Acquisition And Dispositions | 3. Acquisition s and Dispositions Acquisition of Veracity On July 31, 2019, the Company acqui red Veracity Consulting Group, LLC (“Veracity”), a fast-growing, digital transformation firm based in Richmond, Virginia, that delivers innovative solutions to the Fortune 500 and leading healthcare organizations. The acquisition of Veracity is a step in accelerating the Company ’s stated objective to enhance its digital capabilities and allows the Company to offer comprehensive end-to-end solutions to its clients by combining Veracity’s customer-facing offerings with the Company ’s depth of experience in transforming the back office. The Company paid initial cash consideration of $30.3 million (net of $2.1 million cash acquired). The initial consideration is subject to final adjustments for the impact of the Internal Revenue Code Section 338(h)(10) joint election between the Company and former owners of Veracity and working capital as defined in the purchase agreement. In addition, the purchase agreement requires earn-out payments to be made based on performance after each of the firs t and second anniversary of the acquisition date . The Company is obligated to pay the former owners of Veracity contingent consideration if certain earnings before interest, taxes, depreciation and amortization (“E BITDA ”) requirement s a re achieved . In determining the fair value of the contingent consideration liability, t he Company used the Monte Carlo simulation modeling which included the application of an appropriate discount rate (Level 3 fair value) . Each reporting period, the Company will estimate changes in the fair value of contingent consideration and any change in fair value will be recognized in the Company’s Consolidated Statements of Operations. T he estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential EBITDA results and discount rates. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore could materially affect the Company’s future operating results. During the quarter ended August 24, 2019, the Company made an initial provisional allocation of the purchase price for Veracity based on the fair value of the assets acquired and liabilities assumed, with the residual amount recorded as goodwill, in accordance with Accounting Standards Codification (“ASC”) 805. The Company’s initial purchase price allocation considered a number of factors, including the valuation of identifiable intangible assets and contingent consideration. During the three months ended November 23, 2019, the Company adjusted the previously reported provisional allocation of the purchase price to reflect new information, which resulted in changes in expected future performance and cash flows as of the acquisition date. The following table provides a summary of the provisional purchase price allocation previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended August 24, 2019 and the remeasured purchase price allocation as of the acquisition date: Fair value of consideration transferred (in thousands): As Previously Reported Adjustments As Adjusted Cash $ 32,349 $ (35) $ 32,314 Estimated initial contingent consideration 10,400 (4,110) 6,290 Total $ 42,749 $ (4,145) $ 38,604 Recognized provisional amounts of identifiable assets acquired and liabilities assumed (in thousands): Cash and cash equivalents $ 2,056 $ - $ 2,056 Accounts receivable 3,413 (114) 3,299 Prepaid expenses and other current assets 116 - 116 Intangible assets: Backlog ( 17 months useful life) 680 530 1,210 Customer relationships ( 7 years useful life) 11,050 (1,750) 9,300 Trademarks ( 3 years useful life) 560 10 570 Property and equipment 121 (4) 117 Total identifiable assets 17,996 (1,328) 16,668 Accounts payable 316 (11) 305 Accrued expenses and other current liabilities 712 712 Total liabilities assumed 1,028 (11) 1,017 Net identifiable assets acquired 16,968 (1,317) 15,651 Goodwill 25,781 (2,828) 22,953 Net assets acquired $ 42,749 $ (4,145) $ 38,604 The remeasured purchase price allocation above may be subject to further adjustments during the measurement period if new information is obtained about facts and circumstances that existed as of the acquisition date. A final determination of fair value of assets acquired and liabilities assumed relating to the acquisition could differ from the stated purchase price allocation. As of the acquisition date, the gross contractual amount of accounts receivable of $3.3 million was expected to be fully collected. As of November 23, 2019, the Company further estimated the change in fair value of contingent consideration from the remeasured value included in the table above. The resulting increase in fair value was $0.2 million, bringing the contingent consideration liability to $6.4 million as of November 23, 2019, of which $3.1 million was included in Other current liabilities and $3.3 million was included in Long-term liabilities in the Consolidated Balance Sheets. The change in fair value of contingent consideration from the remeasurement was recorded in selling, general and administrative expenses in the Consolidated Statement of Operations for the three months ended November 23, 2019. Results of operations of Veracity are included in the Consolidated Statements of Operations from the date of acquisition. Veracity contributed $5.8 million and $7.2 million to consolidated revenue and $1.2 million and $1.5 million to income from operations in the three and six months ended November 23, 2019, respectively. During the six months ended November 23, 2019, the Company incurred $0.6 million in acquisition costs which were recorded in selling, general and administrative expenses in the Consolidated Statement of Operations. Prior Period Acquisitions During fiscal 2018, the Company completed two acquisitions, the acquisition of Taskforce – Management on Demand AG (“Taskforce”) and Accretive Solutions, Inc. (“Accretive”). See Note 3 to the consolidated financial statements included in Part II, Item 8 in the Fiscal Year 2019 Form 10-K for additional detail. During the three and six months ended November 23, 2019, the Company decreased the remaining estimated contingent consideration payment to the sellers of Taskforce by $0.3 million and $0.4 million, respectively. These amounts were included in selling, general and administrative expenses in the Consolidated Statements of Operations for the respective periods. In addition, during the three months ended November 23, 2019, the Company reached a final settlement on a pre-acquisition claim with the seller of Accretive. As a part of the settlement, the Company issued 82,762 shares of common stock to the seller and received $0.6 million i n cash from the escrow. The resulting gain of $0.5 million was included in Other (income) expense in the Consolidated Statements of Operations. Dispositions On September 2, 2019, the Company completed the sale of certain assets and liabilities of its foreign subsidiary, Resources Global Professionals Sweden AB, to Capacent Holding AB (publ), a Swedish public company, for SEK1,016,862 (approximately $105,000 ) in cash resulting in a loss on sale of assets of approximately $38,000 . As a part the sale, the Company transferred the majority of its local customer contracts, the existing office lease as well as all of its employee consultants. The Company expects to continue to serve its global client base in the Sweden market. In addition, during the first quarter of fiscal 2020, the Company substantially exited the Belgium market. The Company expects to complete the remaining exit activities in Belgium during the third quarter of fiscal 2020, including an analysis of the potential tax benefits that may result from the exit activities. As a result of the foregoing sale of assets and exit activities, the Company incurred costs of approximate ly $0.7 mill ion for the three and six months ended November 23, 2019, primarily related to employee termination benefits. Neither the Sweden nor the Belgium markets were considered strategic components of the Company’s operations. |