NOTE 3 — ACQUISITIONS

Homeward Fee-Based Businesses

On March 29, 2013, we acquired certain fee-based businesses associated with Ocwen’s acquisition of Homeward. As part of the acquisition, Ocwen agreed not to develop similar fee-based businesses that would directly or indirectly compete with services provided by Altisource relative to the Homeward servicing portfolio. Additionally, the terms of the Service Agreements were amended to extend the term from 2020 to 2025 (see Note 2). We paid $75.8 million, after a working capital and net income adjustment of $11.1 million, for the Homeward fee-based businesses. From the acquisition date through September 30, 2013, we recorded service revenue of $74.3 million and we estimate pre-tax income is $14.2 million related to these businesses.

Since the acquisition date, management adjusted the preliminary purchase price allocation and assigned associated asset lives based upon information that has become available. In addition to the working capital adjustment, we also reduced premises and equipment by $1.2 million based on a post-acquisition detailed analysis of software licenses received. The purchase price allocation and assessment of asset lives will continue to be revised as additional information about the fair value of assets and liabilities becomes available. Such assessment must be completed within 12 months from the acquisition date.

The preliminary adjusted allocation of the purchase price is estimated as follows:

(in thousands)

Premises and equipment	$	1,559
Customer relationship	75,609
	77,168
Accounts payable and accrued expenses	(1,351		)
Purchase price	$	75,817

		Estimated life (in years)

Premises and equipment		3 - 5
Customer relationship		7

ResCap Fee-Based Businesses

On April 12, 2013, we entered into an agreement with Ocwen to establish additional terms related to the existing servicing arrangements between Altisource and Ocwen in connection with certain mortgage servicing platform assets of ResCap (the “ResCap Business”). The Service Agreements provide that (i) Altisource will be the exclusive provider, except as prohibited by applicable law, to Ocwen of certain services related to the ResCap Business, (ii) Ocwen will not establish similar fee-based businesses that would directly or indirectly compete with Altisource’s services as they relate to the ResCap Business and (iii) Ocwen will market and promote the utilization of Altisource’s services to their various third party relationships. Additionally, the parties agreed to use commercially reasonable best efforts to ensure that the loans associated with the ResCap Business are boarded onto Altisource’s mortgage servicing platform. We paid $128.8 million ($80.0 million on April 12, 2013 and $48.8 million on May 10, 2013) for the ResCap fee-based businesses. From the acquisition date through September 30, 2013, we recorded service revenue of $28.6 million and we estimate pre-tax income is $10.9 million related to these businesses.

We acquired no tangible assets and assumed no liabilities in connection with the acquisition. However, certain employees as well as practices and processes developed to support the ResCap servicing portfolio were components of the transaction. We accounted for this transaction as a business combination in accordance with ASC Topic 805, Business Combinations.

Management prepared a preliminary purchase price allocation and assigned associated asset lives based upon available information at the time of the agreement and through the date of filing. This preliminary allocation and assessment of asset lives will be revised as additional information about the fair value of assets and liabilities becomes available. Such assessment must be completed within 12 months from the acquisition date. The agreement consideration of $128.8 million was fully allocated to the customer relationship intangible asset with an estimated average useful life of 7 years.

The following tables present the unaudited pro forma condensed consolidated results of operations as if the Homeward and ResCap Business transactions had occurred at the beginning of the earliest period presented.

	Nine months ended September 30, 2013
(in thousands, except per share amounts)	As reported		Pro forma
Revenue	$	545,772	$	579,263
Net income attributable to Altisource	94,457		101,413
Earnings per share — diluted	3.77		4.05

	Nine months ended September 30, 2012
(in thousands, except per share amounts)	As reported		Pro forma
Revenue	$	427,259	$	536,647
Net income attributable to Altisource	80,334		103,313
Earnings per share — diluted	3.23		4.15

	Three months ended September 30, 2012
(in thousands, except per share amounts)	As reported		Pro forma
Revenue	$	143,988	$	180,451
Net income attributable to Altisource	27,024		34,665
Earnings per share — diluted	1.08		1.39

The unaudited pro forma information presents the combined operating results of Altisource and the Homeward and ResCap Business transactions. The Homeward and ResCap Business operating results were derived from their historical financial statements for the most comparable periods available. The results prior to the acquisition dates have been adjusted to include the pro forma impact of the adjustment of amortization of the acquired intangible assets based on the preliminary purchase price allocations, the adjustment of interest expense reflecting the portion of our $200 million senior secured term loan, increased to $400 million on May 7, 2013, used in the Homeward and ResCap Business transactions and to reflect the impact of income taxes on the pro forma adjustments utilizing Altisource’s effective income tax rate in each period presented.

The unaudited pro forma results are presented for illustrative purposes only and do not reflect additional revenue opportunities, the realization of any potential cost savings and any related integration costs. Certain revenue opportunities and cost savings may result from the transactions and the conversion to the Altisource model; however, there can be no assurance that these revenue opportunities and cost savings will be achieved. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the transactions occurred as of the beginning of each of the periods presented, nor is the pro forma data intended to be a projection of results that may be obtained in the future.

Equator Acquisition

On August 19, 2013, we entered into a Purchase and Sale Agreement (the “Purchase Agreement”) pursuant to which we agreed to purchase all of the outstanding limited liability company interests of Equator, LLC, a California limited-liability company (“Equator”). The aggregate consideration payable under the Purchase Agreement is up to $150.0 million comprised of (i) $70.0 million in initial consideration and (ii) up to an additional $80.0 million in potential additional consideration, the payment of which is dependent upon the Equator business meeting targeted levels of profitability (as described in the Purchase Agreement) for three consecutive 12-month periods following closing. Each 12-month period has targeted levels of profitability and potential additional consideration will be paid based on each 12-month period. We may, at our discretion, pay up to 20% of the initial consideration and up to 20% of each payment of any additional consideration in shares of our restricted stock, with the balance to be paid in cash. The closing is subject to the satisfaction of customary closing terms and conditions, including, without limitation, clearance under the Hart-Scott-Rodino (“HSR”) Act. The purchase price is subject to certain adjustments based on targeted amounts of current assets and current liabilities of Equator at closing, to be settled within 90 days of the closing date.

We initially filed the HSR application with the Federal Trade Commission (the “FTC”) in the third quarter and initially expected to receive approval and close the acquisition in the third quarter of 2013. With the recent disruption of the United States government and shutdown of nonessential services, approval from the FTC has been delayed. To ensure that the HSR waiting period did not expire during the United States government disruption, and following discussions with the staff of the FTC, we voluntarily withdrew our initial application and re-filed it early in the fourth quarter of 2013. We believe, although there can be no assurance, the transaction will close in the fourth quarter of 2013.