Business Combinations

12 Months Ended

Dec. 31, 2015

Business Combinations [Abstract]

Business Combinations

HD Vest: On December 31, 2015 and pursuant to the Purchase Agreement dated October 14, 2015, the Company acquired HD Vest for $611.9 million, which is subject to a final working capital adjustment in the first quarter of 2016. HD Vest provides wealth management solutions for financial advisors and is expected to be synergistic with TaxAct as a result of cross-selling opportunities and an expanded addressable market for both HD Vest and TaxAct. In connection with the acquisition, certain members of HD Vest management rolled over a portion of the proceeds they would have otherwise received at the closing into shares of the acquisition subsidiary through which the Company consummated the purchase of HD Vest. A portion of those shares were sold to the Company in exchange for a promissory note. After giving effect to the rollover shares and related purchase of the rollover shares for the promissory note, the Company indirectly owns 95.52% of HDV Holdings, Inc., with the remaining 4.48% non-controlling interest held collectively by the rollover management members and subject to put and call arrangements exercisable beginning in 2019.

The Company paid $610.5 million, which was funded by a combination of cash on hand and the new TaxAct - HD Vest 2015 credit facility, under which the Company borrowed $400.0 million (see "Note 8: Debt").

Valuations were as follows (in thousands):

	Fair value
Tangible assets acquired, including cash acquired of $38,874	$	77,181
Liabilities assumed	(21,845		)
Identifiable net assets acquired	$	55,336
Fair value adjustments for intangible assets:
Advisor relationships	$	240,300
Sponsor relationships	16,500
Curriculum	800
Proprietary technology	13,600
Trade name	52,500
Fair value of intangible assets acquired	$	323,700
Purchase price allocation:
Cash paid	$	610,500
Plus: promissory note	6,400
Plus: non-controlling interest	15,038
Less: escrow receivable	(20,000		)
Purchase price	611,938
Less: identifiable net assets acquired	(55,336		)
Less: fair value of intangible assets acquired	(323,700		)
Plus: deferred tax liability related to intangible assets	123,484
Excess of purchase price over net assets acquired, allocated to goodwill	$	356,386

The Company's estimates of the economic lives of the acquired intangible assets are 14 years for the advisor relationships, 18 years for the sponsor relationships, 4 years for the curriculum, 6 years for the proprietary technology, and the trade name is estimated to have an indefinite life. Goodwill consists largely of the increased cross-selling opportunities and expanded addressable markets for both HD Vest and TaxAct, neither of which apply for separate recognition, and is not expected to be deductible for income tax purposes. The primary areas of the acquisition accounting that are not yet finalized relate to final working capital calculation, income and non-income based taxes, certain contingent liability matters, indemnification assets, and residual goodwill.

The promissory note is with the President of HD Vest and will be paid over a three-year period. The current portion was recorded in "Current portion of long-term debt, net," and the long-term portion was recorded in "Long-term debt, net." The note bears interest at a rate of 5% per year, with a principal amount that approximates its fair value. See "Note 8: Debt" for additional information on the "Note payable, related party."

The Purchase Agreement dictates that the Company place into escrow $20.0 million of additional consideration that is contingent upon HD Vest's 2015 earnings performance. The contingent consideration was not achieved; therefore, the amount has been excluded from the purchase price and recorded as a receivable in "Other receivables" for the amount that will be returned to the Company from the escrow agent in the first half of 2016.

The gross contractual amount of accounts receivable, including commissions receivable, acquired was $21.6 million, of which the Company has estimated that substantially all will be collectible.

During 2015, the Company incurred transaction costs of $11.0 million, which were recognized in "General and administrative expense," and $21.8 million in debt discount and issuance-related costs on the new credit facility.

Pro Forma Financial Information of the HD Vest Acquisition (unaudited):

The financial information in the table below summarizes the combined results of operations of Blucora and HD Vest on a pro forma basis, for the period in which the acquisition occurred and the prior reporting period as though the companies had been combined as of the beginning of each period presented. Pro forma adjustments have been made to include (a) amortization expense on the definite-lived intangible assets identified in this acquisition, debt-related expenses associated with the credit facility that was used to finance the acquisition, and estimated stock-based compensation related to Blucora share-based award grants to HD Vest employees; and to remove (b) acquisition-related transaction costs and debt-related expenses associated with HD Vest's previous debt facility, the latter of which was paid off and closed at the acquisition date. Income taxes also have been adjusted for the effect of these items. The following pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition occurred at the beginning of each period presented (in thousands):

	Years ended December 31,
	2015			2014
Revenue	$	437,447		$	408,573
Loss from continuing operations	$	(12,793	)	$	(16,727	)

SimpleTax: On July 2, 2015, TaxAct acquired all of the equity of SimpleTax, a provider of online tax preparation services for individuals in Canada, for C$2.4 million (with C$ indicating Canadian dollars and amounting to approximately $1.9 million based on the acquisition-date exchange rate) in cash and additional consideration of up to C$4.6 million ($3.7 million) that is contingent upon product availability and revenue performance over a three-year period. The estimated fair value of the contingent consideration as of the acquisition date was C$4.1 million ($3.3 million). See "Note 6: Fair Value Measurements" for additional information related to the fair value measurement of the contingent consideration.

The acquisition of SimpleTax is strategic to TaxAct and intended to expand its operations. SimpleTax is included in the Tax Preparation segment. Intangible assets acquired amounted to approximately C$1.2 million ($0.9 million), consisting of customer relationships and proprietary technology both of which have finite lives. Identifiable net liabilities assumed were not material. Goodwill amounted to C$5.6 million ($4.5 million). Pro forma results of operations have not been presented because the effects of this acquisition were not material to the Company’s consolidated results of operations.

Balance Financial:  On October 4, 2013, TaxAct acquired all of the equity of Balance Financial Inc. (“Balance Financial”), a provider of web and mobile-based financial management software, for $4.9 million in cash which included a $0.7 million escrow amount that was recorded in "Accrued expenses and other current liabilities" for indemnifications related to general representations and warranties. The escrow period expired on April 4, 2015, at which time the amount, net of any indemnifiable losses, was released. The acquisition of the Balance Financial business is strategic to TaxAct and was funded from the revolving credit loan under the TaxAct 2013 credit facility (see "Note 8: Debt"). Balance Financial is included in the Tax Preparation segment. The identifiable net assets acquired amounted to $1.0 million, consisting primarily of deferred tax assets, and intangible assets acquired amounted to $0.8 million, consisting primarily of internally-developed software and customer relationships both of which have finite lives. Goodwill amounted to $3.1 million. Pro forma results of operations have not been presented because the effects of this acquisition were not material to the Company’s consolidated results of operations.