Acquisitions | 9 Months Ended |
Sep. 30, 2014 |
Business Combinations [Abstract] | ' |
Acquisitions | ' |
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3. Acquisitions |
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Euroscan Holding B.V. |
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On March 11, 2014, pursuant to the Share Purchase Agreement entered into by the Company and MWL Management B.V., R.Q. Management B.V., WBB GmbH, ING Corporate Investments Participaties B.V. and Euroscan Holding B.V., as sellers (the “Share Purchase Agreement”), the Company completed the acquisition of 100% of the outstanding equity of Euroscan Holding B.V., including, indirectly, its wholly-owned subsidiaries Euroscan B.V., Euroscan GmbH Vertrieb Technischer Geräte, Euroscan Technology Ltd. and Ameriscan, Inc. (collectively, the “Euroscan Group” or “Euroscan”) for an aggregate consideration of (i) $29,163 (€20,999), subject to net working capital adjustments and net cash (on a debt free, cash free basis); (ii) issuance of 291,230 shares of the Company’s common stock, valued at $7.70 per share, which reflected the Company’s closing price on the acquisition date; and (iii) additional contingent considerations of up to $6,547, €4,714 (the “Euroscan Acquisition”). As this acquisition was effective on March 11, 2014, the results of operations of Euroscan were included in the condensed consolidated financial statements beginning March 12, 2014. |
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Preliminary Estimated Purchase Price Allocation |
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The transaction has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The excess of the preliminary purchase price over the preliminary net assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a preliminary valuation and the estimates and assumptions are subject to change. The purchase price allocation will be finalized in connection with the final working capital settlement. The Company anticipates finalizing the purchase price allocation by the first quarter of 2015. During the quarter ended September 30, 2014, the Company recorded a measurement period adjustment relating to accounts receivable and other working capital adjustments, which impacted goodwill by $220. The preliminary estimated purchase price allocation for the acquisition is as follows: |
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| | Amount | | | | | |
Cash | | $ | 280 | | | | | |
Accounts receivable | | | 2,852 | | | | | |
Inventory | | | 1,394 | | | | | |
Other current assets | | | 579 | | | | | |
Property, plant and equipment | | | 324 | | | | | |
Intangible assets | | | 17,400 | | | | | |
Other noncurrent assets | | | 543 | | | | | |
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Total identifiable assets acquired | | | 23,372 | | | | | |
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Accounts payable and accrued expenses | | | 2,576 | | | | | |
Deferred revenues | | | 44 | | | | | |
Deferred tax liabilities | | | 4,558 | | | | | |
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Total liabilities assumed | | | 7,178 | | | | | |
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Net identifiable assets acquired | | | 16,194 | | | | | |
Goodwill | | | 20,011 | | | | | |
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Total preliminary purchase price | | $ | 36,205 | | | | | |
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Contingent Consideration |
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Additional consideration is conditionally due to MWL Management B.V. and R.Q. Management B.V. upon achievement of financial and operational milestones. The fair value measurement of the contingent consideration obligation is determined using Level 3 unobservable inputs supported by little or no market activity based on our own assumptions. The estimated fair value of the contingent consideration was determined based on the Company’s preliminary estimates using the probability-weighted discounted cash flow approach. As of September 30, 2014, the Company recorded $2,257 in accrued expenses and $2,849 in other non-current liabilities on the condensed consolidated balance sheet. Changes in the fair value of the contingent consideration obligations are recorded in the condensed consolidated statement of operations. For the quarter and nine months ended September 30, 2014, charges of $137 and $297, respectively, were recorded in SG&A expenses for accretion associated with the contingent consideration. |
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Intangible Assets |
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The estimated fair value of the technology and trademark intangible assets was determined using the “relief from royalty method” under the income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on the costs savings that are available through ownership of the asset by the avoidance of paying royalties to license the use of the assets from another owner. The estimated fair value of the customer lists was determined using the “excess earnings method” under the income approach, which represents the total income to be generated by the asset. Some of the more significant assumptions inherent in the development of those asset valuations include the projected revenue associated with the asset, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, as well as other factors. The discount rate used to arrive at the present value at the acquisition date of the customer lists, technology and trademarks was 17.5%. The remaining useful lives of the technology and trademarks were based on historical product development cycles, the projected rate of technology migration and a market participant’s use of these intangible assets and the pattern of projected economic benefit of these intangible assets. The remaining useful lives of customer lists were based on the customer attrition and the projected economic benefit of these customers. |
