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Note 4 - Significant Transactions

12 Months Ended

Mar. 31, 2022

Note 4. Significant Transactions

Acquisitions

Acquisition of Agena Bioscience, Inc.

On October 20, 2021, we completed the acquisition of Agena Bioscience, Inc., which aligned with our overall acquisition strategy, moved our business towards the life sciences tools sector, and expanded our market opportunities, particularly in Asia. Agena is a leading clinical genomics tools company that develops, manufactures, markets, and supports proprietary instruments and related consumables and services that enable genetic analysis for a broad range of diagnostic and research applications. Using Agena's MassARRAY® instruments and chemical reagent solutions, customers can analyze DNA samples for a variety of high volume clinical testing applications, such as inherited genetic disease testing, pharmacogenetics, various oncology tests, infectious disease testing, and other highly-differentiated applications. Agena sells its products primarily to clinical labs, including large specialty, reference and pathology labs, as well as a variety of academic, hospital, and government facilities. Agena’s products are marketed directly to laboratories as well as to in vitro diagnostic development partners globally. Agena's products are differentiated in the market because they combine the throughput and analytical capabilities of mass spectrometry with the flexibility, ease-of-use and cost advantages of PCR methods.

We funded the acquisition and transactions relating thereto with cash on hand and borrowings under the Credit Facility. See Note 8. "Indebtedness" for additional details regarding the Credit Facility. At the completion of the Agena Acquisition on October 20, 2021, each Agena common share issued and outstanding was converted into the right to receive $5.96 per share in cash, subject to adjustment, without interest. We paid $300,793, net of cash acquired, but inclusive of working capital adjustments, to complete the Agena Acquisition. Of the cash consideration we paid, approximately $267,000 represented cash consideration to holders of Agena’s preferred and common stock, approximately $2,000 represented cash consideration paid for the settlement of Agena’s warrants, and approximately $31,800 represented cash consideration for the settlement of Agena's vested stock options as of the closing date.

Preliminary Allocation of Purchase Price

We accounted for the Agena Acquisition as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the acquiree's identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values, except contract assets and liabilities recorded at book value in accordance with ASU 2021-08, and are consolidated with those of Mesa. Significant judgments and estimates are required when performing valuations. The relief from royalty method was used to value our trade names and developed technology, while the multi-period excess earnings method, a form of the income approach, was used to value our customer relationships. These methods involve the use of significant estimates and assumptions depending on the underlying asset being valued, but may include internal rate of return, revenue growth rates, customer attrition rate, and royalty rates, all of which are considered Level 3 inputs. We obtained the information used to prepare the preliminary valuation during due diligence and from other sources. These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. Some of these estimates, especially customer attrition and internal rate of return are highly sensitive and a small change in estimate could materially change the calculated value of intangibles.

During the quarter ended March 31, 2022, we continued refining the valuation of net assets acquired in the Agena Acquisition. The significant purchase price allocation changes during quarter ended March 31, 2022 included: a net decrease of $4,300 in the value of intangible assets; an increase of $1,400 in the value of the inventory step-up; and a decrease of $1,144 in the value of property, plant and equipment, net. We also made adjustments to deferred tax assets and deferred tax liabilities primarily due to the tax effect of these changes to the purchase price allocation. In addition to changes to valuation of intangible assets, we reassessed our estimate of the remaining useful lives of intangible assets and property, plant and equipment acquired. The net effect of the changes to the expected remaining useful life and the intangible asset valuation was a cumulative net increase to amortization expense amounting to $1,932, of which $472 of expense was recorded to cost of revenues and $1,460 was recorded in general and administrative costs during the quarter ended March 31, 2022.

The following table summarizes the allocation of the preliminary purchase price as of October 20, 2021:

	*Life (in years)*		*Amount*
Cash and cash equivalents			$	7,544
Accounts receivable (a)				11,100
Other current assets (b)				25,480
Total current assets				44,124
Property, plant and equipment/noncurrent assets				15,832
Deferred tax asset				811
Intangible assets:
Goodwill (c)		N/A		135,880
Customer relationships (d)		12		103,800
Intellectual property (d)		8		45,400
Tradenames (d)		12		15,700
Total Assets acquired			$	361,547
Accounts payable				2,174
Unearned revenues				2,713
Other current liabilities				12,295
Total current liabilities				17,182
Deferred tax liability				27,765
Other noncurrent liabilities				8,263
Total liabilities assumed			$	53,210
Total purchase price, net of cash acquired			$	300,793

(a) Trade receivables, which is expected to be collected.

(b) Includes $7,462 of inventory step-up, which was amortized entirely within fiscal year 2022. Our evaluation of the valuation of inventory was complete as of March 31, 2022.

(c) Acquired goodwill of $135,880, all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from the value of expanded market opportunities, expected synergies, and assembled workforce, none of which qualify as amortizable intangible assets. The goodwill acquired is not deductible for income tax purposes.

