Business Combinations

2016 Acquisition

NaviNet, Inc.

On November 30, 2015, NantHealth entered into a definitive agreement with 3BE Holdings, LLC (“3BE”) to acquire 100% of the outstanding equity interest of NaviNet, Inc. (“NaviNet”) in exchange for $83,529 in cash, subject to working capital adjustments, 15,513,726 newly issued Series H units with a fair value of $52,500 and contingent arrangements or earnouts of up to $12,250, which was effective on January 1, 2016. The contingent arrangements or earnouts require the Company to pay up to a total of $12,250 to certain of NaviNet’s former shareholders if NaviNet’s revenues to those former shareholders exceed certain thresholds during the years ended December 31, 2016 and 2017. These contingent amounts or earnouts have been excluded from the purchase price consideration and are accounted for as sales incentives as certain predefined targets are met and are reflected as contra revenue. The cash portion of the acquisition was financed through a promissory note with NantCapital, LLC (“NantCapital”), an affiliate of the Company (See Note 19). In June 2016, the Company paid an additional $455 to 3BE as the final working capital adjustment and accounted for the payment as an increase to the purchase price of NaviNet. In December 2016, and in accordance with the definitive agreements, the Company received $2,409 out of the escrow account for the settlement of the final net working capital adjustment.

The following table summarizes the total purchase consideration for the acquisition:



	Amounts
Cash paid to 3BE at closing	$	74,823
Cash paid to option holders after closing	2,580
Cash paid to escrow account	6,126
Working capital settlement payment	455
Fair value of Series H units	52,500
Total consideration	$	136,484

The total consideration was allocated to the net assets acquired based upon their estimated fair values:



	Amounts
Cash and restricted cash	$	4,804
Accounts receivable, net	10,693
Property, plant and equipment	5,044
Other assets and liabilities, net	4,561
Accounts payable	(4,585		)
Accrued and other current liabilities	(3,674		)
Deferred revenue	(2,603		)
Deferred tax liability	(15,508		)
Assumed indebtedness	(23,324		)
Trade names	3,000
Developed technology	32,000
Customer relationships	52,000
Goodwill	74,076
Total fair value of net assets acquired	$	136,484

The estimated life of the acquired trade names is four years, the estimated life of customer relationships is fifteen years, and the estimated life of the developed technology is seven years, with these intangibles amortized on a straight-line basis. The excess of the purchase price over the net tangible and intangible assets of $74,076 was recorded as goodwill and considered non-deductible for income tax purpose.

At the closing of the acquisition, the Company repaid all $23,324 of assumed indebtedness presented in the table above.

Immediately prior to the closing, the board of directors of NaviNet approved the acceleration of all unvested stock options of NaviNet. The equity incentive plan governing these stock options stated that NaviNet’s board of directors had the right, at its sole discretion, to accelerate vesting of all outstanding stock options in connection with a change of control. The option holders received a payout of $7,394 immediately following the closing which represented the fair value of all vested and unvested stock options. The Company recognized in its post-acquisition results $4,814 of compensation expense during the year ended December 31, 2016 since the Company received post-combination benefits resulting from the accelerated vesting.

During the year ended December 31, 2016, the Company recognized a net increase of $300 from measurement period adjustments, which reduced goodwill. The measurement period adjustments included a $2,909 increase to goodwill related to a decrease in property and equipment, a $697 decrease to goodwill related to an increase in research and development grant receivable, a $955 decrease to goodwill related to a decrease in deferred revenue, a $209 increase to goodwill related to a deferred tax liability increase due to various allocation adjustments, $455 increase to goodwill for working capital adjustments, a $188 increase to goodwill related to an accrued sales tax liability increase, and a $2,409 decrease to goodwill, representing the Company’s right to be reimbursed from 3BE for severance benefits if their employment is terminated by the Company without cause or by the employee for good reason within 12 months after the closing date, which was settled through the escrow account in December 2016.