Acquisition | 12 Months Ended |
Dec. 31, 2013 |
Business Combinations [Abstract] | ' |
Acquisition | ' |
Acquisitions |
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Taylor Executive Consultancy Latam S. de R.L. |
On November 5, 2013, the Company acquired Taylor executive Consultancy Latam S. de R.L. ("Taylor Consultancy"), a Mexico-based executive search firm. The purchase price consists of $0.2 million of initial cash payment, and a contingent consideration based on certain revenue targets, ranging from zero to $0.7 million. As a result, the Company recorded $0.1 million, representing the fair value of contingent consideration. As part of purchase price allocation, the Company recorded $0.1 million of identifiable intangible assets, and $0.2 million of goodwill. The acquisition is not considered material, and therefore, pro-forma information has not been presented. |
Augmentum Consulting, Ltd. |
On May 2, 2013, the Company acquired a 51% controlling ownership interest in Augmentum Consulting, Ltd. ("Augmentum"), a London based search firm. This acquisition complements CTPartners' existing UK business in a variety of practice areas, provides increased competitive advantage and enhances growth opportunity. |
The Company paid $1.5 million in cash on the acquisition date, recorded a seller note payable valued at $2.5 million, payable in two installments on August 31, 2014 and 2015, and a redeemable noncontrolling interest of $3.8 million. The aggregate maximum purchase price may be adjusted based on certain revenue targets over 3 years, not to exceed $8.6 million in total. |
The following table summarizes the fair values of the consideration transferred, assets acquired and liabilities assumed, at acquisition date: |
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Fair value of consideration transferred: | | | | | | |
Cash | $ | 1,500 | | | | | | |
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Seller note payable for contingent consideration | 2,490 | | | | | | |
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Total | 3,990 | | | | | | |
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Fair value of redeemable noncontrolling interest | 3,849 | | | | | | |
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| $ | 7,839 | | | | | | |
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Recognized amounts of identifiable assets acquired and liabilities assumed | | | | | | |
Cash | $ | 667 | | | | | | |
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Accounts receivable | 2,044 | | | | | | |
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Other assets | 96 | | | | | | |
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Trade names and trademarks | 204 | | | | | | |
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Database content | 835 | | | | | | |
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Customer relationships | 474 | | | | | | |
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Non-competition agreements | 79 | | | | | | |
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Property and equipment | 43 | | | | | | |
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Accounts payable and accrued expenses | (1,725 | ) | | | | | |
Total identifiable net assets | 2,717 | | | | | | |
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Goodwill | 5,122 | | | | | | |
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Total fair value of assets acquired and liabilities assumed | $ | 7,839 | | | | | | |
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The weighted average useful life of total amortizable intangible assets acquired is 8.5 years. |
The acquisition of Augmentum includes a contingent consideration arrangement, that allows for adjustment of payments based upon achievement of certain revenue targets over the next three years. The range of undiscounted amounts that the Company could pay for the contingent part of its 51% controlling ownership interest is between zero and $2.9 million, denominated in British pounds and translated at the rate in effect at the end of reporting period. |
The Company has the right to call the remaining 49% interest in Augmentum after August 2, 2014, and Augmentum shareholders have the right to put the remaining 49% interest after September 1, 2014 if the call option has not been exercised, at a pre-determined price, adjustable based on Augmentum's performance. The put option expires on September 12, 2014, if not exercised, and the call option continues to exist indefinitely. The purchase price for the non-controlling interest is determined based on the same formula as contingent consideration, with maximum amount payable of $4.3 million, denominated in British pounds and translated at the rate in effect at the end of the reporting period. As of December 31, 2013, the redemption value of non-controlling interest was $4.1 million. |
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Activity related to the noncontrolling redeemable interest is as follows: |
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Beginning balance on January 1, 2013 | $ | — | | | | | | |
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Noncontrolling redeemable interest recorded in acquisition of Augmentum | 3,765 | | | | | | |
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Net loss attributable to noncontrolling redeemable interest | (138 | ) | | | | | |
Redemption value adjustment | 138 | | | | | | |
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Foreign currency | 323 | | | | | | |
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Ending balance on December 31, 2013 | $ | 4,088 | | | | | | |
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The fair value of contingent consideration and the fair value of noncontrolling interest, including the value of the put and the call options, is contingent upon the acquired business revenues, and was estimated through the use of the Monte Carlo model. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement. These fair value measurements are based on (i) an assumed revenue forecast, (ii) an assumed discount rate of 6.5%, and (iii) assumed market volatility rate range of 10%-12.5% based on the volatility data for companies similar to Augmentum. The fair value of the note payable for contingent consideration recognized on the acquisition date was $2.5 million, and the fair value of the redeemable noncontrolling interest was $3.8 million. There have been no changes in the assumptions used in the valuing of the contingent consideration and the redeemable noncontrolling interest. |