(d) Customer relationships, intellectual property, and tradenames are currently expected to be amortized on a straight line basis over a weighted average 10.9 year period. The identified intangible assets will be amortized on a straight line basis over their useful lives, which approximates the pattern over which the assets' economic benefits are expected to be consumed over time. Amortization expense for customer relationships and tradenames will be amortized to general and administrative expenses; amortization expense for intellectual property will be recorded to cost of revenues. During the period from October 20, 2021 until March 31, 2022, $4,454 of amortization expense was recorded to general and administrative costs and $2,538 of amortization expense was recorded to cost of revenues in the Clinical Genomics Division, including the cumulative effect catch up. Our valuation of intangible assets is considered to be complete as of March 31, 2022. Going forward, we expect to record amortization expense of $2,490 and $1,419 to general and administrative costs and costs of revenues, respectively, each quarter.

This preliminary purchase price allocation is subject to revision as more detailed analyses are completed with respect to prepaid taxes, tax accruals, and deferred tax positions. If additional information about the fair value of assets acquired and liabilities assumed becomes available, we may further revise the preliminary purchase price allocation as soon as is practical, but will not do so more than one year from the acquisition date. Only items identified as of the acquisition date are considered for subsequent adjustment. Any such revisions or changes may be material.

Acquisition-related costs, such as legal and advisory fees of $1,244 for the year ended March 31, 2022, are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred and are reflected on the Consolidated Statements of Income in general and administrative expenses.

Unaudited Pro Forma Information

Agena's operations contributed $32,840 to revenues and ($7,779) of net loss to our consolidated results during fiscal year 2022, including the inventory-step up amounting to $7,462 that was fully amortized in fiscal year 2022 and $1,949 of additional intangible assets amortization related to the application of purchase accounting. We included the operating results of Agena in our Consolidated Statements of Income beginning on October 20, 2021, the acquisition date. The following pro forma financial information presents the combined results of operations of Mesa and Agena as if the acquisition had occurred on April 1, 2020 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected only include those adjustments that are directly attributable to the Agena Acquisition, are factually supportable and have a recurring impact; they do not reflect any adjustments for anticipated expense savings resulting from the acquisition and are not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on April 1, 2020 or of future results.

	*Year Ended March 31,*
	*2022*		*2021*
Pro forma total revenues (1)	$	222,612	$	214,206
Pro forma net income (2)		6,193		(3,879	)

(1) Net revenues were adjusted to include net revenues of Agena.

(2) Pro forma adjustments to net earnings attributable to Mesa include the following:

●	Excludes acquisition-related transaction costs incurred in the year ended March 31, 2022.
●	Excludes interest expense attributable to Agena external debt that was paid off as part of the acquisition.
●	Amortization expense of $15,636 for the years ended March 31, 2022 and 2021, respectively, based on the fair value of amortizable intangible assets acquired.
●	$7,462 was excluded from the year ended March 31, 2022 based on the step up value of inventory which would have been fully amortized within the first six months of the acquisition. Additional charge to cost of revenues of $7,462 was included in the year ended March 31, 2021 based on the step up value of inventory.
●	Additional stock based compensation expense representing expense for performance share units awarded to certain key Agena employees.
●	Income tax effect of applicable adjustments made at a blended federal and state statutory rate (approximately 26%).

GPT Acquisition

On October 31, 2019, we completed the acquisition of 100% of the outstanding shares of GPT, which comprises our Biopharmaceutical Development segment. The acquisition of GPT expanded our presence into a new market, immunoassays and peptide synthesis solutions that accelerate the discovery, development, and manufacture of biotherapeutic drugs. GPT systems include laboratory instruments, consumables, kits, and software that maximize laboratory productivity by miniaturizing and automating immunoassays at the nanoliter scale. GPT's protein detection is used most frequently by pharmaceutical and biotech companies that are developing protein-based drugs. This division also provides instruments, consumables, and software for the chemical synthesis of peptides from amino acids which are used in the discovery of new peptide-based drug therapies. After adjustments, we paid cash consideration of $181,547 to the sellers in the transaction. The acquisition was considered a stock purchase for tax purposes.

IBP Acquisition

On April 1, 2019, we completed a business combination whereby we acquired all of the common stock of IBP Medical GmbH, a company whose business manufactures medical meters used to test various parameters of dialysis fluid (dialysate) and the proper calibration and operation of dialysis machines.

Restructuring

Butler, New Jersey

We completed the previously announced closure of our Butler, New Jersey facility during the year ended March 31, 2022. The facility was primarily used in the production of our gas flow calibration and air sampling equipment, which is part of our Calibration Solutions division. Our manufacturing facility in Lakewood, Colorado is currently undergoing renovations that will allow it to better accommodate the production of the gas flow calibration and air sampling equipment. Consolidating the production of these products is expected to reduce facilities costs and streamline our use of lean manufacturing tools under central management to further encourage production efficiencies. As a result of the facility consolidation, we incurred $77 of severance costs during the year ended March 31, 2022, which were recorded to cost of revenues, selling, and general and administrative expense on the Consolidated Statement of Income. As of March 31, 2022, there were no outstanding accrued costs, and we do not expect to incur any material expenses related to the Butler, New Jersey facility closure in future periods.