Acquisition
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Dec. 31, 2013
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Acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition | 3. Acquisition
On November 6, 2013, the Company acquired 100% of the capital stock of Strumsoft (USA), Inc., a California corporation and Strumsoft (India) Pvt. Ltd., an India company for a total cash consideration of $11.0 million and issued approximately 33 shares of the Company's Common Stock. The total cash consideration was comprised of $10.2 million for the purchase of all the shares of Strumsoft and $774 for the estimated surplus working capital on the date of purchase. The 33 shares of the Company's Common Stock were valued at approximately $1.1 million based on the Company's November 6, 2013 closing stock price per shares. In addition, the Company potentially may make payments ("Strumsoft Earn-out") totaling up to approximately $6.0 million based on the ability to achieve a range of business objectives for the period from January 1, 2014 through December 31, 2014. The maximum that could be paid to existing employees of Strumsoft is $2.0 million and actual amounts will be recorded as compensation expense over the service period. Strumsoft is engaged in the business of providing consultancy services for software development and data processing. Management determined the preliminary fair value of net assets acquired during the fourth quarter of 2013. Accordingly, on November 6, 2013 the Company recorded $4.2 million representing the initial fair value estimate of the contingent consideration that will be earned through December 31, 2014. At December 31, 2013 there was no change in the fair value of the contingent consideration. The fair value of this liability is based on future sales projections of Strumsoft and weighting the probability of the sales outcome for the period ended December 31, 2014. These fair value measurements were based on significant inputs not observed in the market and thus represented a Level 3 measurement. The goodwill recorded in connection with this acquisition is based on (i) the expertise in cloud computing held by key leaders of Strumsoft, and (ii) intangible assets that do not qualify for separate recognition such as Strumsoft's assembled workforce. The goodwill acquired will not be deductible for tax purposes. The results of Strumsoft's operations have been included in the consolidated financial statements since the acquisition date. Pro forma results of operations for the acquisition have not been presented because the effects of the acquisition were not material to the Company's prior financial statements. The Company believes that Strumsoft will help strengthen its user design and messaging development and augment the Company's cloud services offerings and mobile development. In addition, the acquisition of Strumsoft is expected to help increase the Company's penetration of its domestic customer base.
Total purchase price is summarized as follows:
The following table summarizes the preliminary estimated fair values of the assets and liabilities assumed at the acquisition date:
The Company recorded $4.7 million in intangible assets as of the acquisition date with a weighted-average amortization period of 2 years and is amortizing the value of the trade name and customer relationships over an estimated useful life of 2 and 3 years, respectively and an order backlog that was amortized over the last two months of 2013. Amortization expense related to the acquired intangible assets resulting from the Strumsoft acquisition, which is included in depreciation and amortization expense, was approximately $1.1 million for the year ended December 31, 2013. Intangible assets related to the Strumsoft acquisition as of December 31, 2013 consist of the following:
On December 24, 2012 the Company acquired 100% of the capital stock of Newbay, an Ireland company, and its subsidiaries, for cash consideration of $55.5 million. Newbay had operations in Europe and the U.S. The purchase price was allocated to the tangible assets acquired and liabilities assumed based upon their fair values at the acquisition date. The excess of the purchase price over the net tangible assets and liabilities, approximately $23.2 million, was recorded as goodwill, which is not tax deductible. Total purchase price is summarized as follows:
The following table summarizes the final fair values of the Newbay assets and liabilities assumed at the acquisition date:
On November 30, 2012, the Company acquired 100% of the capital stock of Spatial, an Australian company with operations in the U.S., for total cash consideration of $30.6 million and issued approximately 240 shares of the Company's Common Stock. The total cash consideration was comprised of $30.0 million for the purchase of all of the shares of Spatial and $625 for the estimated surplus working capital on the date of purchase. Of the 240 shares of the Company's Common Stock issued, only a portion valued at approximately $1.4 million based on the Company's November 30, 2012 closing stock price per share was considered purchase price. The remaining value of the shares will be recognized as compensation expense and amortized over the service period of three years. In addition, the Company could have potentially made payments totaling up to approximately $5.0 million in cash and issue up to 260 shares of stock based on the ability to achieve a range of business objectives for the period from December 1, 2012 through November 30, 2013. However, these objectives were not achieved due to the timing of projected revenues financial milestones required to receive the expected payout and, therefore, the Company has no further obligation to the former Spatial stockholders. The purchase price was allocated to the tangible assets acquired and liabilities assumed based upon their fair values at the acquisition date. The excess of the purchase price over the net tangible assets and liabilities, approximately $35.9 million, was recorded as goodwill, which is not tax deductible.
Total purchase price is summarized as follows:
The Company prepared an initial determination of the fair value of assets acquired and liabilities assumed as of the acquisition date using preliminary information. In accordance with Accounting Standards Codification 805, during the measurement period an acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of the acquisition date. Accordingly, the Company has recognized measurement period adjustments made during the first quarter of 2013 to the fair value of certain assets acquired and liabilities assumed as a result of the further refinements in the Company's provisional amounts. These adjustments were retrospectively applied to the November 30, 2012 acquisition date balance sheet. The effect of these adjustments on the preliminary purchase price allocation was a decrease in accounts receivable of $2.6 million, an increase in prepaid expenses and other assets of $5.0 million, an increase to goodwill of $11.8 million, an increase in accrued expenses of $4.6 million, and an increase to deferred revenues of $9.6 million. None of the adjustments had a material impact on the Company's previously reported results of operations. The following table summarizes the final fair values of the assets and liabilities assumed at the acquisition date:
Acquisition-related costs recognized during the years ended December 31, 2013 and 2012, including transaction costs such as employee retention, legal, accounting, valuation and other professional services, were $1.7 million and $2.9 million, respectively. |