Acquisition

12 Months Ended

Dec. 31, 2018

5. Acquisition

On January 31, 2018, the Company acquired all of the issued and outstanding shares of Data Sciences International, Inc. (DSI), a Delaware corporation, for approximately $71.1 million. The Company funded the acquisition from its existing cash balances, excess proceeds from the Denville Transaction discussed in Note 6, and proceeds from the Financing Agreement discussed in Note 15.

DSI, a St. Paul, Minnesota-based life science research company, is a recognized leader in physiologic monitoring focused on delivering preclinical products, systems, services and solutions to its customers. Its customers include pharmaceutical and biotechnology companies, as well as contract research organizations, academic labs and government researchers. This acquisition diversifies the Company’s customer base into the biopharmaceutical and contract research organization markets.

The aggregate purchase price for this acquisition was allocated to tangible and intangible net assets acquired as follows:

		(in thousands)
Tangible assets	$	34,010
Liabilities assumed		(11,949)
Net assets		22,061

Goodwill and intangible assets:
Goodwill		21,865
Amortizable intangible assets:
Trade name		3,524
Developed technology		25,570
Customer relationships		9,837
In-process research and development		1,387
Total amortizable intangible assets		40,318
Deferred tax liabilities, net		(13,120)
Total goodwill and intangible assets, net of tax		49,063
Acquisition purchase price	$	71,124


Tangible assets and liabilities assumed, as referenced above, consist of the following:

Cash acquired	$	2,576
Accounts receivable, net		5,069
Inventories		11,512
Other current assets		810
Property, plant and equipment, net		3,574
Deferred income tax assets, net		10,469
Tangible assets	$	34,010

Accounts payable and accrued liabilities	$	6,001
Deferred revenue including customer advances		2,976
Other long term liabilities		2,972
Liabilities assumed	$	11,949

The allocation of the purchase price for DSI was based on estimates of the fair value of the net assets acquired and was subject to adjustment upon finalization of the valuation of the acquired intangible assets and the related deferred taxes. Measurements of these items inherently require significant estimates and assumptions. During the year ended December 31, 2018, the Company made adjustments to the preliminary allocation of the purchase price that was presented in the March 31, 2018 Form 10-Q. The adjustments consisted of an increase of $4.5 million to deferred tax liabilities; an increase of $3.1 million to goodwill; a decrease of $1.6 million to other long term liabilities; an increase of $1.5 million to property, plant and equipment, net; an increase of $0.6 million in accounts payable and accrued liabilities; and an increase of $0.6 million to the purchase price related to a net working capital adjustment. As of December 31, 2018, the Company has finalized the purchase price allocation for DSI.

The weighted-average amortization periods for definite-lived intangible assets acquired are 9.4 years for tradenames, 8.2 years for developed technology, 12.4 years for customer relationships and 7.4 years for in-process research and development assets. The weighted average amortization period for all definite-lived intangible assets acquired is 9.3 years.

Goodwill recorded as a result of the acquisition of DSI is not deductible for tax purposes.

The results of operations for DSI have been included in the Company’s consolidated financial statements from the date of acquisition. The revenues of DSI included in the Company’s consolidated statement of operations from the date of acquisition were approximately $42.6 million for the eleven-month period ended December 31, 2018. The net income of DSI included in the Company’s consolidated statement of operations for the same period was approximately $1.8 million. Included in DSI’s net income was a $3.8 million charge recognized in cost of revenues related to purchase accounting inventory fair value step up amortization. The total inventory fair value step up was recognized into cost of revenues over one inventory turn, or approximately five and a half months. Also included in net income of DSI is $4.0 million of intangible asset amortization expense and $0.6 million of additional depreciation related to a step up of fair value of property, plant and equipment, net.

The following consolidated pro forma information is based on the assumption that the acquisition of DSI occurred on January 1, 2017. Accordingly, the historical results have been adjusted to reflect amortization expense, interest expense and other purchase accounting adjustments that would have been recognized on such a pro forma basis. The pro forma information is presented for comparative purposes only and is not necessarily indicative of the financial position or results of operations which would have been reported had the Company completed the acquisition during these periods or which might be reported in the future.

		Year Ended December 31,
		Year Ended December 31,
		2018		2017
	(in thousands)
Pro Forma
Revenues	$	124,319	$	121,104
Income (loss) from continuing operations		3,614		(8,454)

Direct acquisition costs recorded in other expense, net in the Company’s consolidated statements of operations were $3.4 million and $0 for the year ended December 31, 2018 and 2017, respectively.