Note 3 - Business Combinations

3 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Business Combination Disclosure [Text Block]

3. Business Combinations

 

RadioPulse, Inc.

On May 1, 2015, we acquired RadioPulse, Inc., or RadioPulse.

Based in Seoul, Korea, RadioPulse is a fabless semiconductor company that develops, manufactures and sells wireless network technology solutions based on the ZigBee protocol, which combines microcontrollers and radio frequency devices. RadioPulse’s solutions are designed to enable a broad range of power-sensitive applications in the industrial, medical, consumer, smart grid and Internet of Things, or IoT, markets. RadioPulse offers a complementary product portfolio to IXYS’ product lines. At closing, we paid cash consideration of $14.7 million. The consideration may also include earnout payments aggregating up to $6.0 million payable over three years. The earnout payments are subject to certain financial thresholds related to net revenues, gross profit and net income. Based on our preliminary valuation the fair value of the liability for the earnout payment is estimated to be nil. In connection with the acquisition, we incurred and expensed $241,000 in legal and consulting costs and $249,000 in acquisition related compensation costs.

The following table summarizes the preliminary values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Preliminary Purchase Consideration Allocation
	(unaudited)
Cash, restricted cash and cash equivalents	$	196
Accounts receivable		1,026
Inventories		532
Property, plant and equipment		24
Prepaid expenses and other current assets		616
Identifiable intangible assets		2,523
Short-term borrowings		(2,354	)
Accounts payable		(614	)
Accruals and other liabilities		(2,633	)
Total identifiable net liabilities		(684	)
Goodwill		15,352
Total purchase consideration	$	14,668

Identifiable intangible assets consisted of developed intellectual property, in-process research and development expenses, customer relationships, and contract backlog. The value reflected in the table represents the preliminary purchase price allocation. We are in the process of completing the valuation of the acquired intangible assets, review and valuation of acquired liabilities and the tax attributes. We did not recognize any liability with respect to the contingent consideration based upon our preliminary analysis. We expect to complete the purchase price allocation by December 31, 2015.

Identified intangible assets resulting from the RadioPulse acquisition based on our preliminary valuation consisted of the following (in thousands):

				Estimated
	Fair Value		Amortization	Useful Life
	(In thousands)		Method	(In months)
	(unaudited)
Developed intellectual property	$	643	Straight-line		60
In-process research and development expenses (1)		598	Straight-line		60
Customer relationships		1,153	Accelerated		36
Contract backlog		129	Straight-line		6
Total	$	2,523

(1) Amortization will start after the completion of the research and development activities of the related projects.

The preliminary valuation of the acquired intangibles was classified as a level 3 measurement under the fair value measurement guidance, because the preliminary valuation was based on significant unobservable inputs and involved management judgment and assumptions about market participants and pricing. In determining the preliminary fair value of the acquired intangible assets, we determined the appropriate unit of measure, the exit market and the highest and best use for the assets. The income approach and cost approach were used to estimate the fair value. The income approach indicates the fair value of an asset based on the value of the cash flows that the asset can be expected to generate in the future through a discounted cash flow method. The income approach was used to determine the fair values of developed intellectual property, in-process research and development expenses, contract backlog and customer relationships. The goodwill arising from the acquisition was largely attributable to the synergies expected to be realized after our acquisition and integration of RadioPulse. The goodwill is not deductible for tax purposes.

RadioPulse contributed net revenues of $1.3 million in our unaudited condensed consolidated statements of operations for the three months ended June 30, 2015. The net loss of RadioPulse during the quarter ended June 30, 2015 was $1.2 million based on the preliminary purchase consideration valuation. The financial statements of RadioPulse were immaterial compared to our financial statements and therefore pro-forma financial statements have not been separately presented.

Other Acquisition

In the quarter ended June 30, 2014, we completed a business acquisition for a cash consideration of $2.3 million, net of cash acquired of approximately $204,000. The acquisition resulted in a goodwill of $2.8 million and we assumed debt of $723,000. The goodwill balance as of June 30, 2015 reflected a cumulative reduction of $520,000 caused by changes in the foreign exchange translation rate. This acquisition was not significant to our unaudited condensed consolidated financial statements.