BUSINESS ACQUISITIONS

We completed several acquisitions in recent years that we describe below. Generally, we acquire businesses that we believe will provide a strategic fit for our existing operations, cost savings and revenue synergies, or enable us to expand our capabilities.

Cost & Compliance Associates Acquisition

In February 2017, we completed the acquisition of Cost & Compliance Associates, LLC and Cost & Compliance Associates Limited (collectively "C&CA"). C&CA is a commercial recovery audit and contract compliance firm with operations in the U.S. and the UK. We acquired substantially all of the assets of C&CA for approximately $10.0 million in cash plus potential earnout consideration of up to $8.0 million.

The actual payment of the earnout consideration is based on achieving certain financial targets over a two year period that commenced on March 1, 2017 and will conclude on February 28, 2019. Management estimated that the fair value of the earnout consideration was approximately $5.9 million at the date of acquisition. During each of 2018 and 2017, the Company recognized accretion of $0.9 million on the fair value of the earnout amount which was included in Interest expense in the Consolidated Statements of Operations, and increased the related contingent consideration liability. The remaining potential earnout payment is $4.0 million. As of December 31, 2018, the contingent consideration liability related to the C&CA acquisition was $3.7 million, which is included in current Business acquisition obligations in our Consolidated Balance Sheet. We funded the purchase price and acquisition costs from borrowings under our credit facility, further described in Note 5.

Purchase Price Allocation

We allocated the aggregate purchase price for C&CA to the net tangible and intangible assets acquired based on their fair values as of February 23, 2017. We based the allocation of the purchase price on a valuation for intangible assets and the carrying value for the remaining assets and liabilities, as the carrying value approximates their fair value. The fair value of C&CA's identifiable intangible assets were measured using the income approach which includes a projection of estimated future discounted cash flows using a discount rate that is specific to the business risk, cost of capital and other factors. We recorded the excess of the purchase price over the net tangible and intangible assets as goodwill, which has been allocated and recognized as goodwill within our Recovery Audit Services-Americas and Recovery Audit Services-Europe/Asia-Pacific business segments. Factors that contributed to the recognition of goodwill included expected synergies and the trained workforce.

Our purchase price allocation was as follows (in thousands):



Accounts receivable	$	1,621
Commissions receivable	48
Prepaid expenses	109
Other current assets, net	6
Intangible assets	10,923
Goodwill	3,554
Fixed assets	323
Accounts payable	(125		)
Accrued commissions	(537		)
Total consideration paid	$	15,922
Contingent consideration ⁽¹⁾	(5,954		)
Total cash paid	$	9,968

⁽¹⁾ In the second quarter of 2018 we made an earnout payment of $4.0 million. As of December 31, 2018, the contingent consideration liability balance was $3.7 million.

The intangible assets acquired were as follows (in thousands):



	Fair Value		Remaining useful life
Customer relationships	$	9,556	14 years
Non-compete	1,232		4 years
Trademarks	135		4 years
	$	10,923

We have included the results of C&CA from the date of acquisition through December 31, 2018 in our Consolidated Statement of Operations. In fiscal year 2017, we included revenue of $7.8 million and income before income tax of $0.8 million in our Recovery Audit Services - Americas business segment, and revenue of $3.3 million and income before income tax of $1.0 million in our Recovery Audit Services - Europe/Asia-Pacific business segment. In fiscal year 2018, we included revenue of $9.6 million and loss before income tax of less than $0.6 million in our Recovery Audit Services - Americas business segment, and revenue of $4.4 million and income before income tax of $1.5 million in our Recovery Audit Services - Europe/Asia-Pacific business segment.

Unaudited Supplemental Financial Information

Our unaudited pro forma results presented below, including C&CA, for the years ended December 31, 2017 and 2016 are presented as if the acquisition had been completed on January 1, 2016. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the C&CA acquisition been completed on January 1, 2016. In addition, the unaudited pro forma information does not purport to project future operating results.



