Acquisition Activity

12 Months Ended

Dec. 31, 2019

Acquisition Activity in 2017

Flashstock Technology, Inc.

On July 7, 2017, the Company acquired all of the shares of Flashstock Technology, Inc. (“Flashstock”) pursuant to a stock purchase agreement. The transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company’s results of operations commencing from the acquisition date.

Flashstock is a Toronto-based company that enables the creation of custom content through a propriety software platform. The Company believes this acquisition will strengthen its strategic position and facilitate a comprehensive custom content offering in the market.

The fair value of consideration transferred in this business combination was allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The Company considered the intangible assets acquired in the transaction, and determined customer relationships and acquired developed technology meet the separability criteria.

The total purchase price was $51.7 million of which $50.9 million was paid with existing cash on hand during the year ended December 31, 2017, and $0.8 million which was paid in the first quarter of 2018 for the settlement of working capital adjustments. The unpaid portion of the purchase price was included in accrued expenses as of December 31, 2017.

The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in thousands):



Assets:
Cash and cash equivalents	$	1,330
Accounts receivable	3,105
Prepaid expenses and other current assets	155
Intangible Assets:
Customer relationships	3,000
Developed technology	2,200
Goodwill	46,217
Total assets acquired	56,007
Liabilities:
Accrued expenses	(279		)
Accounts payable	(99		)
Deferred tax liability, net	(333		)
Deferred revenue	(3,550		)
Total liabilities acquired	(4,261		)
Net assets acquired	$	51,746

Fair value adjustments relating to this acquisition were finalized as of December 31, 2017, which were within the allowable measurement period.

The identifiable intangible assets have a weighted average life of approximately seven years and are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the developed technology was determined using the relief-from-royalty method.

The goodwill arising from the transaction is primarily attributable to assembled workforce, future growth opportunities in the custom content market, potential economies of scale arising from the combined entity’s ability to leverage the Company’s existing global sales and marketing reach, and potential synergies arising from the addition of custom content offerings for the Company’s existing customer base. Approximately 26% of goodwill will be deductible for income tax purposes.

In connection with the acquisition, the Company recorded approximately $0.8 million of professional fees in the year ended December 31, 2017. The professional fees are included in general and administrative expense in the Statement of Operations.

The Company has performance-based bonus arrangements with certain Flashstock employees who are now employees of Shutterstock. These employees are entitled to additional compensation if: (i) the custom content business achieves certain financial targets for the 2019 calendar year and (ii) the individual is employed by Shutterstock as of December 31, 2019. Expense recorded related to these performance-based bonuses amounted to $3.4 million, $3.1 million and $1.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. These items are reported as period expenses within general and administrative expenses in the Consolidated Statements of Operations and are expected to be paid in 2020. These expenses are not considered part of the Flashstock purchase price.