Acquisitions | 3 Months Ended |
Mar. 31, 2015 |
Business Combinations [Abstract] | |
Acquisitions | 3. Acquisitions |
SkyWave Mobile Communications Inc. |
On January 1, 2015, pursuant to an Arrangement Agreement dated November 1, 2014, among the Company, the Company’s acquisition subsidiary, SkyWave Mobile Communications Inc. (“SkyWave”) and the representatives of certain SkyWave shareholders, the Company completed the acquisition of 100% of the outstanding shares of SkyWave for total consideration of $130,503, subject to net working capital adjustments, consisting of (i) $123,003 cash consideration, of which $11,103 was deposited in escrow in connection with certain indemnification obligations; and (ii) $7,500 in the form of a promissory note settled by the transfer of assets to Inmarsat Global Limited (“Inmarsat”) pursuant to an agreement with Inmarsat (the “SkyWave Acquisition”). The $7,500 note was not considered part of the purchase price for accounting purposes. Net revenues generated from the SkyWave acquisition represented $14,638 of our consolidated net revenues for the quarter ended March 31, 2015. |
Preliminary Estimated Purchase Price Allocation |
The transaction has been accounted for using the acquisition method of accounting in accordance with ASC Topic 805 “Business Combinations.” 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 “Acquisition Method”). The excess of the purchase price over the 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 total consideration for the SkyWave Acquisition was $123,003 in a debt-free cash-free transaction. The preliminary purchase price allocation for the acquisition, net of the assets transferred to Inmarsat, is as follows: |
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| | | | | | |
| | Amount | | | |
Cash | | $ | 110 | | | |
Accounts receivable | | | 13,898 | | | |
Inventory | | | 1,335 | | | |
Other current assets | | | 2,180 | | | |
Property, plant and equipment | | | 4,769 | | | |
Intangible assets | | | 67,214 | | | |
Other noncurrent assets | | | 6,143 | | | |
| | | | | | |
Total identifiable assets acquired | | | 95,649 | | | |
| | | | | | |
Accounts payable and accrued expenses | | | 9,983 | | | |
Deferred revenues | | | 340 | | | |
Other liabilities | | | 1,168 | | | |
Deferred tax liabilities | | | 18,635 | | | |
| | | | | | |
Total liabilities assumed | | | 30,126 | | | |
| | | | | | |
Net identifiable assets acquired | | | 65,523 | | | |
Goodwill | | | 57,480 | | | |
| | | | | | |
Total purchase price | | $ | 123,003 | | | |
| | | | | | |
Intangible Assets |
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 “Technology and Trademark Valuation Technique”). 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 “Customer List Valuation Technique”). The discount rate used to arrive at the present value at the acquisition date of the customer lists, technology and trademarks was 23%. 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. |
| | | | | | |
| | Estimated | | Amount | |
Useful life |
(years) |
Customer lists | | 10 | | $ | 59,371 | |
IDP Technology | | 10 | | | 5,463 | |
M2M and DGS Technology | | 5 | | | 1,318 | |
Trademarks | | 5 | | | 1,062 | |
| | | | | | |
| | | | $ | 67,214 | |
| | | | | | |
Goodwill |
The SkyWave Acquisition furthers the Company’s strategy to provide the most complete set of options and capabilities in the industry. SkyWave’s distribution channels in South America, Asia and the Middle East, along with Inmarsat’s support, provide the Company with a broader global distribution and provides the Company access to new geographies in Eastern Europe and Asia while adding diverse vertical markets such as security and marine. The addition of SkyWave’s higher bandwidth, low-latency satellite products and services that leverage the IsatDataPro (IDP) technology, which is now jointly owned by the Company and Inmarsat, also further expands the breadth of the Company’s solutions portfolio. These factors contributed to a preliminary estimated purchase price resulting in the recognition of goodwill. The Company intends to make the Internal Revenue Code (“IRS”) Section 338(g) election to treat the acquisition as a deemed asset sale. The goodwill attributable to the acquisition is not deductible for tax purposes. |
Indemnification Asset |
In connection with the Arrangement Agreement, the Company and its acquisition subsidiary entered into an escrow agreement with the representatives of certain SkyWave shareholders and an escrow agent. Under the terms of this escrow agreement, (i) $9,750 was placed in an indemnity escrow account to be held through March 31, 2016 to fund any indemnification obligations to the Company under the Arrangement Agreement; (ii) $850 was placed in a pre-closing tax escrow account through the date on which all applicable statutes of limitations (as the same may be extended or waived) for each pre-closing tax period ending on or after June 30, 2009 have expired to fund any indemnification obligations to the Company against any pre-close tax liabilities due; and (iii) $503 was placed in a working capital escrow account to fund any working capital obligations as described under the Arrangement Agreement. |
Unaudited Pro Forma Results of Operation |