	Year Ended December 31,
(in thousands)	2017	2016
Unaudited pro forma revenue	162,459	155,626
Unaudited pro forma net income from continuing operations	3,886	5,365

Lavante Acquisition

In October 2016, we completed the acquisition of Lavante, Inc. ("Lavante"). Lavante is a SaaS-based procure-to-pay supplier information management (SIM) and recovery audit services firm, based in San Jose, California. We acquired substantially all of the assets of Lavante, which primarily consisted of its proprietary software applications, for $3.8 million in cash, plus potential earnout consideration of up to $4.5 million.

The actual payment of the earnout consideration is based on achieving certain financial targets over a two year period that commenced on October 31, 2016 and concluded on December 31, 2018. Management estimated that the fair value of the earnout consideration was approximately $3.8 million at the date of acquisition, of which $2.0 million was included in Other current liabilities and $1.8 million was included in Other long-term liabilities in our Consolidated Balance Sheet as of December 31, 2016. During 2018 and 2017, the Company recognized accretion of $0.1 million and $0.3 million, respectively, on the fair value of the earnout amount which was included in Interest expense in the Consolidated Statements of Operations, and increased the related contingent consideration liability. In the fourth quarter of 2017, we reduced the earnout liability by $2.1 million and in the third quarter of 2018, we further reduced the earnout liability by $1.6 million, after it was determined that a portion of the earnout consideration would not be achieved. These adjustments were included in Acquisition-related adjustments in the Consolidated Statements of Operations for the years ended December 31, 2018 and 2017. As of December 31, 2018, the contingent consideration liability related to the Lavante acquisition was $0.5 million, which was included in current Business acquisition obligations in our Consolidated Balance Sheet. We funded the purchase price and acquisition costs from borrowings on our credit facility, further described in Note 5.

Purchase Price Allocation

We allocated the aggregate purchase price for Lavante to the net tangible and intangible assets acquired based on their fair values as of October 31, 2016. We based the allocation of the purchase price on a valuation of intangible assets, and the carrying value for the remaining assets and liabilities as the carrying value approximated their fair value. The fair value of Lavante's identifiable intangible assets were measured using a form of the income approach, and a cost approach. The income approach includes a projection of estimated future discounted cash flows using a discount rate that is specific to the business risk, cost of capital and other factors. We recorded the excess of the purchase price over the net tangible and intangible assets as goodwill within our Adjacent Services business segment. Factors that contributed to the recognition of goodwill included expected synergies and the trained workforce.

Our purchase price allocation was as follows (in thousands):



Cash and cash equivalents	$	28
Accounts receivable, net	207
Other current assets	92
Intangible assets	6,178
Goodwill	2,286
Fixed assets, net	98
Accounts payable	(121		)
Deferred revenue	(370		)
Other current liabilities	(757		)
Total consideration paid	$	7,641
Contingent consideration⁽¹⁾	(3,832		)
Total cash paid	$	3,809

⁽¹⁾ In the third quarter of 2018, we reduced the earnout liability by $1.6 million and in the fourth quarter of 2017, we reduced the earnout liability by $2.1 million. At December 31, 2018, the contingent consideration liability balance was $0.5 million.

The intangible assets acquired were as follows (in thousands):



	Fair Value		Remaining useful life
Trademarks	$	163	4 years
Patents	114		1 year
Software	5,901		4 years
Total intangible assets	$	6,178

We have included the results of Lavante from its date of acquisition through December 31, 2018 in our Consolidated Statement of Operations, which consisted of revenue of $0.4 million and a loss before income tax of $0.9 million in the year ended December 31, 2016, revenue of $1.9 million and a loss before income tax of $4.8 million in the year ended December 31, 2017, and revenue of $2.2 million and a loss before income tax of $2.3 million in the year ended December 31, 2018. The results from Lavante are included in our Adjacent Services business segment.

Unaudited Supplemental Financial Information

Our unaudited pro forma results presented below, including Lavante, for the years ended December 31, 2016 and 2015 are presented as if the acquisition had been completed on January 1, 2015. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the Lavante acquisition been completed on January 1, 2015. In addition, the unaudited pro forma information does not purport to project future operating results.



	Year Ended December 31,
(in thousands)	2016		2015
Unaudited pro forma revenue	143,198		140,994
Unaudited pro forma net (loss) income from continuing operations	(3,418	)	(5,516	)