Acquisitions

EnVerv, Inc. (“EnVerv”)

On January 13, 2015, the Company completed the acquisition of select assets of EnVerv, a privately-held supplier of power line communications (“PLC”) and Smart Grid solutions targeted at advanced metering infrastructure, home energy management systems and Internet of Things applications. Semtech paid $4.9 million in cash at closing.

Total acquisition consideration will be allocated to the acquired tangible and intangible assets and assumed liabilities of EnVerv based on their respective estimated fair values as of the acquisition date. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed will be allocated to goodwill. The Company is currently in the process of evaluating the fair values of the acquired intangible assets and goodwill assumed in the business combination. As of January 25, 2015, based on the Company’s preliminary estimates, $1.4 million of the total acquisition consideration has been allocated to core technologies and the remaining $3.4 million has been allocated to goodwill. The Company expects that all such goodwill will be deductible for tax purposes.

The purchase price allocation for the EnVerv acquisition is preliminary and will be finalized upon collection of information regarding the fair values of assets and liabilities acquired. The primary areas of the preliminary purchase price allocation that are not yet finalized include fair values of certain tangible assets and liabilities acquired, identifiable intangible assets, certain legal matters, income and non-income based taxes, residual goodwill, the allocation of goodwill to reporting units, and its impact on segment reporting.The Company expects to complete the purchase price allocation for its acquisition of EnVerv in the second quarter of fiscal year 2016.

Net revenues and earnings attributable to EnVerv since the acquisition date were not material. Pro forma results of operations have not been presented as EnVerv’s annual operating results are not material to the Company’s consolidated financial statements.

Gennum Corporation (“Gennum”)

On March 20, 2012, the Company, through its wholly-owned subsidiary Semtech Canada Inc., completed the acquisition of all outstanding equity interests of Gennum (TSX: GND), a leading supplier of high-speed analog and mixed-signal semiconductors for the optical communications and video broadcast markets.

Upon consummation of the business acquisition, which constituted a change in control of Gennum, Gennum’s stock option awards and restricted shares became fully vested. Semtech acquired 100% of the outstanding shares and vested stock options, restricted shares, and deferred share units of Gennum for CDN $13.55 per share for a total purchase price of $506.5 million. The acquisition was financed with a combination of cash from Semtech’s international cash reserves and $347.0 million of five-year secured term loans, net of original issuance debt discount of $3.0 million.

The Gennum assets acquired and liabilities assumed are recorded at their acquisition-date fair values. Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. The goodwill resulted from expected synergies from the transaction, including complementary products that will enhance the Company’s overall product portfolio, and opportunities within new markets, and is not deductible for tax purposes. The acquired in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date until the completion or abandonment of the associated research and development efforts.

In connection with the acquisition, certain Gennum employees became entitled to payments upon a change in control and their subsequent termination. These payments, which totaled approximately $9.6 million, have been recognized as a post-acquisition compensation expense and included in the consolidated statements of operations for fiscal year 2013 under “Selling, general and administrative.”

The Company’s allocation of the total purchase price as of March 20, 2012 is summarized below:



(in thousands)	At March 20, 2012
Cash	$	19,664
Accounts receivable, less allowances	14,032
Inventories	62,941
Prepaid expenses	3,832
Income taxes receivable	1,467
Deferred tax assets - current	8,590
Other current assets	7,804
Property, plant and equipment	25,702
Amortizable intangible assets	129,863
In-process research and development	29,100
Goodwill	261,891
Deferred tax assets - non-current	31,235
Other non-current assets	8
Deferred tax liabilities	(47,077		)
Accounts payable	(18,232		)
Accrued liabilities	(24,274		)
Total acquisition consideration	$	506,546
(in thousands)	At March 20, 2012
Amortizable intangible assets:
Developed technology	$	95,100
Customer relationships	28,000
Other intangible assets	6,763
	$	129,863

Primarily due to a change in the preliminary allocation of fair value with regard to deferred tax assets and liabilities, the preliminary goodwill allocation related to Gennum decreased by $0.9 million from $262.8 million as of October 28, 2012 to $261.9 million as of January 27, 2013.

