ACQUISITIONS

9 Months Ended

Sep. 30, 2011

ACQUISITIONS [Abstract]

ACQUISITIONS

(2)       ACQUISITIONS

eLoyalty

On May 28, 2011, the Company acquired certain assets and assumed certain liabilities of eLoyalty Corporation (“eLoyalty”), related to the Integrated Contract Solutions (“ICS”) business unit, and the eLoyalty trade name. The ICS business unit focuses on helping clients improve customer service business performance through the implementation of a variety of service centers. ICS generates revenue in three ways: 1) managed services that support and maintain clients' customer service center environment over the long-term; 2) consulting services that assist the customer in implementation and integration of a customer service center solution; and 3) product resale through the sale of third party software and hardware. eLoyalty operates out of an office in Austin, TX with an additional administrative location in Chicago, IL and has approximately 160 employees.

The up-front cash consideration was $40.9 million, subject to certain balance sheet adjustments of ($3.0) million as defined in the purchase and sale agreement, for a total purchase price of $37.9 million.

As of September 30, 2011, TeleTech had paid the total net purchase price of $37.9 million. The Company recognized $0.3 million of acquisition related expenses as part of the eLoyalty purchase. These costs were recorded in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations during the nine months ended September 30, 2011.

The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands). Theestimates of fair value of identifiable assets acquired and liabilities assumed, are preliminary, pending completion of the valuation, thus are subject to revisions which may result in adjustments to the values presented below:

		Preliminary Estimates of Acquisition Date Fair Value
Cash		$	14
Accounts Receivable			7,702
Prepaid assets - cost deferrals			14,726
Property, plant and equipment			897
Other assets			869
Deferred tax asset			3,253
Customer relationships			11,700
Software			1,200
Noncompete agreements			900
Trademark			600
Consulting services backlog			500
Goodwill			21,614
			63,975
Accounts payable			2,156
Accrued expenses			1,211
Deferred revenue			22,525
Other			192
			26,084
	Total purchase price	$	37,891

The customer relationship intangible asset is being amortized over 11 years. The goodwill recognized from the eLoyalty acquisition is attributable primarily to the assembled workforce of eLoyalty and significant opportunity for Company growth and marketing based on additional service offerings and capabilities. Since this acquisition is treated as an asset acquisition for tax purposes, the goodwill and associated intangible assets will be deductible for income tax purposes. The operating results of eLoyalty are reported within the North American BPO segment from the date of acquisition.

Peppers & Rogers Group

On November 30, 2010, the Company acquired an 80% interest in Peppers & Rogers Group. PRG is a leading global management consulting firm specializing in customer-centric strategies for Global 1000 companies and is recognized as a leading authority on customer-based strategies with a deep understanding of the most powerful levers that drive customer loyalty and business results. PRG currently operates offices on six continents across the globe, including headquarters in Stamford, Connecticut, and Istanbul, Turkey, along with regional offices in Belgium, Germany, United Arab Emirates, South Africa, Lebanon and Kuwait. PRG has approximately 150 employees.

The up-front cash consideration paid was $15.0 million plus a working capital adjustment of $7.9 million as defined in the purchase and sale agreement. The working capital adjustment due to PRG former owners was paid during the nine months ended September 30, 2011. An additional $5.0 million payment is due on March 1, 2012. This $5.0 million payment was recognized at fair value using a discounted cash flow approach with a discount rate of 18.4%. This measurement is based on significant inputs not observable in the market, which are deemed to be Level 3 inputs. The fair value on the date of acquisition was approximately $4.4 million and was included in Other long-term liabilities in the Consolidated Balance Sheets as of December 31, 2010. The fair value as of September 30, 2011 was $4.9 million and was included in Other current liabilities in the Consolidated Balance Sheets as of September 30, 2011. This value will be accreted up to the $5.0 million payment using the effective interest rate method.

The purchase and sale agreement includes a contingent consideration arrangement that requires additional consideration to be paid in 2013 if PRG achieves a specified fiscal year 2012 earnings before interest, taxes depreciation and amortization (“EBITDA”) target. The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between zero and $5.0 million. The fair value of the contingent consideration recognized on the acquisition date was zero and was estimated by applying the income approach. This measure is based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include (i) a discount rate of 30.6% percent and (ii) probability adjusted level of EBITDA between $9.0 million and $12.6 million. As of September 30, 2011, the fair value of the contingent consideration remains zero.

The fair value of the 20% noncontrolling interest of $6.0 million in PRG was estimated by applying a market approach. This fair value measurement is based on significant inputs not observable in the market (Level 3 inputs). The fair value estimates are based on assumed financial multiples of companies deemed similar to PRG, and assumed adjustments because of the lack of control or lack of marketability that market participants would consider when estimating fair value of the noncontrolling interest in PRG.

The purchase and sale agreement also included an option for the Company to acquire the remaining 20% interest in PRG exercisable in 2015 for a period of one year, with a one year extension (the “Initial Exercise Period”). If the Company does not acquire the remaining 20% of PRG pursuant to its call option during the Initial Exercise Period, PRG has an option to purchase the Company's 80% interest in PRG. The exercise price is based on a multiple of EBITDA as defined in the purchase and sale agreement.

The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed at the acquisition date (in thousands). The estimates of fair value of identifiable assets acquired and liabilities assumed are preliminary, pending completion of the valuation, thus are subject to revisions which may result in adjustments to the values presented below.

		Preliminary Estimates of Acquisition Date Fair Value
Cash		$	2,202
Accounts Receivable			16,475
Property, plant and equipment			322
Other assets			847
Customer relationships			9,300
Trade name			6,400
Goodwill			7,295
			42,841
Accounts payable			1,519
Accrued expenses			1,967
Deferred tax liability			3,690
Deferred revenue			660
Line of credit			570
Other			1,562
			9,968
Noncontrolling interest			6,000
	Total purchase price	$	26,873

The goodwill recognized from the PRG acquisition is attributable primarily to the assembled workforce of PRG, expected synergies, and other factors. None of the goodwill is deductible for income tax purposes. The operating results of PRG are reported within the International BPO segment from the date of acquisition.

The acquired businesses contributed revenues of $25.4 million and $50.4 million and income from operations of $1.5 millionand $3.7 millionto the Company for the three and nine months ended September 30, 2011, respectively.