Business Acquisitions

12 Months Ended

Dec. 31, 2012

Business Combinations [Abstract]

Business Acquisitions

Business Acquisitions

The Company’s business acquisitions are accounted for under the purchase method of accounting in accordance with the FASB’s accounting guidance on the accounting for business combinations. Accordingly, the consideration paid by the Company for the businesses it purchases is allocated to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. Recognized goodwill pertains to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce.

The Company's practice is that, immediately, after a business acquisition is consummated, to tightly integrate all functions including infrastructure, sales and marketing, administrative, product development, so as to ensure that efficiencies are maximized and redundancies eliminated. The Company also centralizes certain key functions such as product development, information technology, marketing, sales, human resources, finance, and other general administrative functions after an acquisition, in order to rapidly leverage cross-selling opportunities and to quickly realize cost efficiencies. By executing this integration strategy it is becomes neither practical nor feasible to accurately and separately track and disclose the earnings from the business combinations we have executed after they have been acquired.

The Company executes accretive business acquisitions in combination with organic growth initiatives as part of its comprehensive business growth and expansion strategy. The Company looks to acquire businesses that are complementary to Ebix's existing products and services.

A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential future cash earnout based on reaching certain specified future revenue targets. The Company recognizes these potential obligations as contingent liabilities as reported on its consolidated balance sheets. As discussed in more detail in Note 1, these contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured quarterly based on the then assessed fair value and adjusted if necessary. As of December 31, 2012, the total of these contingent liabilities was $17.5 million, of which $14.2 million is reported in long-term liabilities, and $3.3 million is included in current liabilities in the Company's Consolidated Balance Sheet. As of December 31, 2011 the total of these contingent liabilities was $7.6 million which were included in current liabilities in the Company's consolidated balance sheet.

    During 2012 the Company received a termination fee in connection with a failed business acquisition. In this regard the Company recorded a reduction to general and administrative expense in the approximate amount of $971 thousand (net of directly related internal operating costs incurred by the Company and a portion of the fee that was paid to our investment banker).

2012 Acquisitions

    During 2012 the Company executed and completed five business acquisitions including PlanetSoft, Inc. which is discussed below; the other acquisitions were not material individually or in the aggregate. The Company accounted for these other four immaterial business acquisitions by recording in the aggregate $23.3 million of goodwill, $7.6 million of intangible assets pertaining to customer relationships, $1.8 million of intangible assets pertaining to acquired technology, $436 thousand of intangible assets for acquired trade names, and $118 thousand of intangible assets for non-compete agreements.

PlanetSoft — Effective June 1, 2012 Ebix closed the merger of California based PlanetSoft Holdings, Inc. ("PlanetSoft"). Under the terms of the merger agreement the former PlanetSoft shareholders received $35.0 million cash and 296,560 shares of Ebix common stock valued at $16.86 per share or $5.0 million in the aggregate. The cash portion of the cash purchase consideration was funded using internal cash reserves and available capacity from the Company's commercial bank revolving line of credit. Furthermore, under the terms of the agreement the PlanetSoft shareholders hold a put option exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying shares of common stock back to the Company at a 10% discount off of the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. The initial fair value of this put option liability was determined to be $1.4 million. This put option is described in more detail in Note 11. PlanetSoft is in the business of powering data exchanges that streamline core insurance operations in the areas of client acquisition, underwriting, and distribution management. $11.4 million of PlanetSoft's operating revenues recognized since June 2012 were included in the Company's revenues reported in its consolidated statement of income for the year ended December 31, 2012. The revenue derived from PlanetSoft's operations is included in the Company's Exchange division. The Company accounted for this acquisition by recording $44.1 million of goodwill, $9.8 million of intangible assets pertaining to customer relationships, and $540 thousand of intangible assets pertaining to acquired technology. The former shareholders of PlanetSoft retain the right to earn up to an additional cash consideration if certain incremental revenue targets are achieved over the two-year anniversary date subsequent to the effective date of the acquisition. The Company has tentatively determined that the approximate fair value of this contingent consideration liability is to be $10.2 million.