The Company completed the purchase price allocation for its acquisition of Gennum as of January 27, 2013.

The Company recognized approximately $1.7 million and $24.8 million of transaction and integration related costs in fiscal year 2014 and 2013, respectively associated with the Gennum acquisition in fiscal year 2013. These costs are included in the consolidated statements of operations under “Selling, general and administrative.”

In May 2012, the Company settled two pre-acquisition contingencies related to legal matters that were included in the purchase price allocation for a total cash payment of $4.2 million.

For fiscal year 2013 the Company recognized the following net revenue and corresponding net income (loss) attributable to Gennum:



	Fiscal Year Ended
(in thousands)	January 27, 2013
Net revenue - Gennum	$	129,558
Net loss - Gennum	$	(36,546	)

Pro Forma Financial Information

The results of operations of Gennum have been included in the Company’s consolidated statements of operations since the acquisition date of March 20, 2012. The following table reflects the unaudited consolidated pro forma information as if the acquisition had taken place at the beginning of each period presented, after giving effect to certain adjustments including the following for fiscal years 2013:


•	decrease in cost of goods sold associated with the fair value adjustment related to acquired inventory of $39.4 million for fiscal year 2013;


•	increase in operating expense as a result of the settlement of two pre-acquisition contingencies related to legal matters of $4.2 million for fiscal year 2013;


•	decrease in amortization expense as a result of acquired intangible assets of $1.6 million for fiscal year 2013;


•	decrease in benefit for taxes of $23.4 million associated with the releasing of prior accrued taxes on foreign earnings for fiscal year 2013;


•	increase in interest expense of $1.7 million associated with the $350.0 million term loans entered into to finance the acquisition for fiscal year 2013; and


•	the related tax effects.

Unaudited Consolidated Pro forma Information:



	Fiscal Year Ended
	January 27, 2013
(in thousands)	(unaudited)
Revenue	$	603,067
Net income	$	56,980

The unaudited pro forma information presented does not purport to be indicative of the results that would have been achieved had the acquisition been consummated at the beginning of each period presented nor of the results which may occur in the future. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The unaudited pro forma information does not include any adjustments for any restructuring activities, operating efficiencies or cost savings.

Cycleo SAS (“Cycleo”)

On March 7, 2012, the Company completed the acquisition of Cycleo, a privately-held company based in France that develops intellectual property (“IP”) for wireless long-range semiconductor products used in smart metering and other industrial and consumer markets. Under the terms of the purchase agreement, Semtech paid the stockholders of Cycleo $5.0 million in cash at closing.

Total acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Cycleo based on their respective estimated fair values as of the acquisition date. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. The Company expects that all such goodwill will not be deductible for tax purposes.

The Company completed the purchase price allocation for its acquisition of Cycleo in fiscal year 2013.

Additionally, pursuant to the terms of the amended earn-out arrangement (“Amended Earn-out”) with the former Cycleo stockholders (“Earn-out Beneficiaries”), the Company potentially may make payments totaling up to approximately $16.0 million based on the achievement of a combination of certain revenue and operating income milestones by Cycleo over a defined period (“Defined Earn-out Period”). In the fourth quarter of fiscal year 2015, the Company and the Earn-Out Beneficiaries agreed to amend the term of the Defined Earn-out Period. Under the original definition, the Defined Earn-out Period covered the period April 30, 2012 to May 1, 2016. Under the amended definition the Defined Earn-Out period covers the period April 27, 2015 to April 26, 2020.

For certain of the Cycleo stockholders, payment of the earn-out liability is contingent upon employment on the payout date and is accounted for as post-acquisition compensation expense over the service period. The portion of the earn-out liability that is not dependent on continued employment is included in the purchase price allocation at March 7, 2012. See Note 15.

Net revenues and earnings attributable to Cycleo since the acquisition date were not material. Pro forma results of operations have not been presented as the acquisition was not material to the Company’s consolidated financial statements.