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| | Estimated | | | Amount | |
Useful life |
(years) |
Customer lists | | | 12 | | | $ | 14,400 | |
Technology | | | 10 | | | | 2,400 | |
Trademarks | | | 10 | | | | 600 | |
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| | | | | | $ | 17,400 | |
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Goodwill |
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The Euroscan Acquisition allows the Company to complement its North American Operations in M2M by adding a significant distribution channel in Europe and other key geographies where Euroscan has market share. These factors contributed to a preliminary estimated purchase price resulting in the recognition of goodwill. The goodwill recorded as part of the acquisition is partially related to the establishment of a deferred tax liability for the intangible assets which have no tax basis and, therefore, will not result in a future tax deduction. In October 2014, the Company reached a conclusion to make the Internal Revenue Code (“IRS”) Section 338g election to treat the acquisition as a deemed asset sale. The election has been made prospectively and did not have an impact on the opening balance sheet. |
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Indemnification Asset |
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In connection with the Share Purchase Agreement, the Company entered into an escrow agreement with MWL Management B.V., R.Q. Management B.V and an escrow agent. Under the terms of this escrow agreement, €1,000 was placed in an escrow account through March 11, 2016 to fund any indemnification obligations to the Company under the Share Purchase Agreement. Under the terms of the escrow agreement, the escrow amount is subject to reduction and early release to the extent no unresolved claims exist in the amount of €250 at the end of each 6 month interval in the period from March 12, 2014 through March 11, 2016. |
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Sensor Enabled Notification System |
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On October 1, 2013, pursuant the Asset Purchase Agreement entered into by the Company and Comtech Mobile Datacom Corporation (“Comtech”), the Company acquired certain assets and liabilities of Comtech’s Sensor Enabled Notification System (“SENS”) operations for a total cash consideration of $1,978 (the “SENS Acquisition”). The SENS Acquisition gave the Company access to a customer base that included military, international, government and commercial customers, as well as expanded reach in growing regions, such as Middle East, Asia and South America. The Company’s purchase price allocation has been finalized as of September 30, 2014. |
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GlobalTrak |
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On April 3, 2013, pursuant to the Asset Purchase Agreement dated March 13, 2013 among the Company and System Planning Corporation (“SPC” and collectively the “GlobalTrak Asset Purchase Agreement”), the Company acquired certain assets and liabilities of GlobalTrak for total consideration of $2,990 (the “GlobalTrak Acquisition”), of which $500 was deposited in escrow with a third party escrow agent. The GlobalTrak Acquisition gives the Company access to a customer base that includes military, international, government and commercial customers, as well as expanded reach in growing regions, such as the Middle East, Asia and South America. |
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Measurement Period Adjustments |
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In April 2014, the Company reduced warranty liabilities assumed in connection with the GlobalTrak Acquisition. As a result, the Company recorded a measurement period adjustment in April 2014 relating to warranties, which decreased goodwill and warranty liability by $250. The Company’s purchase price allocation has been finalized as of April 2, 2014. |
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Indemnification Asset |
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In April 2014, the Company entered into an agreement with SPC to settle claims relating to breaches of representations and warranties under the GlobalTrak Asset Purchase Agreement. Under the terms of the agreement, SPC agreed to direct the third party escrow agent to release $167 from the escrow and distribute to the Company. Following the settlement of indemnification claims, the Company notified the escrow agent to release the remaining funds from escrow and distribute to SPC. As a result of the settlement, in April 2014 the Company decreased goodwill by $167. |
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MobileNet, Inc. |