The fair value of identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. The key assumptions include (i) management's projection of future cash flows based upon past experience and future expectations, and (ii) an assumed discount rate of 18.5%. |
The goodwill of $5.1 million is attributable to the workforce of the acquired business and the synergies expected to arise in connection with the acquisition. The goodwill relating to the Company's acquisition of Augmentum is fully deductible for United States federal income tax purposes. |
The Company incurred acquisition related costs of $0.7 million for the twelve months ended December 31, 2013, which were recorded as general and administrative expenses in the consolidated statements of operations. |
Total revenues and net income attributable to the acquisition, since the acquisition date, included in the consolidated statement of operations for the twelve months ended December 31, 2013, are as follows: |
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| Twelve Months Ended December 31, 2013 | | | | | |
Total Revenues | $ | 3,288 | | | | | | |
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Net Loss | $ | (282 | ) | | | | | |
Pro forma unaudited total revenues and net income/(loss) of the combined entity had the acquisition occurred on January 1, 2012 are presented in the following table. This pro forma information is presented for informational purposes only and is not necessarily indicative of what our actual results of operations would have been had the acquisition occurred at such time. |
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| | Twelve months ended December 31 |
| | 20131 | | 20122 |
Total Revenues | | $ | 136,315 | | | $ | 138,855 | |
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Net Loss | | $ | (1,825 | ) | | $ | (3,815 | ) |
1 Pro forma net loss for the twelve months ended December 31, 2013 is adjusted to include $0.1 million of amortization expense, and to exclude $0.7 million of acquisition costs. |
2 Pro forma net loss for the twelve months ended December 31, 2012 is adjusted to include $0.8 million of amortization expense, and to exclude $0.7 million of acquisition costs and $0.2 million of miscellaneous gain. |
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Cheverny CEO Search, S.A. |
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On October 10, 2012, the Company completed an acquisition of Cheverny CEO Search, S.A., a Paris, France based search firm focused on executive recruiting. The first payment of $0.5 million was made in cash on the acquisition date, and a non-interest bearing seller note was issued for the remainder. The note was recorded at fair value of $1.0 million. The note is payable in two installments of $0.5 million each on July 12, 2013 and July 12, 2014. A portion of the total purchase price was contingent upon the continued employment of the acquiree. Therefore, the contingent portion of the purchase price is accounted for as compensation for post-combination services, recognized over the requisite service period using the graded-vesting method. Post-combination compensation expense of $0.2 million is included in the results of operations for the year ended December 31, 2012. During the quarter ending March 31, 2013, the Company modified the terms of the Cheverny CEO Search, S.A. acquisition agreement, terminating all employment contingencies. As a result of the amendment, the Company recognized remaining post combination compensation and incurred a non-recurring charge of $0.8 million relating to Cheverny CEO Search, S.A. post-combination compensation in the first quarter of 2013. The charge is included in compensation and benefits expenses in the consolidated statement of operations for the twelve months ended December 31, 2013. |
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The table below summarizes fair value of the consideration paid and assets acquired at the acquisition date. The acquisition is not considered material to the Company, and, therefore, pro-forma information has not been presented. |
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Consideration: | | | | | | |
Cash | $ | 517 | | | | | | |
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Seller note payable | 1,035 | | | | | | |
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Deferred post-combination compensation | (1,035 | ) | | | | | |
| $ | 517 | | | | | | |
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Recognized amounts of identifiable assets acquired: | | | | | | |
Trademarks | $ | 373 | | | | | | |
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Intangible assets | 403 | | | | | | |
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Total identifiable net assets acquired | 776 | | | | | | |
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Gain on bargain purchase of a business | (258 | ) | | | | | |
| $ | 518 | | | | | | |
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The fair value of the identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. Key assumptions included in determination of fair value are (a) management’s projections of future cash flows based upon past experience and future expectations and (b) a weighted-average discount rate of 16%. |
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The fair value assigned to identifiable intangible assets and their useful lives at the acquisition date is as follows: |
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| Amount | | Useful | | | |
Life | | | |
Customer relationships | $ | 403 | | | 10 years | | | |
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Trademarks | 373 | | | Indefinite | | | |
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| $ | 776 | | | | | | |
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Latin America |
