| Acquisitions | 3. ACQUISITIONS
SharpSchool
Effective June 1, 2015, we completed the acquisition of
substantially all of the assets of Intrafinity, Inc., doing
business as SharpSchool, a leading provider of website and content
management system software-as-a-service solutions for the K-12
education market (“SharpSchool”). The purchase price
was approximately $17.2 million and was funded with cash on
hand.
In the preliminary purchase price allocation, goodwill of $8.4
million, partially deductible for tax purposes under Canadian tax
rules governing asset acquisitions, and finite-lived intangible
assets of $8.9 million were recorded. The primary factors that
contributed to a purchase price resulting in the recognition of
goodwill for the acquisition of SharpSchool were the expansion of
our interactive services further into the education vertical market
and anticipated synergies which are expected to result in a more
efficient and faster growing K-12 business for West. SharpSchool
has been integrated into the Interactive Services operating
segment.
SchoolReach
On November 3, 2014, we completed the acquisition of the
assets of GroupCast, L.L.C., a provider of alert and notification
services for corporations, government entities and K-12 school
districts that operates under two brands, GroupCast and SchoolReach
(“SchoolReach”). SchoolReach is a provider of
notification systems for thousands of smaller public school
districts and private schools throughout the United States. The
purchase price was approximately $13.5 million, less a working
capital adjustment of $1.0 million, and was funded with cash
on hand.
In the preliminary purchase price allocation, goodwill of $6.9
million, deductible for tax purposes under U.S. tax rules governing
asset acquisitions, and finite-lived intangible assets of $7.4
million were recorded. The primary factors that contributed to a
purchase price resulting in the recognition of goodwill for the
acquisition of SchoolReach were the expansion of our interactive
services further into the education vertical market and anticipated
synergies. SchoolReach has been integrated into the Interactive
Services operating segment.
911 Enable
On September 2, 2014, we acquired the 911 Enable business of
Connexon Group, Inc. (“911 Enable”), a provider of
emergency communications solutions for IP-based enterprise
customers across the United States and Canada. The purchase price
was approximately $42.4 million and was funded with cash on
hand.
In the preliminary purchase price allocation, goodwill of $20.3
million, deductible for tax purposes under U.S. tax rules governing
asset acquisitions, and finite-lived intangible assets of $21.7
million were recorded. The primary factors that contributed to a
purchase price resulting in the recognition of goodwill for the
acquisition of 911 Enable were the expansion of our enterprise VoIP
911 and safety communications services enabling improved emergency
response services to business, government, education and non-profit
organizations and anticipated synergies. The acquisition has been
integrated into the Safety Services operating segment.
Health Advocate
On June 13, 2014, we acquired Health Advocate, Inc.
(“Health Advocate”), a leading provider of healthcare
advocacy services. The purchase price was approximately $265.9
million and was funded with cash on hand and use of our revolving
trade accounts receivable financing facility.
Health Advocate serves an estimated 10 million subscribers
through more than 10,000 client relationships, including many of
the nation’s largest employers, by helping members personally
navigate healthcare and insurance-related issues, saving them time
and money. Health Advocate leverages the power of pricing
transparency and personalized health communications to help members
make better informed decisions and get more value out of the
healthcare system. Additional services include wellness coaching,
employee assistant programs (EAPs), a nurse line, biometrics
screenings and chronic care solutions. Health Advocate’s
technology platform combined with clinical and health plan and
claims billing experts can support consumers with a wide range of
healthcare or health insurance issues.
In the purchase price allocation, goodwill of $156.0 million, not
deductible for tax purposes under U.S. tax rules governing stock
acquisitions, and finite-lived intangible assets of $152.0 million
were recorded. The primary factors that contributed to a purchase
price resulting in the recognition of goodwill for the acquisition
of Health Advocate were the opportunity to expand our services in
the healthcare industry and anticipated synergies. Further, Health
Advocate’s strong competitive position in the health advocacy
market and Health Advocate’s suite of consumer focused
services and health solutions provide cross-selling opportunities
with our existing healthcare client base. The acquisition of Health
Advocate was integrated into our Specialized Agent Services
operating segment. During the six months ended June 30, 2015,
we made an adjustment to the preliminary purchase price allocation
decreasing goodwill and increasing fixed assets for $1.4 million
and finalized our purchase price allocation.
