Business Combinations

3 Months Ended

Mar. 31, 2022

2021 Acquisitions

On September 8, 2021, the Company acquired substantially all of the assets of Talos LLC and Talos Digital LLC, each a Delaware limited liability company, and a wholly-owned subsidiary of the Company acquired all of the outstanding capital stock of Talos Digital SAS and TCOMM SAS, each a simplified stock company organized under the laws of the Republic of Colombia (collectively, “Talos”). Talos is a digital transformation consultancy based in Miami, Florida with nearshore delivery centers in Medellin, Colombia. The acquisition of Talos strengthens the Company’s global delivery capabilities, enhancing its nearshore systems and commerce and custom developed solutions customers. Talos added more than 180 professionals and strategic client relationships with customers across several industries. The Company's total allocable purchase price consideration was $27.7 million, net of cash acquired. The Company incurred approximately $1.1 million in transaction costs, which were expensed when incurred. The amount of goodwill deductible for tax purposes is $7.8 million.

On October 15, 2021, a wholly-owned subsidiary of the Company acquired Overactive pursuant to the terms of a Stock Purchase Agreement. Overactive is based in Montevideo, Uruguay with nearshore delivery centers in Colombia, Argentina, Uruguay, Chile and Puerto Rico. The acquisition of Overactive expanded the Company’s digital modernization solution services. Overactive added nearly 700 professionals and strategic client relationships with customers across several industries and expanded the Company’s operations in Latin America. The Company’s total allocable purchase price consideration was $110.1 million, net of cash acquired. The Company incurred approximately $2.5 million in transaction costs, which were expensed when incurred. The goodwill is non-deductible for tax purposes.

The acquisition date fair value of the consideration transferred for the 2021 acquisitions consisted of the following (in millions):


	Talos			Overactive
Cash	$	14.9		$	93.9
Company common stock issued at closing	3.8			2.5
Contingent consideration (1)	9.0		(2)	12.6		(3)
Net working capital adjustment due to the seller(s)	—			1.1
Total allocable purchase price consideration	$	27.7		$	110.1

(1)Represents the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the sellers 12 months after the applicable closing date of the acquisition.

(2)The maximum cash payout that may be realized by the sellers in the Talos acquisition is $10.6 million. As of March 31, 2022, the fair value of the contingent consideration was $8.0 million. The Company recorded a pre-tax adjustment to reduce the liability in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $1.1 million during the three months ended March 31, 2022.

(3)The maximum cash payout that may be realized by the sellers in the Overactive acquisition is $14.4 million. As of March 31, 2022, the fair value of the contingent consideration was $12.7 million.

The Company has estimated the preliminary allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):


	Talos		Overactive
Acquired tangible assets	$	2.3	$	13.9
Identified intangible assets	8.1		35.0
Liabilities assumed	(1.4)		(18.5)
Goodwill	18.7		79.7
Total purchase price	$	27.7	$	110.1

The following table presents details of the intangible assets acquired during the year ended December 31, 2021 (dollars in millions).

Weighted Average Useful Life

Estimated Useful Life

Aggregate acquisitions

Customer relationships

9 years

6 - 10 years

39.0

Customer backlog

1 year

3.0

Non-compete agreements

5 years

0.4

Trade name

1 year

0.7

Total acquired intangible assets

43.1

The above purchase price accounting estimates for Talos and Overactive are pending finalization of certain acquired tangible and intangible assets, contingent consideration valuation, and a net working capital settlement that is subject to final adjustment as the Company evaluates information during the measurement period.

Pro-forma Results of Operations

The following presents the unaudited pro-forma combined results of operations of the Company with Overactive for the three months ended March 31, 2021, after giving effect to certain pro-forma adjustments and assuming Overactive was acquired as of the beginning of 2020. These unaudited pro-forma results include adjustments for Overactive from January 1, 2020 through March 31, 2021. Pro-forma results of operations have not been presented for Talos because the effect of this acquisition on the Company's consolidated financial statements was not material individually or in the aggregate.

These unaudited pro-forma results are presented in compliance with the adoption of ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, and are not necessarily indicative of the actual consolidated results of operations had the acquisition of Overactive actually occurred on January 1, 2020 or of future results of operations of the consolidated entities (in thousands except per share data):


	Three Months Ended March 31,
	2021
Revenues	$	177,787
Net income	$	12,622
Basic net income per share	$	0.40
Diluted net income per share	$	0.38
Shares used in computing basic net income per share	31,889
Shares used in computing diluted net income per share	33,040