ACQUISITIONS & DIVESTITURES

12 Months Ended

Mar. 31, 2020

Gigavation Acquisition

On February 5, 2020 (the Gigavation Closing Date), the Company acquired 100% of the common stock of Gigavation Incorporated, a cybersecurity company for $8.0 million. Gigavation’s solutions provide security to device communication protocols, end point protection and security analytics. The Gigavation technology and engineering talent have been integrated into our service assurance products in order to support the ongoing enhancement of that products portfolio.

The Company has completed the purchase accounting related to the Gigavation acquisition as of March 31, 2020. Goodwill and intangible assets recorded as part of the acquisition are not deductible for tax purposes. The Company determined Gigavation's results of operations are not material. As such, the pro forma information is not required for fiscal year 2020.

The following table summarizes the allocation of the purchase price (in thousands):


Initial cash payment	$	7,200
Estimated fair value of contingent purchase consideration	800
Estimated purchase price	$	8,000

The following table reflects the estimated fair value of assets acquired and liabilities assumed (in thousands):


Cash	$	7
Accounts receivable	209
Prepaid and other current assets	5
Intangible assets	4,760
Deferred tax liability	(693)
Accounts payable	(50)
Accrued other liabilities	(54)
Goodwill	$	3,816

Of the total consideration, $0.8 million was deposited into an escrow account. The escrow account was established to cover damages NetScout may suffer related to any liabilities that NetScout did not agree to assume or as a result of the breach of representations and warranties of the seller as described in the acquisition agreement. Generally, indemnification claims that Gigavation would be liable for are limited to the total amount of the escrow account, which shall be the sole source for the satisfaction of any damages to the Company for such claims, but such limitation does not apply with respect to the seller's breach of certain fundamental representations or related to other specified indemnity items, for which certain of Gigavation's shareholders may be liable for additional amounts in excess of the escrow amount. During the year ended March 31, 2020, $0.1 million was withdrawn from the escrow account to satisfy an indemnification claim. Except to the extent that valid indemnification claims are made prior to such time, the remaining $0.7 million will be paid to the seller in February 2021.

In connection with the Gigavation acquisition, certain former employees of Gigavation received restricted stock units. The restricted stock units issued are considered new share-based payment awards granted by NetScout to the former employees of Gigavation. NetScout accounted for these new awards separately from the business combination. The Company recognized share-based compensation net of an estimated forfeiture rate and only recognized compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award.

The fair value of the intangible asset was based on a valuation using an income approach. The underlying assumptions include the estimated cash flows to be generated by the technology purchased as part of the acquisition less any returns on contributory assets, if any. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurements.

The following table reflects the fair value of the acquired identifiable intangible asset and related estimated useful life (in thousands):


	Fair Value	Useful Life (Years)
Developed technology	$4,760	10

The weighted average useful life of the developed technology acquired from Gigavation is 10 years.

Eastwind Acquisition

On April 3, 2019 (the Eastwind Closing Date), the Company completed the acquisition of certain assets and liabilities of Eastwind for $5.2 million. Eastwind's breach analytics cloud analyzes data to identify malicious activity, insider threats and data leakage.

The Company completed the purchase accounting related to the Eastwind acquisition as of June 30, 2019. Goodwill and intangible assets recorded as part of the acquisition are deductible for tax purposes. The Company determined Eastwind's results of operations are not material. As such, the pro forma information is not required for fiscal year 2020.


Initial cash payment	$	4,154
Estimated fair value of contingent purchase consideration	1,000
Estimated purchase price	$	5,154

The following table reflects the estimated fair value of assets acquired and liabilities assumed (in thousands):


Property, plant and equipment	$	17
Intangible assets	4,230
Accrued other liabilities	(96)
Goodwill	$	1,003

Of the total consideration, $1.0 million was deposited into an escrow account. The escrow account was established to cover damages NetScout may suffer related to any liabilities that NetScout did not agree to assume or as a result of the breach of representations and warranties of the seller as described in the acquisition agreement. Generally, indemnification claims that Eastwind would be liable for are limited to the total amount of the escrow account, which shall be the sole source for the satisfaction of any damages to the Company for such claims, but such limitation does not apply with respect to the seller's breach of certain fundamental representations or related to other specified indemnity items, for which certain of Eastwind's shareholders may be liable for additional amounts in excess of the escrow amount. The contingent purchase consideration of $1.0 million was paid to the seller in April 2020.

In connection with the Eastwind acquisition, certain former employees of Eastwind received cash retention payments totaling $0.3 million on the Eastwind Closing Date. Because these employees were not required to provide future services to the Company, the cash retention payments were accounted for as part of the purchase price. These former Eastwind employees will also receive cash retention payments subject to such employee's continued employment with the Company through the next regularly scheduled payroll dates following each of the first and second anniversaries of the Eastwind Closing Date. The cash retention payment liability related to these future cash retention payments were accounted for separately from the business combination as the cash retention payment is automatically forfeited upon termination of employment. The Company will record the liability over the period it is earned as compensation expense for post-combination services.

The fair value of intangible asset was based on a valuation using a cost method approach. The underlying assumptions include estimates of cost to replace or reproduce the asset, less adjustments for physical deterioration and functional obsolescence, if relevant. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurements.

The following table reflects the fair value of the acquired identifiable intangible asset and related estimated useful life (in thousands):


	Fair Value	Useful Life (Years)
Developed technology	$4,230	10

The average useful life of the developed technology acquired from Eastwind is 10 years.

HNT Tools Business Divestiture

On September 14, 2018 (the HNT Divestiture Date), the Company divested its HNT tools business for cash proceeds of $1.3 million and potential future earnout payments of up to $4.0 million over two years that are contingent on the HNT tools business achieving certain milestones. The fair value of the contingent consideration in the amount of $2.3 million was recognized on the HNT Divestiture Date and was measured using unobservable (Level 3) inputs. The contingent consideration is presented as a non-cash investing activity on the consolidated statement of cash flows. The Company transferred $4.6 million of consideration along with net liabilities of the HNT tools business related to a working capital adjustment during the year ended March 31, 2019. The Company recorded a loss on the divestiture for the year ended March 31, 2019 totaling $9.5 million, which included $1.3 million of transaction costs and $0.5 million of incentive compensation payable to the HNT tools business employees negotiated as part of the sale. In connection with the divestiture, the Company has entered into a transitional services agreement with the buyer to provide certain services for a period of up to eighteen months. Income associated with the transitional services agreement for the fiscal years ended March 31, 2020 and 2019 was $1.2 million and $2.2 million, respectively, and is included within other expense, net in the Company's consolidated statement of operations.

The Company determined that the sale of the HNT tools business did not represent a strategic shift and will not have a major effect on its consolidated results of operations, financial position or cash flows. Accordingly, the Company has not presented the sale as a discontinued operation in the consolidated financial statements.

Efflux

On July 12, 2017 (the Efflux Closing Date), the Company completed the acquisition of Efflux for $8.6 million. Efflux's technology detects, analyzes and correlates threat activity within enterprise networks. The Efflux technology and engineering talent have been integrated into our security products in order to support the ongoing enhancement of that products portfolio.

Goodwill of $6.1 million was recognized for the excess purchase price over the fair value of the net assets acquired. Goodwill and intangible assets recorded as part of the acquisition are not deductible for tax purposes.