2011 Acquisitions

Health Connect Systems. — Effective November 15, 2011, Ebix acquired Health Connect Systems, Inc. (“Health Connect”). Health Connect, with operations based out of Fresno, California, is a leading online Exchange for buyers and sellers of health insurance and employee benefits. Ebix acquired all of the outstanding stock of Health Connect for aggregate cash consideration in the amount of $18.0 million, which was funded with internal resources using available cash reserves. The former shareholders of Health Connect also retained the right to earn up to an additional $4.0 million if certain incremental revenue targets are achieved over the two-year anniversary date subsequent to the effective date of the acquisition, of which $1.2 million has been earned and paid. The Company accounted for this acquisition by recording goodwill in the amount of $20.4 million, and definite lived assets with respect to acquired customer relationships in the amount of $1.2 million and acquired developed technology in the amount of $256 thousand.

ADAM, Inc. —Effective February 7, 2011 Ebix closed the merger of Atlanta, Georgia based ADAM, Inc. ("ADAM")

with a wholly owned subsidiary of Ebix. Under the terms of the merger agreement, all of the ADAM shareholders received 3.65 million shares of Ebix common stock with a fair value of $87.5 million pursuant to the merger. In addition Ebix paid approximately $944 thousand in cash for then unexercised ADAM stock options. ADAM was a leading provider of health information and benefits technology solutions in the United States. $23.1 million of ADAM's operating revenues recognized since February 7, 2011 were included in the Company's revenues reported in its consolidated statement of income for 2011. Correspondingly included in the Company's revenues as reported in its consolidated statement of income for 2012 is $23.5 million of ADAM's operating revenue for the year 2012. The revenue derived from ADAM portfolio of products and services is included in the Company's Exchange division. The Company accounted for this acquisition by recording $60.1 million of goodwill, $15.4 million of intangible assets pertaining to customer relationships, $2.1 million of intangible assets pertaining to acquired technology, and $2.0 million of intangible assets pertaining to acquired trademarks.

The following table summarizes the net assets acquired as a result of the acquisitions that occurred during 2012 and 2011:

	December 31,
(in thousands)	2012			2011
Current assets	$	6,262		$	9,710
Property and equipment	1,328			1,626
Intangible assets	20,246			20,970
Deferred tax asset, (net)	—			9,294
Other assets	202			—
Goodwill	67,376			80,516
Total assets acquired	95,414			122,116
Less: liabilities assumed	(34,302		)	(15,696		)
Net assets acquired	61,112			106,420

The following table summarizes the separately identified intangible assets acquired as a result of the acquisitions that occurred during 2012 and 2011:

	December 31,
	2012			2011
			Weighted Average			Weighted Average
Intangible asset Category	Fair Value		Useful Life	Fair Value		Useful Life
	(in thousands)		(in years)	(in thousands)		(in years)
Customer relationships	$	17,365	10.9	$	16,594	11.7
Developed technology	2,327		4.5	2,406		5.3
Non-compete agreements	118		5.0	—		0.0
Trademarks	436		10.0	1,970		13.4
Total acquired intangible assets	$	20,246	10.1	$	20,970	11.2

Estimated aggregate future amortization expense for the intangible assets recorded as part of the business acquisitions described above and other prior acquisitions is as follows:

Estimated Amortization Expenses (in thousands):
For the year ended December 31, 2013	$	7,067
For the year ended December 31, 2014	6,688
For the year ended December 31, 2015	6,024
For the year ended December 31, 2016	5,705
For the year ended December 31, 2017	5,226
Thereafter	21,881
	$	52,591

The Company recorded $6.1 million, $4.8 million, and $3.7 million of amortization expense related to acquired intangible assets for the years ended December 31, 2012, 2011, and 2010, respectively.