11. Acquisitions and Dispositions

Acquisitions

On July 7, 2016, we completed the acquisition of the entire issued share capital of Other Art Fairs Ltd, which operates as The Other Art Fair, for consideration of £1.1 million (approximately $1.5 million) in cash, excluding deferred consideration of up to £315,000 in cash, payable over a three year period. The Other Art Fair is a leading London-based art fair for discovering emerging artists that currently presents fairs in London, Bristol and Sydney.

Purchase Price Allocation

 

The total purchase price of the acquisition was allocated to The Other Art Fair’s tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of July 7, 2016, the closing date of the acquisition. The excess of the purchase price over the net assets and liabilities acquired was recorded as goodwill. Our preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions and are subject to change pending finalization of the valuation.

 

The acquisition is included in our condensed consolidated financial statements as of the closing date of the acquisition, which was July 7, 2016. Operating income for The Other Art Fair for the three and nine month periods ended September 30, 2016 and 2015 was not material to our financial results.

 

The following table summarizes the allocation of the purchase price for The Other Art Fair, which is preliminary and subject to change pending finalization of the valuation (in thousands):

 

 

The trademark we acquired has an estimated useful life of five years and the artist relationships we acquired have an estimated useful life of three years. The estimated weighted average useful life of the intangible assets we acquired in total is four years. Goodwill is primarily derived from our ability to generate synergies with its services. The goodwill will be included as part of our marketplaces reporting unit and is not deductible for tax purposes.

Dispositions

 

On April 12, 2016, we completed the sale of substantially all of the assets relating to our Cracked business, including the Cracked.com humor website, to Scripps Media, Inc. for a cash purchase price of $39.0 million. A portion of the purchase price equal to $3.9 million was placed into escrow at closing to secure certain of our post-closing indemnification obligations. Any remaining portion of the escrow amount that is not subject to then-pending claims will be paid to us in July 2017, on the 15-month anniversary of the closing date of the sale.  Revenue for the Cracked business for the nine months ended September 30, 2016 (through the sale date of April 12, 2016) was $1.8 million. The Cracked business had a pre-tax loss of $1.9 million for the nine months ended September 30, 2016 (through the sale date of April 12, 2016), excluding allocations for corporate costs and including stock-based compensation expense incurred in connection with the sale. Revenue for the Cracked business for the three and nine month periods ended September 30, 2015 was $2.8 million and $8.2 million, respectively. The Cracked business had pre-tax income of $0.9 million and $2.5 million for the three and nine month periods ended September 30, 2015, respectively, excluding allocations for corporate costs. The sale did not meet the definition of discontinued operations under ASC 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

 

As a result of the sale of the Cracked business, we recognized a gain of $38.1 million, recorded in other income, net, which included $0.6 million in net assets sold and $0.3 million in transaction costs incurred in connection with the sale. We expect to utilize our existing net operating losses to offset the income tax associated with the gain resulting from the sale of the Cracked business. If all or a portion of our net operating loss carryforwards are subject to limitation because it is determined that we had previously experienced an “ownership change” as defined in section 382 of the Internal Revenue Code of 1986, as amended, our future cash flows could be adversely impacted due to increased tax liability.

 

In addition, during the nine months ended September 30, 2016, we sold one of our non-core online properties for total consideration of $1.0 million, resulting in a gain of $1.0 million, recorded in other income, net. During the nine months ended September 30, 2015, we sold our Pluck social media business for $3.8 million in cash after working capital adjustments, resulting in a gain of $2.1 million. During the nine months ended September 30, 2015, we also sold certain non-core online properties for a total consideration of $0.9 million.