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On April 1, 2013, pursuant to an Asset Purchase Agreement dated March 13, 2013 among the Company and MobileNet, Inc. (“MobileNet”), the Company acquired substantially all of the assets of MobileNet for a total consideration $6,404 consisting of cash, shares of common stock and contingent considerations (the “MobileNet Acquisition”). The MobileNet Acquisition enabled the Company to offer MobileNet’s complete fleet management solution directly to original equipment manufacturers, dealers and fleet owners. The Company’s purchase price allocation has been finalized as of March 31, 2014. |
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Contingent Consideration |
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Additional consideration in connection with the MobileNet Acquisition is conditionally due to MobileNet for the achievement of certain service revenue milestones attributable to the MobileNet business. The Company estimated the fair value of the contingent earn-out amounts using a probability-weighted discount model and a discount rate of 18%. The Company recorded a reduction of the contingent liability of $132 and $902 in SG&A expenses in the condensed consolidated statement of operations in the quarter and nine months ended September 30, 2014, respectively. As of September 30, 2014 the balance of the contingent liability, recorded in accrued expenses on the condensed consolidated balance sheet, was $16. As of December 31, 2013, the balance of the contingent liability, recorded in other liabilities on the consolidated balance sheet was $918. |
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LMS |
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On January 12, 2012, pursuant to an Asset Purchase Agreement dated December 23, 2011 among the Company, StarTrak Logistics Management Solutions, LLC, PAR Technology Corporation, PAR Government Systems Corporation (collectively “PAR”) and Par Logistics Management Systems Corporation (“LMS”), the Company acquired the assets and assumed certain liabilities of LMS, a wholly-owned subsidiary of PAR, for consideration of $6,863 consisting of cash, shares of common stock and contingent considerations (the “LMS Acquisition”). The LMS Acquisition enhanced the Company’s position in transportation solutions and expanded its satellite, terrestrial and dual mode offerings. |
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Contingent Consideration |
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Additional consideration in connection with the LMS Acquisition is conditionally due to PAR upon the achievement of certain sales targets through 2014. The Company estimated the fair value of the contingent earn-out amounts using a probability-weighted discounted cash flow model. In April 2014, the Company paid $25 to PAR in connection with the achievement of the first tranche of milestones as set forth in the LMS Asset Purchase Agreement. As of September 30, 2014, the balance of the contingent liability of $207 was recorded in accrued expenses on the condensed consolidated balance sheet. As of December 31, 2013, $24 and $184 was included in accrued liabilities and other liabilities on the consolidated balance sheet, respectively. For the quarter and nine months ended September 30, 2014, charges of $8 and $24 were recorded in SG&A expenses for accretion associated with the contingent consideration, respectively. |
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StarTrak |
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On May 16, 2011, pursuant to an Asset Purchase Agreement dated February 23, 2011 among the Company, Alanco Technologies (“Alanco”) and StarTrak Systems, LLC (“StarTrak”), the Company acquired substantially all of the assets of StarTrak, a wholly-owned subsidiary of Alanco, for total consideration of $18,242 (“the StarTrak Acquisition”). The acquisition of StarTrak enabled the Company to create a global technology platform to transfer capabilities across new and existing vertical markets and deliver complementary products to the Company’s channel partners and resellers worldwide. |
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Warranty Liabilities and Escrow Agreement |
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As a result of the StarTrak Acquisition, the Company recorded warranty obligations on StarTrak’s product sales, which provide for costs to replace or fix the product. One-year warranty coverage is accrued on product sales which provide for costs to replace or fix the product. |
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Additionally, in connection with the StarTrak Acquisition, the Company entered into an escrow agreement with Alanco. Under the terms of the escrow agreement, 166,611 shares of common stock were issued to Alanco and placed in an escrow account to cover 50% of certain costs relating to fuel sensor warranty obligations incurred by the Company. On February 24, 2014 the Company and Alanco entered into a settlement agreement to distribute the 166,611 shares of common stock from the escrow account to Alanco. In consideration for agreeing to distribute these shares of common stock, the Company received $691 from Alanco. The Company recorded a loss of $0 and $97 for the difference between the value of the indemnification asset and the amount received from Alanco, which was recorded in SG&A expenses in the condensed consolidated statements of operations in the quarter and nine months ended September 30, 2014, respectively. In addition, the Company recorded a gain of $126 on the fair value of the common stock held in escrow. This gain was recorded as a reduction to SG&A expenses in the condensed consolidated statement of operations in the nine months ended September 30, 2014. |