Business Combinations

12 Months Ended

Jul. 31, 2019

In the fourth quarter of fiscal 2019, we completed the acquisition of an early stage software company, Appsulate, Inc. Pursuant to the terms of the purchase agreement, the aggregate purchase price was approximately $12.9 million, of which $10.3 million was paid in cash on the acquisition date and $2.3 million is to be paid upon the lapse of an indemnification period within 18 months of the acquisition date. As of July 31, 2019, this holdback amount is reflected within other noncurrent liabilities in the consolidated balance sheets.

In connection with this acquisition, we retained the services of a third-party firm to complete a valuation of the acquired identifiable intangible assets as of the closing date in order to allocate the purchase price consideration. The purchase price allocation resulted in the recognition of $5.9 million of goodwill, exclusive of goodwill recognized as a result of deferred tax liability generated by the acquired developed technology, and $7.0 million of developed technology. The developed technology was valued using a replacement cost approach, which is based on the cost of a market participant to reconstruct a substitute asset of comparable utility. Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and is primarily attributable to the acquired workforce and expected operating synergies. Goodwill is not expected to be deductible for income tax purposes. We incurred approximately $0.3 million of acquisition related costs, which were recorded as general and administrative expenses in fiscal 2019.

The acquisition was a stock transaction for tax purposes. As a result, we recognized a deferred tax liability for approximately $1.4 million, which increased goodwill. As we have a full valuation allowance as of July 31, 2019, we recorded an income tax benefit for this deferred tax liability in the consolidated statement of operations for fiscal 2019. Refer to Note 11, Income Taxes, of these consolidated financial statements for further information.

The fair value of the net assets acquired as of the closing date, including goodwill, consisted of the following:


	Amount		Estimated Useful Life

	(in thousands)
Cash and cash equivalents	$	13
Amortizable intangible assets:
Developed technology	7,000		4 years
Goodwill	7,281
Total assets acquired	14,294
Deferred tax liability	(1,422)
Total	$	12,872

The initial allocation of the purchase price was based on a preliminary valuation and assumptions and is subject to change within the measurement period. We expect to finalize the allocation of the purchase price as soon as practicable but no later than one year from the acquisition date.

In fiscal 2019, we also completed an additional business combination with a purchase price of $1.1 million of which $0.8 million was paid in cash on the acquisition date and $0.3 million is to be paid upon the lapse of an indemnification period within 18 months of the acquisition date. As of July 31, 2019, this holdback amount is reflected within other noncurrent liabilities in the consolidated balance sheets. Intangible assets acquired and goodwill recorded for this acquisition were not material to our consolidated financial statements.

The pro forma financial information assuming these acquisitions had occurred as of the beginning of the fiscal year prior to the fiscal year of the acquisitions, as well as the revenue and earnings generated during the current fiscal year, were not material for disclosure purposes, individually and in the aggregate.