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Item 1A. Risk Factors

2021-11-05 compared with 2021-08-04 · 37 added, 0 removed, 1 unchanged (97% of the section changed)

In evaluating an investment in our common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2020, as well as the information contained in this Quarterly Report and our other reports and registration statements filed with the SEC.

Risks Related to the Pending Smiths Transaction

We may not be able to successfully or timely consummate the pending Smiths transaction and such failure would adversely impact our business, our financial condition and the market price of our common stock.

On September 8, 2021, we entered into a Purchase Agreement pursuant to which we expect to purchase the entire issued share capital of Smiths for approximately $1.9 billion in cash, the issuance of 2.5 million fully paid and non-assessable shares of our common stock, par value $0.10 per share and a potential contingent earn-out of $100.0 million in cash, which is to be based upon our common stock achieving a certain volume weighted average price for certain periods from closing to the third or fourth anniversary of closing.

Closing under the Purchase Agreement is conditional upon the approval of the shareholders of Smiths, certain antitrust conditions and foreign direct investment conditions.

We will be unable to complete the pending Smiths transaction until each of the conditions to closing is either satisfied or waived.

Risks and uncertainties related to the closing include, among others, the possible occurrence of any event, change or other circumstance that could give rise to the termination of the Purchase Agreement, the failure to consummate the Smiths transaction because the conditions to the closing are not satisfied or waived by the parties, the risk that third-party approvals or consents required for the transaction are not obtained and that litigation may be filed which could prevent or delay the closing of the Smiths transaction.

Furthermore, under certain circumstances, Smiths Group can terminate the Purchase Agreement and require us to pay a termination fee of $200 million in cash and the issuance of a certain number of shares equal to $100 million based on the volume weighted average price for certain periods.

In addition, we have incurred significant costs, expenses and fees for professional services and other transaction costs in connection with the pending Smiths transaction, as well as the diversion of management resources, for which we will have received little or no benefit if the closing of the pending Smiths transaction does not occur.

For these and other reasons, our failure to complete the pending Smiths transaction could have a material adverse impact on our business, financial condition and results of operations.

If we successfully consummate the pending Smiths transaction, we may not realize the anticipated benefits of the transaction, which could adversely impact our business and our operating results.

The Smiths transaction is a significant transaction for us and the product offerings within the Smiths business are not product offerings that we currently offer.

The success of our business will depend, in part, on our ability to realize our anticipated benefits, opportunities and synergies from combining the businesses of our company and the Smiths business.

We can provide no assurance that the anticipated benefits of the Smiths transaction will be fully realized in the time frame anticipated or at all.

We have limited prior history of integrating acquired companies or businesses into our operations, much less one of this size and complexity.

Integrating the operations of the Smiths business with that of our own will be a complex, costly and time-consuming process and the nature of a carve out acquisition makes it inherently more difficult to assume operations on closing day as well as to integrate activities, as certain systems, processes and people may not all transfer with the acquired business to support such activities.

The integration process may disrupt the businesses and, if implemented ineffectively, would restrict the realization of the full expected benefits.

The failure to meet the challenges involved in integrating the two businesses could cause an interruption of, or a loss of momentum in, the activities of the combined businesses and could adversely affect the results of operations of the combined businesses.

Potential difficulties that may be encountered in the integration process include the following:

• challenges in preserving important strategic customer and other third-party relationships of both businesses;

• the diversion of management’s attention to integration matters;

• challenges in maintaining employee morale and retaining or attracting key employees;

• potential incompatibility of corporate cultures;

• changes in the combined business due to potential divestitures or requirements imposed by antitrust regulators;

• costs, delays and other difficulties consolidating corporate and administrative infrastructures and information systems and in implementing common systems and procedures including, in particular, our internal controls over financial reporting;

• coordinating and integrating a geographically dispersed organization, including operations in jurisdictions we currently do not operate in.

Any one or all of these factors may increase operating costs or lower anticipated financial performance.

Achieving the anticipated benefits and the potential benefits underlying our reasons for the Smiths business acquisition will depend on successful integration of the businesses.

Because of the significance of the Smiths business acquisition to us, our failure to successfully integrate the Smiths business with that of our own could have a material adverse impact on our business, financial condition and results of operations.

We plan to use a significant portion of our cash on hand and incur a substantial amount of debt to finance the cash consideration portion and certain other amounts to be paid in connection with the Smiths transaction, which could adversely affect our business, including by restricting our ability to engage in additional transactions or incur additional indebtedness.

Following the consummation of the Smiths transaction, we expect to have significantly less cash, cash equivalents and investment securities on hand than the approximately $544.7 million of cash, cash equivalents and investment securities we had as of September 30, 2021.

Although our management believes that it will have access to cash sufficient to meet our business objectives and capital needs, the lessened availability of cash, cash equivalents and investment securities for a period of time following the consummation of the Smiths transaction could constrain our ability to grow our business.

In connection with the Smiths transaction and the payment of the cash consideration, we also expect that at closing we will enter senior secured credit facilities of up to $2.2 billion consisting of a term loan A facility of $850.0 million, a term loan B facility of $850.0 million and a revolving credit facility of $500.0 million.

As a result, we will incur borrowing costs going forward.

Our more leveraged financial position following the Smiths transaction could make us vulnerable to general economic downturns and industry conditions, and place us at a competitive disadvantage relative to our competitors.

In the event that we do not have adequate capital to maintain or develop our business, additional capital may not be available to us on a timely basis, on favorable terms, or at all.

Moreover, our senior credit facilities may restrict how we may operate our business, including limiting our ability to engage in certain transactions and to incur additional indebtedness, and our business may be materially and adversely affected if these restrictions prevent us from implementing our business plan.

There have been no other material changes in the risk factors other than those mentioned above from those previously disclosed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K with the SEC for the year ended December 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors