Note 4. Acquisitions

Acquisitions

Student Brands, LLC

On August 3, 2017, we acquired 100% of the equity interests of Student Brands. Student Brands operates multiple direct-to-student businesses focused on study tools and writing help, all centered on assisting students with the writing process. We completed the purchase for cash consideration of $61,997, including cash acquired of $4,626, and the transaction was funded from cash on-hand and availability under our existing Credit Agreement. The Student Brands operations were included in the BNC segment until the segment change effective the fourth quarter of fiscal year 2018, and are now included in the DSS reporting segment. The final purchase price allocation was as follows: $28,300 intangible assets, $1,593 acquired working capital and $31,782 goodwill. This acquisition is not material to our consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business.

Identified intangible assets include the following:



Type of Intangible	Amount		Estimated Useful Life
Content	$	14,500	5
Technology	8,000		5
Non-Compete Agreements	4,000		3
Subscriber List	1,800		2
Total Intangibles:	$	28,300

MBS Textbook Exchange, LLC

On February 27, 2017, we completed the purchase of all issued and outstanding units of MBS Textbook Exchange, LLC. MBS operates two highly integrated businesses. Refer to Note 1. Organization for additional information about MBS. We acquired 100% of the equity interests of MBS for cash consideration of $187,862, including cash and restricted cash acquired of $1,171, and the acquisition was financed with cash from operations, as well as proceeds from our existing credit facility. During the third quarter of Fiscal 2018, we finalized the valuation and recorded adjustments to the acquired liabilities which resulted in an increase to goodwill of $1,163. These adjustments were related to a final reconciliation of the pre-acquisition tax liability due to the seller of $888 under the purchase agreement, as well as a net $275 increase in other long-term liabilities. The following is a summary of consideration paid for the acquisition:



Cash paid to Seller or escrow	$	165,499
Consideration to Seller for pre-closing costs	4,657
Cash paid for Seller closing costs	4,044
Contract purchase price	$	174,200
Consideration for payment to settle Seller's outstanding short-term borrowings	24,437
Consideration for reimbursement of pre-acquisition tax liability to Seller	15,556
Less: Consideration to Seller for pre-closing costs	(4,657		)
Less: Consideration for settlement of pre-existing payable to Seller	(21,674		)
Total value of consideration transferred	$	187,862

The following is a summary of the fair values of the net assets acquired:



Total estimated consideration transferred	$	187,862
Cash and cash equivalents	$	472
Accounts receivable, net	28,177
Merchandise inventory	128,431
Property and equipment	12,403
Intangible assets	21,576
Prepaid and other assets	4,748
Total assets	$	195,807
Accounts payable	$	35,383
Accrued expenses	8,799
Other long-term liabilities	13,045
Total liabilities	$	57,227
Net assets to be acquired	$	138,580
Goodwill	$	49,282

Identified intangible assets include the following:



Type of Intangible	Amount		Estimated Useful Life
Favorable Lease	$	1,076	6.5
Trade Name	3,500		10
Technology	1,500		3
Book Store Relationship	13,000		13
Direct Customer Relationship	2,000		15
Non-Compete Agreements	500		3
Total Intangibles:	$	21,576

The consolidated financial statements for the 52 weeks ended April 29, 2017 include the financial results of MBS from the acquisition date, February 27, 2017, to April 29, 2017, including sales of $34,091 and net loss of $(2,630). As the acquisition was material to our consolidated financial statements, the following represents the pro forma consolidated income statement as if MBS had been included in the consolidated results for the entire fiscal year for Fiscal 2017 and Fiscal 2016:



Pro forma consolidated income statement
	52 weeks ended
	April 29, 2017		April 30, 2016
Sales	$	2,247,825	$	2,216,628
Net income	$	32,055	$	25,022

These amounts have been calculated after applying our accounting policies and adjusting the results of MBS to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on May 3, 2015, and includes the elimination of all significant intercompany accounts and transactions, together with the consequential tax effects.

Promoversity

In June 2016, we completed the purchase of substantially all of the assets of Promoversity, a custom merchandise supplier and e-commerce storefront solution serving the collegiate bookstore business and its customers. The acquisition enables us to customize our e-commerce offerings and drive on-campus apparel sales. The acquisition purchase price was $1,417, including working capital, and was financed with cash from operations. The purchase price was allocated primarily as follows: $741 intangible assets (with a 5 year amortization period), $441 goodwill, $221 net current assets, and $500 future performance-based obligations. This acquisition is not material to our consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business.

LoudCloud Systems, Inc.

In March 2016, we completed the purchase of substantially all of the assets of LoudCloud Systems, Inc. (“LoudCloud”). LoudCloud will be a foundational asset for our digital and learning services. LoudCloud is a sophisticated digital platform and analytics provider with a proven product and existing clients in higher education, the for-profit sector and K-12 markets. LoudCloud currently has product capabilities that include a competency based courseware platform, a learning analytics platform and services, an eReading product, and a learning management system ("LMS"). Its software captures and analyzes key behavioral and performance metrics from students, allowing educators to monitor and improve student success.

The acquisition of LoudCloud closed on March 4, 2016 for a purchase price of $17,843, including working capital, and was financed completely with cash from operations. The purchase price was allocated primarily as follows: $10,600 intellectual property, $1,300 other intangible assets, $1,003 deferred revenue and $6,838 goodwill. This acquisition is not material to our consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business.