NOTE 3—ACQUISITIONS

Saugatuck Technology Acquisition

On August 7, 2015 (the “Saugatuck Acquisition Date”), the Company executed an Asset Purchase Agreement (the “Saugatuck Agreement”) by and among Saugatuck Technology Inc. (“Saugatuck”), ISG Information Services Group Americas, Inc., a wholly-owned subsidiary of ISG (“Buyer”), and the other parties thereto and consummated the acquisition of substantially all of the assets, and assumption of certain current liabilities, excluding debt and employee loans of Saugatuck.

Saugatuck is a subscription-based research and analyst firm that provides C-level executives and technology business leaders with objective insights on the key market trends and emerging technologies that are driving business transformation and growth.  Saugatuck’s deep intellectual capital, respected analytical and forecasting capabilities, and influential market insights and opinions complement our growing Cloud, Digital and Automation consulting practices.

Under the terms of the Saugatuck Agreement, we acquired the specified assets for aggregate cash and stock consideration of $0.7 million (net of cash received) consisting of $0.5 million in cash and $0.2 million in stock at closing.  In addition, Saugatuck is eligible to receive a minimum of $0 and a maximum of up to $1.3 million of earn-out payments for fiscal years 2015-2018 if certain revenue targets are met, payable in a combination of cash and stock.

The following table summarizes the consideration transferred to acquire Saugatuck and the amounts of identified assets acquired and liabilities assumed as of the Saugatuck Acquisition Date:

The preliminary allocable purchase price consists of the following:

*33,784 shares at $4.44 at close of market on August 7, 2015. 

Recognized amounts of identifiable assets acquired and liabilities assumed as of the Saugatuck Acquisition Date:

 

Costs associated with this acquisition are included in the selling, general and administrative expenses in the consolidated statement of comprehensive income and totaled $0.1 million during the year December 31, 2015.  This business combination was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based on estimated fair values as of the closing dates. The purchase price allocations will be finalized after the completion of the valuation of certain intangible assets and any adjustments to the preliminary purchase price allocations are not expected to have a material impact on the Company’s results of operations.  Based on the valuation and other factors as described above, the purchase price assigned to intangible assets and the amortization period were as follows:

The Consolidated Financial Statements include the results of Saugatuck acquisition subsequent to the closing. If the acquisition occurred as of January 1, 2014, the impact on the Company’s results of operations would not have been material.

CCI Acquisition

On April 15, 2014, Technology Partners International, Inc., a wholly-owned subsidiary of ISG, executed an Asset Purchase Agreement (the “CCI Agreement”) with CCI, and consummated the acquisition of substantially all of the assets and assumption of certain liabilities of CCI.  CCI is a Melbourne, Australia-based research firm that measures and analyzes customer satisfaction in business-to-business relationships.  The agreement with CCI extends our global penetration into recurring revenue businesses in Asia Pacific.  CCI’s products are a natural complement to our “Assess” capabilities that analyze service performance and cost metrics.

Under the terms of the CCI Agreement, ISG acquired the assets for cash consideration of AU$1.9 million, of which AU$1.0 million was paid at closing and AU$0.9 million was paid in April 2015.  In addition, the sellers under the CCI Agreement (the “CCI Sellers”) are eligible to receive a minimum of AU$0 and a maximum up to AU$3.0 million of earn-out payments for fiscal years 2014-2016 if certain earnings targets are met.  Finally, the CCI Sellers were granted 50,000 ISG Restricted Shares that will vest if certain target revenues of ISG and its affiliates are met.

The following table summarizes the consideration transferred to acquire CCI and the amounts of identified assets acquired and liabilities assumed at the acquisition date: 

The final allocable purchase price consists of the following:

*    50,000 shares at $4.74 at close of market on 4/15/2014 that vest upon achievement of certain performance measures. 

