |
Inventories |  |  | 132,636 |  |  |  | — |  |  |  | 132,636 |  |  |
Prepaid expenses and other current assets |  |  | 4,590 |  |  |  | — |  |  |  | 4,590 |  |  |
Total current assets |  |  | 201,958 |  |  |  | — |  |  |  | 201,958 |  |  |
Property, plant, and equipment, net |  |  | 68,863 |  |  |  | — |  |  |  | 68,863 |  |  |
Customer relationships |  |  | 33,100 |  |  |  | — |  |  |  | 33,100 |  |  | 13 years
Developed technology |  |  | 47,200 |  |  |  | — |  |  |  | 47,200 |  |  | 6 - 8 years
In-process research and development ("IPR&D") |  |  | 5,750 |  |  |  | — |  |  |  | 5,750 |  |  | Indefinite
Other long-term assets |  |  | 20,501 |  |  |  | — |  |  |  | 20,501 |  |  |
Total identifiable assets acquired |  | $ | 377,372 |  |  | $ | — |  |  | $ | 377,372 |  |  |
Liabilities assumed: |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  | $ | 21,602 |  |  | $ | — |  |  | $ | 21,602 |  |  |
Other current liabilities |  |  | 43,344 |  |  |  | 177 |  |  |  | 43,521 |  |  |
Total current liabilities |  |  | 64,946 |  |  |  | 177 |  |  |  | 65,123 |  |  |
Long-term borrowings under SeaSpine credit facility |  |  | 26,298 |  |  |  | — |  |  |  | 26,298 |  |  |
Other long-term liabilities |  |  | 32,833 |  |  |  | (10 | ) |  |  | 32,823 |  |  |
Total liabilities assumed |  |  | 124,077 |  |  |  | 167 |  |  |  | 124,244 |  |  |
Net identifiable assets acquired |  | $ | 253,295 |  |  | $ | (167 | ) |  | $ | 253,128 |  |  |
Total fair value of consideration transferred |  |  | 376,745 |  |  |  | — |  |  |  | 376,745 |  |  |
Residual goodwill |  | $ | 123,450 |  |  | $ | 167 |  |  | $ | 123,617 |  |  |
The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired in the Merger. As of December 31, 2023, the Company recorded goodwill totaling $123.6 million, which was assigned to the Global Spine reporting segment. Specifically, the goodwill includes the assembled workforce and synergies associated with the combined entity. The goodwill is not deductible for tax purposes. The Company recognized $9.9 million in direct acquisition-related costs, which exclude integration-related activities, that were expensed during the year ended December 31, 2023. These costs are included in the consolidated statements of operations and comprehensive income (loss), primarily within general and administrative expenses. The Company's results of operations included $258.9 million of net sales from SeaSpine for the year ended December 31, 2023, and a net loss attributable to SeaSpine of $84.0 million for the year ended December 31, 2023. Unaudited Pro Forma Financial Information Due to the Merger closing on January 5, 2023, all SeaSpine financial results for fiscal year 2023, except for the first four days of January, are included in Orthofix's consolidated statement of operations and comprehensive loss. The following unaudited pro forma financial information for the year ended December 31, 2023, is based on the Company's historical consolidated financial statements adjusted to reflect as if the Merger closed as of January 1, 2022. The unaudited pro-forma information makes certain adjustments to depreciation and amortization expense to reflect the fair value recognized in the purchase price allocation and to remove one-time transaction-related costs. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Merger closed as of January 1, 2022.
|  | For the Year Ended December 31, |
(U.S. Dollars, in millions) |  | 2023 |  |  | 2022 |
Net sales |  | $ | 746.6 |  |  | $ | 698.2 |
Net loss |  | $ | (116.4 | ) |  | $ | (129.2 | )
Integration and Restructuring Activities The Company has incurred significant integration and restructuring costs in connection with the Merger. The following table summarizes integration costs incurred for the year ended December 31, 2023, and 2022.
|  | For the Year Ended December 31, |
(U.S. Dollars, in millions) |  | 2023 |  |  | 2022 |
Compensation-related integration costs |  | $ | 17.7 |  |  | $ | — |
International spine restructuring |  |  | 1.3 |  |  |  | — |
Fee paid to financial advisor to the Merger |  |  | 5.5 |  |  |  | — |
Professional fees / consulting fees |  |  | 5.8 |  |  |  | — |
Product rationalization charges |  |  | 6.0 |  |  |  | — |
Other costs to complete |  |  | 1.4 |  |  |  | — |
Total |  | $ | 37.7 |  |  | $ | — |
In the first quarter of 2023, the Company approved and initiated certain restructuring activities to streamline costs and to better align talent with operational needs following the consummation of the Merger. This program was expanded in the third quarter of 2023 to include further restructuring activities related to the Company's international spine business. The Company expects to incur total pre-tax expenses of approximately $18.2 million associated with the restructuring activities, which will be recognized within operating expenses. The table below provides a summary of restructuring costs incurred during the period and the resulting liabilities as of December 31, 2023, which are recognized within other current liabilities.
(U.S. Dollars, in millions) |  | Balance as of December 31, 2022 |  |  | Charges Incurred |  |  | Payments Made / Currency Translation Adjustment |  |  | Balance as of December 31, 2023 |
U.S. Severance costs |  | $ | — |  |  | $ | 11.2 |  |  | $ | (10.2 | ) |  | $ | 1.0 |
U.S. Retention costs |  |  | — |  |  |  | 5.3 |  |  |  | (0.3 | ) |  |  | 5.0 |
U.S. Payroll taxes |  |  | — |  |  |  | 0.7 |  |  |  | (0.4 | ) |  |  | 0.3 |
International spine restructuring severance |  |  | — |  |  |  | 1.0 |  |  |  | (0.3 | ) |  |  | 0.7 |
Total |  | $ | — |  |  | $ | 18.2 |  |  | $ | (11.2 | ) |  | $ | 7.0 |

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