SchoolMessenger
On April 21, 2014, we acquired Reliance Holdings, Inc., doing
business through its wholly owned subsidiary Reliance
Communications, LLC as SchoolMessenger
(“SchoolMessenger”), a leading provider of notification
and mobile communication solutions for the K-12 education market.
The purchase price was approximately $77.4 million and was funded
with cash on hand.
In the purchase price allocation, goodwill of $50.4 million, not
deductible for tax purposes under U.S. tax rules governing stock
acquisitions, and finite-lived intangible assets of $40.1 million
were recorded. The primary factors that contributed to a purchase
price resulting in the recognition of goodwill for the acquisition
of SchoolMessenger were the opportunity to expand our interactive
services into the adjacent education vertical market and
anticipated synergies. The acquisition was integrated into the
Interactive Services operating segment. During the six months ended
June 30, 2015, we finalized our purchase price allocation for
SchoolMessenger with no adjustments to the preliminary purchase
price allocation.
The following table summarizes the preliminary estimated fair
values of the assets acquired and liabilities assumed at the
respective acquisition dates for SharpSchool, SchoolReach and 911
Enable and the final fair value of assets acquired and liabilities
assumed for the Health Advocate and SchoolMessenger
acquisitions.
SharpSchool SchoolReach 911 Enable Health Advocate SchoolMessenger
(Amounts in thousands)
Working Capital $ (1,036 ) $ (2,073 ) $ 596 $ 1,373 $ (9,751 )
Property and equipment 782 342 59 7,439 1,574
Other assets, net 77
—
— 72
—
Intangible assets 8,900 7,350 21,685 151,990 40,145
Goodwill 8,440 6,923 20,289 156,014 50,386
Total assets acquired 17,163 12,542 42,629 316,888 82,354
Non-current deferred taxes
—
—
— 43,034 4,231
Long-term liabilities
—
— 258 7,964 751
Total liabilities assumed
—
— 258 50,998 4,982
Net assets acquired $ 17,163 $ 12,542 $ 42,371 $ 265,890 $ 77,372
Acquisition costs incurred for prospective acquisitions and
completed acquisitions for the three months ended June 30,
2015 and 2014 of $0.8 million and $1.2 million, respectively,
are included in selling, general and administrative expenses.
Acquisition costs incurred for prospective acquisitions and
completed acquisitions for the six months ended June 30, 2015
and 2014 of $1.6 million and $1.5 million, respectively,
are included in selling, general and administrative expenses.
The excess of the acquisition costs over the fair value of the
assets acquired and liabilities assumed for the purchase of
SharpSchool, SchoolReach and 911 Enable were assigned to goodwill
based on preliminary estimates. We are in the process of completing
the acquisition accounting for certain intangible assets and
liabilities. The process of completing the acquisition accounting
involves numerous time consuming steps for information gathering,
verification and review. We expect to finalize this process within
approximately twelve months following the respective acquisition
dates.
Our acquisitions completed in 2014 and 2015 were included in the
consolidated results of operations from their respective dates of
acquisition and included revenue of $26.2 million and $61.4 million
for the three and six months ended June 30, 2015,
respectively. The net income impact of these acquisitions for the
three and six months ended June 30, 2015 was not material.
Pro forma
Assuming the acquisitions of SharpSchool, SchoolReach, 911 Enable,
Health Advocate and SchoolMessenger occurred as of the beginning of
the periods presented, our unaudited pro forma results of
operations for the three and six months ended June 30, 2015
and 2014 would have been, in thousands (except per share amounts),
as follows:
Three months ended June 30,
Six months ended June 30,
2015 2014 2015 2014
Revenue from continuing operations $ 572,790 $ 577,815 $ 1,139,738 $ 1,146,600
Income from continuing operations $ 49,173 $ 40,252 $ 97,592 $ 79,424
Income per common share from continuing operations-basic $ 0.59 $ 0.48 $ 1.17 $ 0.95
Income per common share from continuing operations-diluted $ 0.57 $ 0.47 $ 1.14 $ 0.93
The pro forma results above are not necessarily indicative of the
operating results that would have actually occurred if the
acquisitions had been in effect on the date indicated, nor are they
necessarily indicative of future results of the combined
company. |
