CANTEL MEDICAL LLC - 10-Q filing on 2020-12-10

Acquisitions

3 Months Ended

Oct. 31, 2020

Hu-Friedy: On October 1, 2019, we purchased all of the issued and outstanding membership interests of Hu-Friedy Mfg. Co. LLC (“Hu-Friedy”), for total consideration (net of cash acquired), excluding acquisition-related costs, of $716,542, consisting of $662,151 of cash and $54,391 of common stock consideration (subject to adjustment), plus contingent consideration payable in cash. The additional contingent consideration payments are (i) subject to the achievement of certain commercial milestones through March 31, 2021 ranging from zero to a maximum of $50,000 and (ii) contingent upon changes in our stock price from the date of closing through a future date subject to a registration rights agreement. See Note 9, “Fair Value Measurements,” for further details regarding these contingent payments. Hu-Friedy is a leading global manufacturer of instruments and instrument reprocessing systems serving the dental industry and is included in our Dental segment.

The following table presents our purchase price allocation of our material acquisition (which was accounted for as a business combination in accordance with ASC Topic 805 “Business Combinations”):


	2020
Purchase Price Allocation	Hu-Friedy(1)(2)
	(Final)
Purchase Price:
Cash paid	$	662,151
Fair value of contingent consideration	38,371
Common stock issued	54,391
Total	$	754,913

Allocation:
Property and equipment	38,613
Intangible assets:
Customer relationships	225,000
Technology	32,000
Brand names	112,000
Goodwill	276,744
Deferred income taxes	(222)
Inventories	63,680
Other working capital	7,098
Total	$	754,913

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(1)During the second quarter of fiscal 2020, we paid $25,000 to settle a portion of the contingent consideration, and during the third quarter of fiscal 2020, we paid $35,000 to repurchase a portion of the common stock issued, both of which were included in Acquisitions, net of cash acquired in the Condensed Consolidated Statement of Cash Flows. See Note 9, “Fair Value Measurements” for additional information.

(2)The excess purchase price over net assets acquired was assigned to goodwill, all of which is deductible for income tax purposes.

Unaudited Pro Forma Summary of Operations

The following pro forma summary of operations presents our operations as if the Hu-Friedy acquisition had occurred as of the beginning of fiscal 2019. In addition to including the results of operations of this acquisition, the pro forma information gives effect to amortization of the step-up in inventory, depreciation of the step-up in property and equipment, the interest on additional borrowings, the amortization of intangible assets and the issuance of shares of common stock. On an actual basis, the

Hu-Friedy acquisition contributed $60,806 and $18,725 to our consolidated net sales for the three months ended October 31, 2020 and 2019 respectively.


Pro Forma Summary of Operations	Three Months Ended October 31, 2019
Net sales	$	296,454
Net income	$	952
Earnings per common share:
Basic	$	0.02
Diluted	$	0.02

The pro forma information presented above does not purport to be indicative of the results that actually would have been attained had the Hu-Friedy acquisition occurred as of the beginning of fiscal 2019.