Business Combination |
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Business Combination | 3. Business Combination Voxbone Acquisition On November 2, 2020, the Company completed the acquisition of Voxbone for total estimated purchase consideration of approximately $519,384, consisting of cash and 663,394 shares of Bandwidth’s Class A common stock. The total estimated purchase consideration is subject to adjustment upon finalization of the net working capital adjustment. Voxbone is an international enterprise cloud communications leader with European-based communications platform and IP voice network. With a global network and extensive regulatory expertise, Voxbone is a national operator in markets around the world, with coverage across 93% of the world by GDP. The Company acquired Voxbone to accelerate its international strategy by several years, giving the company a footprint in 60+ countries. The purchase consideration exchanged to consummate the acquisition reflects the fair value of the Company's shares issued and the cash paid to the holders of Voxbone’s equity. The fair value of the shares is based on the final closing price of shares of Bandwidth Class A common stock prior to the effective time of the acquisition, which was $160.355 per share, determined as of October 30, 2020. Preliminary Purchase Price Allocation For purposes of accounting for the acquisition, the Company was determined to be the accounting acquirer. The Company applied the acquisition method of accounting with respect to the identifiable assets and liabilities of Voxbone, which have been measured at their estimated fair value as of the date of the business combination. Estimates of the fair value of Voxbone’s assets represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions, royalty rate, customer attrition rates, market comparables, and others, as applicable. Inputs used were generally obtained from historical data, supplemented by current and anticipated market conditions and growth rates. The following table summarizes the preliminary allocation of purchase price to the identifiable assets acquired and liabilities assumed by Bandwidth, with the excess of purchase price over the fair value of Voxbone’s net assets recorded as goodwill. Due to the timing and the magnitude of the transaction and the multi-jurisdictional nature of the net assets acquired, initial accounting for the acquisition is not complete, and further measurement period adjustments may occur in fiscal year 2021. The Company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available, including the refinement of market participant assumptions and finalization of tax returns in the pre-acquisition period. The Company will reflect measurement period adjustments in the period in which the adjustments are determined. The aggregate purchase consideration has been preliminarily allocated as follows:
________________________ (1) Amount subject to adjustment upon finalization of the net working capital adjustment.
Identifiable intangible assets The estimated preliminary fair value and weighted average useful life of the Voxbone identifiable intangible assets are as follows.
Developed technology represents certain proprietary technology that Voxbone uses to deliver its services. Preliminary fair values were determined using a relief from royalty methodology, which estimates the cost savings generated by a company based upon the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. The discount rate used was determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted average cost of capital and weighted average return on assets. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period. Customer relationships represent the preliminary fair value of existing relationships with the Voxbone customers. The preliminary fair value of customer relationships was determined using the Multi-Period Excess Earning Method, which involves isolating the net earnings attributable to the asset being measured based on the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. The valuation includes the valuation of the assembled workforce, using the Cost Approach, for purposes of calculating contributory asset charges to be used in the Multi-Period Excess Earning Method valuations. The economic useful life was determined based on historical customer attrition rates. The Company believes that the amounts of purchased intangible assets recorded represent the preliminary fair values of and approximates the amounts a market participant would pay for these intangible assets as of the acquisition date. The fair value of accounts receivables acquired is $5,873, with the gross contractual amount being $6,453. The Company expects $580 to be uncollectible. Goodwill The excess of the consideration for the acquisition over the preliminary fair value of net assets acquired was recorded as goodwill. The estimated goodwill recognized is attributable primarily to expected synergies and expanded market opportunities from combining the Company’s operations with those of Voxbone. The goodwill created in the acquisition is not expected to be deductible for tax purposes and is subject to revision as the purchase price allocation is completed. Goodwill arising from the acquisition has been allocated to the CPaaS reporting segment. Transaction Costs The Company recognized $14,458 of acquisition related costs that were expensed in the current period. These costs consist of mainly fees for financial and legal services, due diligence services, success fees, and net loss on foreign currency exchange directly associated with cash payments in foreign currencies as instructed by SPA of which $12,675 is included in general and administrative expenses and $1,783 is included in other income (expense), net in the consolidated statements of operations. Results of Voxbone Subsequent to the Acquisition The operating results of Voxbone have been included in the Company’s consolidated financial statements from the date of acquisition through December 31, 2020. The Company’s consolidated statement of operations for the year ended December 31, 2020 included revenues of $17,541 and a net loss of ($3,112), which includes the effects of purchase accounting adjustments, primarily the amortization of intangible assets. Unaudited Pro Forma Information The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Voxbone as if the acquisition had been completed on January 1, 2019. The pro forma results have been prepared for comparative purposes only, and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on January 1, 2019. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved. The unaudited pro forma information includes adjustments for the preliminary purchase price accounting impact (including, but not limited to, amortization for intangible assets, the purchase accounting effect on deferred revenue, transaction costs and related tax impacts) and the alignment of accounting policies. The pro forma results for the period ending December 31, 2020 also include the non-recurring transaction costs totaling $14,458.
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