The following table presents the unaudited pro forma consolidated operating results for the Company, as though the SkyWave Acquisition had occurred as of the beginning of the prior annual reporting period. The unaudited pro forma results reflect certain adjustments related to past operating performance, the impact of the acquisition financing, acquisition costs and acquisition accounting adjustments, such as increased depreciation and amortization expense based on the fair valuation of assets acquired and the related tax effects. The pro forma results do not include any anticipated synergies which may be achievable subsequent to the acquisition date. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor are they indicative of the future operating results of the combined company: |
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| | | | | | |
(in thousands; except per share amounts) | | Quarter | | | |
ended | | |
March 31, | | |
2014 | | |
Net revenues | | | 33,600 | | | |
Net (loss) attributable to common shareholders | | | (3,033 | ) | | |
Earnings per share: | | | | | | |
Basic | | | (0.05 | ) | | |
Diluted | | | (0.05 | ) | | |
InSync, Inc |
On January 16, 2015, pursuant to a Share Purchase Agreement entered into by the Company, IDENTEC Group AG (“IDENTEC”) and InSync Software, Inc. (“InSync”), the Company completed the acquisition of 100% of the outstanding shares of InSync from IDENTEC for an aggregate consideration of (i) $11,100 in cash, comprised of various components and subject to net working capital adjustments, of which $1,320 was deposited in escrow in connection with certain indemnification obligations; and (ii) additional contingent consideration of up to $5,000 (the “InSync Acquisition”). Net revenues generated from the InSync acquisition represented $463 of our consolidated net revenues for the quarter ended March 31, 2015. |
Preliminary Estimated Purchase Price Allocation |
The transaction has been accounted for using the Acquisition Method. The excess of the purchase price over the net assets was recorded as goodwill. The preliminary estimated purchase price allocation for the acquisition is as follows: |
|
| | | | | | |
| | Amount | | | |
Cash | | $ | 288 | | | |
Accounts receivable | | | 1,141 | | | |
Other current assets | | | 204 | | | |
Deferred tax assets | | | 2,342 | | | |
Property, plant and equipment | | | 51 | | | |
Intangible assets | | | 5,879 | | | |
Other noncurrent assets | | | 54 | | | |
| | | | | | |
Total identifiable assets acquired | | | 9,959 | | | |
| | | | | | |
Accounts payable and accrued expenses | | | 1,180 | | | |
Deferred revenues | | | 152 | | | |
Deferred tax liabilities | | | 2,342 | | | |
| | | | | | |
Total liabilities assumed | | | 3,674 | | | |
| | | | | | |
Net identifiable assets acquired | | | 6,285 | | | |
Goodwill | | | 5,357 | | | |
| | | | | | |
Total preliminary purchase price | | $ | 11,642 | | | |
| | | | | | |
Contingent Consideration |
Additional consideration is conditionally due to IDENTEC upon achievement of certain financial 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 real options approach. As of March 31, 2015, the Company recorded $542 in other liabilities on the condensed consolidated balance sheet. |
Intangible Assets |
The estimated fair value of the technology and trademark intangible assets was determined using Technology and Trademark Valuation Technique as defined above. The estimated fair value of the customer lists was determined using the Customer List Valuation Technique as defined above. The discount rate used to arrive at the present value at the acquisition date of the customer lists, technology and trademarks was 15%. 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. |
|
| | | | | | |
| | Estimated | | Amount | |
Useful life |
(years) |
Customer lists | | 14 | | $ | 5,056 | |
Technology | | 10 | | | 632 | |
Trademarks | | 10 | | | 191 | |
| | | | | | |
| | | | $ | 5,879 | |
| | | | | | |
Goodwill |
The InSync Acquisition supports the Company’s strategy to provide the most complete set of applications and capabilities in the M2M industry, while broadening the Company’s market access to a wide range of industries. With the addition of InSync’s versatile, turn-key software applications, the Company will enable its customers to rapidly build and deploy M2M enterprise solutions in core markets including transportation & distribution, cold chain, warehousing, supply chain, yard management, and manufacturing. These factors contributed to a preliminary estimated purchase price resulting in recognition of goodwill. The goodwill attributable to the acquisition is not deductible for tax purposes. |
Indemnification Asset |
In connection with the Share Purchase Agreement, the Company entered into an escrow agreement with IDENTIC and an escrow agent. Under the terms of the agreement, $1,320 was placed in an escrow account to be held through April 16, 2016 to fund any indemnification obligations to the Company under the Share Purchase Agreement. |
Euroscan Holding B.V. |
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 subject to net working capital adjustments, which have not yet been finalized, 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 (the “Euroscan Acquisition”). The Euroscan Acquisition allows the Company to complement its North American Operations in M2M by adding significant distribution channel in Europe and other key geographies where Euroscan has market share. |
Contingent Consideration |
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 March 31, 2015, the Company recorded $992 in accrued expenses and $2,748 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 three months ended March 31, 2015, charges of $88 were recorded in selling, general and administrative expenses for accretion associated with the contingent consideration. |