Recognized amounts of identifiable assets acquired and liabilities assumed as of April 15, 2014:

(1)Goodwill of approximately $1.9 million acquired in the acquisition is deductible for tax purposes.

Costs associated with this acquisition are included in the selling, general and administrative expenses in the consolidated statement of comprehensive income and totaled $0.2 million during the year ended December 31, 2014.  This business combination was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated on a basis to the assets acquired and liabilities assumed based on estimated fair values as of the closing dates. Based on the valuation and other factors as described above, the purchase price assigned to intangible assets and the amortization period were as follows:

The Consolidated Financial Statements include the results of the CTP and CCI acquisition subsequent to the closing. If the acquisition occurred as of January 1, 2013, the impact on the Company’s results of operations would not have been material.

CTP Acquisition

On March 17, 2014, Compass Holding BV, a wholly-owned subsidiary of ISG entered into an Agreement with Convergent Technologies Partners S.p.A. (“CTP”) whereby Compass Holding BV acquired 51% of CTP’s share capital for $1.0 million, which included $0.7 million of cash acquired, providing the Company with control over CTP.  CTP became a subsidiary of the Company on the date of acquisition. At the same time CTP acquired 100% interest of Compass Management Consulting Italy “Compass Italy”, a subsidiary of Compass Holding BV for $0.3 million.  The selling of Compass Italy and acquisition of CTP are treated as linked transactions and accordingly recorded on a net basis.  The Company is consolidating the financial results of CTP in its consolidated financial statements and accordingly, reported revenues, costs and expenses, assets and liabilities, and cash flows include 100% of CTP, with the 49% noncontrolling interest share reported as net income attributable to noncontrolling interest in the consolidated statements of operations, and redeemable noncontrolling interest on the consolidated balance sheets.

CTP is a leading management consulting firm providing specialized IT and operational strategies and solutions to Italy’s public sector.  The agreement with CTP extends our global penetration into the public sector, building on our successful public sector businesses in North America, Australia and the UK. It also provides new growth opportunities for the Company to serve both public and private sector organizations in Italy with our combined resources. 

The parties also executed a put and call option agreement for the transfer to ISG of all of the outstanding CTP’s share capital that it does not own, exercisable upon certain conditions.  The remaining 49% ownership in CTP is held by a third party. The third party representing the redeemable non-controlling interest in the subsidiary holds put rights for the remaining interest in CTP and the Company holds call rights with respect to such remaining interest. The put right provides the third party an option to sell its ownership interest to the Company after December 31, 2016 at a price based on four times the average of Earning Before Interests, Taxes, Depreciation and Amortization (“EBITDA”) and for the year 2015 and year 2016, as resulting from CTP’s approved financial statements for the year 2015 and year 2016 at the time of the exercise. Because the redeemable non-controlling interest in CTP has a redemption feature, as a result of the put option, the Company has classified the redeemable non-controlling interest in CTP in the mezzanine section of the Consolidated Balance Sheet. The redeemable non-controlling interest will be accreted to the redemption value by recording a corresponding adjustment to accumulated deficit at the end of each reporting period.

The following table summarizes the consideration transferred to acquire CTP and the amounts of identified assets acquired and liabilities assumed at the acquisition date, as well as the fair value of the redeemable noncontrolling interest in CTP at the acquisition date:

Fair value of consideration transferred:

*     Equivalent to 49% of CTP’s share capital discounted for lack of control and marketability based on third party research.

Recognized amounts of identifiable assets acquired and liabilities assumed as of March 17, 2014:

 

This bargain purchase gain resulted as the fair value of the net assets acquired exceeded the consideration transferred. The excess resulted from the fact that the seller was motivated to sell. Costs associated with this acquisition are included in the selling, general and administrative expenses in the consolidated statement of comprehensive income and totaled $0.2 million during the year ended December 31, 2014.  This business combination was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values as of the closing dates. Based on the valuation and other factors as described above, the purchase price assigned to intangible assets and the amortization period were as follows: