ACQUISITIONS

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

ACQUISITIONS

3.     ACQUISITIONS

iWeb Acquisition

On November 26, 2013, we completed the acquisition of iWeb. Headquartered in Montreal, Quebec, Canada, iWeb has four company-controlled data centers supporting global hosting, cloud and colocation services. We include the results of iWeb from November 26, 2013 through December 31, 2013 in our data center services segment in the consolidated statements of operations, which consisted revenue of $3.6 million and loss before income tax of $0.4 million. 

We acquired all of the outstanding capital stock of iWeb for a total purchase price, net of working capital adjustments provided for under the purchase agreement, of $145.8 million. The net cash paid was $144.5 million, which included cash acquired of $1.3 million. 

We incurred $4.2 million in acquisition costs, which we expensed and included in “General and administrative” in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2013. We funded the purchase price and acquisition costs through a $350.0 million credit agreement, which we entered into contemporaneously with the acquisition, further described in note 11.

Purchase Price Allocation

We allocated the aggregate purchase price for iWeb to the net tangible and intangible assets based on their fair value as of November 26, 2013. We based the allocation of the purchase price on a valuation for property and equipment, intangible assets and deferred revenue and the carrying value for the remaining assets and liabilities, as the carrying value approximates fair value. The preliminary fair value of iWeb’s property and equipment was estimated using the market approach, using comparable market prices; the income approach, using present value of future income or cash flow; or the cost approach, using the replacement cost of assets, depending on the nature of the assets being valued.  The preliminary fair value of identifiable intangible assets were measured at fair value primarily using various “income approaches,” which required a forecast of expected future cash flows, either for the use of a relief-from royalty method or a multi-period excess earnings method. We recorded the excess of the purchase price over the net tangible and intangible assets as goodwill. Factors that contributed to the recognition of goodwill included expected synergies and the trained workforce. We expect that none of the goodwill will be deductible for tax purposes. The purchase price allocation of assets and liabilities is preliminary and subject to change as we finalize the completion of the fair value appraisal of certain personal and real tangible assets, as well as certain intangible assets. Our purchase price allocation was as follows (in thousands):

Current assets, including cash acquired of $1.3 million	$	4,284
Property and equipment		52,497
Goodwill		70,782
Intangible assets		40,925
Other long-term assets		689
Current liabilities		(7,119	)
Deferred revenue		(3,740	)
Capital lease obligations		(1,301	)
Other long-term liabilities		(2,981	)
Net deferred income tax liability, long-term		(8,249	)
	$	145,787

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

	Fair Value		Weighted Average Useful Life
Customer relationships	$	22,200		15 years
Trade name		15,100		30 years
Beneficial leasehold interest		858		14 years
Internally developed software		2,767		5 years
Total intangible assets	$	40,925

Unaudited Supplemental Financial Information

Our unaudited pro forma results presented below, including iWeb, for the year ended December 31, 2013 and 2012 are presented as if the acquisition had been completed on January 1, 2012. We calculated these amounts by adjusting the historical results of iWeb to reflect the additional interest, depreciation and amortization expenses that would have been recorded assuming the fair value adjustments to intangible assets had been applied from January 1, 2012, with the consequential tax effects. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2012.

	Year Ended December 31,
(in thousands)	2013			2012
Unaudited pro forma revenue	$	323,000		$	315,000
Unaudited pro forma net loss		(32,000	)		(19,000	)

Voxel Acquisition

On December 30, 2011, we completed the acquisition of Voxel and included its operations into our data center services segment. We acquired all of the outstanding capital stock of Voxel for a total purchase price of $33.3 million. In addition, we incurred $0.6 million in acquisition-related expenses, which we expensed and included in “General and administrative” in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2011. We funded the purchase price and acquisition costs by drawing-down our then existing term loan.

Purchase Price Allocation

We allocated the aggregate purchase price for Voxel to the net tangible and intangible assets based on their fair value as of December 30, 2011. We based the allocation of the purchase price on a valuation for property and equipment and intangible assets and the carrying value for the remaining assets and liabilities. We expect that none of the goodwill will be deductible for tax purposes. Our purchase price allocation was as follows (in thousands):

Cash and cash equivalents	$	930
Account receivable and other current assets		1,081
Property and equipment		4,795
Goodwill		20,007
Intangible assets		15,700
Other assets		336
Accounts payable and accrued expenses		(1,636	)
Deferred revenue		(368	)
Capital lease obligations		(1,288	)
Other long-term liabilities		(137	)
Deferred income tax liability		(6,140	)
	$	33,280

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

	Fair Value		Weighted Average Useful Life
Customer relationships	$	7,800		10 years
Internally used software		3,400		5 years
Acquired technology		4,300		8 years
Trade names		200		10 years
Total intangible assets	$	15,700

As the acquisition occurred on December 30, 2011 and was not material to our business, we did not record Voxel’s revenue and expense from the date of acquisition for the year ended December 31, 2011.

Unaudited Supplemental Financial Information

Our unaudited pro forma results presented below, including Voxel, for the year ended December 31, 2011 are presented as if the acquisition had been completed on January 1, 2010. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2010.

(in thousands)	Year Ended December 31,
	2011
Unaudited pro forma revenue	$	257,999
Unaudited pro forma net loss		(12,241	)