Effective January 2, 2012, the Company completed its acquisition of stock of the direct and indirect subsidiaries of CTPartners Latin America Inc., its independently-owned licensee that had been operating under the name of CTPartners in Latin America for the past five years. The Company’s Latin America offices are in Brazil, Chile, Colombia, Mexico, Panama, Peru, and Venezuela. The Company believes the acquisition further strengthens its brand in Latin America by making the Company a more attractive platform for our local, regional and global clients looking to invest in the region, and for attracting and retaining talented employees. The results of the Company’s Latin America offices have been included in the consolidated financial statements since that date. |
The assets acquired were recorded at fair value. The aggregate purchase price in the agreement was $10.2 million which was paid in cash and the issuance of a non-interest bearing seller note for $5.3 million. The note has been discounted by the Company in the amount of $0.3 million to reflect fair value of the note. This amount is due in equal installments of $2.6 million each on January 2, 2013 and January 2, 2014 respectively. A portion of the total purchase price was contingent upon the continued employment of certain key employees. The purchase agreement provided that the selling shareholders were required to repay to the company up to the aggregate amount of $7.2 million if their employment terminated prior to the 36-month anniversary of the closing of the transaction. Therefore, the contingent portion of the purchase price was accounted for as compensation for post-combination services, and recognized over three years using the graded-vesting method. After accounting for a portion of the purchase price as post-combination compensation, the fair value of the consideration allocation to the assets and liabilities acquired was $3.0 million. Post-combination compensation expense of $6.1 million was included in the results of operations for the year ended December 31, 2012. |
During the quarter ending March 31, 2013, the Company modified the terms of the Latin America acquisition agreement, terminating all employment contingencies. As a result of the amendment, the Company recognized the remaining post-combination compensation expense, and incurred a non-recurring charge of $1.1 million relating to Latin America post-combination compensation in the first quarter of 2013. The charge is included in compensation and benefits expenses in the consolidated statement of operations for the twelve months ended December 31, 2013. |
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The following table summarizes fair value of the consideration paid and assets acquired at the acquisition date: |
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Consideration: | | | | | | |
Cash | $ | 5,250 | | | | | | |
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Seller note payable | 4,987 | | | | | | |
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Post combination compensation | (7,190 | ) | | | | | |
| $ | 3,047 | | | | | | |
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Recognized amounts of identifiable assets acquired: | | | | | | |
Leasehold improvements and equipment | $ | 132 | | | | | | |
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Intangible assets | 2,700 | | | | | | |
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Total identifiable net assets acquired | 2,832 | | | | | | |
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Goodwill | 215 | | | | | | |
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| $ | 3,047 | | | | | | |
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Goodwill of $0.2 million arising from the acquisition consists mainly of the synergies of an ongoing, retained executive search business which operates as a cooperative group in seven Latin American countries, a consistent brand message, and an experienced, assembled workforce. The goodwill relating to the Company’s Latin America reporting unit is fully deductible for United States federal income tax purposes. |
The fair value of the identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. The fair value was provided by an independent valuation firm; key assumptions included (a) management’s projections of future cash flows based upon past experience and future expectations and (b) a weighted-average discount rate of 18.9%. |
The fair value assigned to identifiable intangible assets and their useful lives at the acquisition date is as follows: |
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| Amount | | Useful | | | |
Life | | | |
Customer relationships | $ | 2,480 | | | 10 years | | | |
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Developed technology | 220 | | | 10 years | | | |
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| $ | 2,700 | | | | | | |
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The weighted-average useful life of total amortizable intangible assets acquired is 10 years. |
The total revenues and net loss attributable to the acquisition, since the acquisition date, included in the consolidated statements of operations for the twelve months ended December 31, 2012, are as follows: |
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| Year Ended | | | | | |
December 31, 2012 | | | | | |
Total Revenues | $ | 13,398 | | | | | | |
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Net Loss | $ | (2,164 | ) | | | | | |
The amounts of revenue and net income related to the acquisition that are included in the consolidated statements of operations and the pro forma financial information as if the acquisition had occurred on January 1, 2011, are presented in the following table. This pro forma information is presented for informational purposes only and is not necessarily indicative of what our actual results of operations would have been had the acquisitions occurred at such time. |
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Pro forma unaudited total revenues and net loss of the combined entity had the acquisition date been January 1, 2011, are as follows: |
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| Year Ended December 31, 2012 | | | | | |
Total Revenues | $ | 132,915 | | | | | | |
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Net Loss | $ | (82 | ) | | | | | |
Pro forma net loss for the year ended December 31, 2012 excludes acquisition costs of $0.1 million, net of tax, post-combination compensation cost amortization of $4.0 million, net of tax, and includes post-combination compensation amortization of $0.6 million, net of tax. |