| 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 $130,203
consisting of (i) $122,703 cash consideration, inclusive of a
working capital settlement of $300, of which $10,600 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.
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
Amount
Cash $ 110
Accounts receivable 14,028
Inventory 1,335
Other current assets 2,180
Property, plant and equipment 4,769
Intangible assets 67,214
Other noncurrent assets 6,108
Total identifiable assets acquired 95,744
Accounts payable and accrued expenses 9,987
Deferred revenues 1,117
Other liabilities 1,168
Deferred tax liabilities 17,527
Total liabilities assumed 29,799
Net identifiable assets acquired 65,945
Goodwill 56,758
Total preliminary purchase price $ 122,703
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
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. During the quarter ended June 30,
2015, the Company and the representative of the SkyWave
shareholders agreed to a working capital settlement of $300,
reducing the purchase price to $122,703.
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 debt issued, 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:
(in thousands; except per share
amounts) Quarter Six months
Net revenues $ 39,897 $ 73,557
Net income (loss) attributable to common shareholders $ 349 $ (2,665 )
Earnings per share:
Basic $ 0.01 $ (0.04 )
Diluted $ 0.01 $ (0.04 )
InSync, Inc.
On January 16, 2015, pursuant to a Share Purchase Agreement
entered into by the Company, IDENTEC Group AG
(“IDENTEC” or the “Sellers”) 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”).
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 allocation of the purchase
price was based upon a preliminary valuation and the estimates and
assumptions are subject to change during the one year measurement
period. During the quarter ended June 30, 2015, the
Company recorded a measurement period adjustment related to the
intangible asset valuation and other working capital accounts,
which increased goodwill by $189. The total consideration for the
InSync Acquisition was $11,642 in a debt-free cash-free
transaction. The preliminary estimated purchase price allocation
for the acquisition, net of the estimated fair value of the
contingent consideration, 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 5,788
Other noncurrent assets 55
Total identifiable assets acquired 9,869
Accounts payable and accrued expenses 1,181
Deferred revenues 250
Deferred tax liabilities 2,342
Total liabilities assumed 3,773
Net identifiable assets acquired 6,096
Goodwill 5,546
Total preliminary purchase price $ 11,642
Contingent Consideration
Additional consideration is conditionally due to the Sellers 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
probability-weighted discounted cash flow approach. The Company
recorded a reduction of the contingent liability of $534 in
Selling, General and Administrative (“SG&A”)
expenses in the condensed consolidated statement of operations in
the quarter and six months ended June 30, 2015. As of
June 30, 2015, the Company recorded $25 in accrued expenses 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. The estimated fair value of the customer lists was
determined using 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 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
Customer lists 14 $ 5,056
Technology 10 632
Trademarks 4 100
$ 5,788
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 the Sellers and an escrow
agent. Under the terms of the agreement, $1,320 was placed in an
escrow account 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, inclusive of 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
(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 June 30, 2015, the Company recorded
$1,999 in accrued expenses and $1,830 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 six months ended June 30, 2015, charges of $88
and $176, respectively, were recorded in SG&A expenses in the
condensed consolidated statement of operations for accretion
associated with the contingent consideration. |
