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May 31, 2014
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| Acquisitions | ACQUISITIONS: Fiscal year 2014 acquisitions IBM customer care business acquisition On September 10, 2013, the Company announced a definitive agreement to acquire the assets of the customer care business of International Business Machines Corporation, a New York corporation (“IBM”) for a preliminary aggregate purchase price of $503,335, subject to certain post-closing adjustments. The transaction is being completed in phases with the initial closing completed on January 31, 2014 and the second phase closing completed on April 30, 2014. The countries acquired through April 30, 2014 comprise approximately 99.5% of the preliminary valuation of the customer care business. The subsequent closings are expected to occur in the second half of 2014, but contractually no later than June 30, 2015, and are subject to customary closing conditions. As of May 31, 2014, the Company is obligated to pay an additional amount of $40,000 in cash at the final closing including $2,386 towards the subsequent closing countries. This amount may also be adjusted based upon final agreement between the Company and IBM on the value of actual net tangible assets acquired The acquisition has been included into the Concentrix segment. It expands the Company's service portfolio, delivery capabilities and geographic reach, and brings deep process expertise and managerial talent. The acquisition has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their preliminary fair values as of the respective closing dates. The total preliminary purchase price consideration for the initial and second phase closings is as follows:
The Company issued 1,266 shares of its common stock, at a fair value of $71,106 based on the closing price of the Company’s common stock on the New York Stock Exchange Composite Transactions Tape as of the date of issuance. Additionally, the Company assumed unvested restricted IBM stock-based awards with a preliminary estimated fair value of $11,003 on the respective closing dates. The Company exchanged the acquisition date fair value of the unvested restricted IBM stock awards of employees with the Company's equity-based awards or cash settled with deferred payouts. The fair value of the replaced IBM awards was based on the market value of the Company’s common stock on the respective closing dates of the initial and second phase closings. The fair value of the cash settled awards was based on IBM’s stock price on the acquisition date, adjusted for the exclusion of dividend equivalents. Of the equity awards issued, a portion relating to the pre-combination service period was preliminarily allocated to the purchase consideration and the remainder of the preliminary estimated fair value will be expensed over the remaining service periods on a straight-line basis. The total preliminary purchase price has been allocated between the acquisition of the IBM customer care business and a separate element representing IBM-initiated prepaid compensation plans. Of the total $16,321 prepaid amount, $13,232 was recorded in "Other current assets" and $3,089 in "Other assets" and is being expensed to "Selling, general and administrative expenses" over the service period. The portion of the preliminary purchase price for the acquisition was allocated to the net tangible and intangible assets based on their preliminary fair values as of January 31, 2014 and April 30, 2014. The excess of the purchase price over the preliminary net tangible assets and preliminary intangible assets was recorded as goodwill. The goodwill balance is attributed to the assembled workforce and expanded market opportunities due to the comprehensive service portfolio delivery capabilities and geographic reach resulting from the acquisition. The preliminary allocation of the purchase price was based upon a preliminary valuation and the Company's estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, fair value of operating lease assumed, income and non-income based taxes and residual goodwill. The Company expects to continue to obtain information for the purpose of determining the fair value of the net assets acquired at the acquisition date during the measurement period and the amount of goodwill that will be deductible for tax purposes. The total preliminary purchase price allocation is as follows:
The identifiable intangible assets acquired and their estimated useful lives are summarized as follows:
Amortization of customer relationships and trade names is recorded in selling, general and administrative expenses. Amortization of technology is recorded in cost of revenue. During the three and six months ended May 31, 2014, the IBM customer care business contributed $244,095 and $318,587, respectively, of revenue to the Company's total consolidated results of operations. Earnings contributed by the acquired business are not separately identifiable as a result of the Company's integration activities. Acquisition and integration expenses were $15,876 and $24,783 during the three and six months ended May 31, 2014, respectively, and consist of costs incurred to complete the acquisition and retention payments to integrate the business. Substantially all of the acquisition and integration expenses were recorded in "Selling, general and administrative expenses". The following unaudited pro forma financial information combines the unaudited Consolidated Results of Operations as if the initial closing of the acquisition of the IBM customer care business had occurred at the beginning of the periods presented and excludes the results of the subsequently closing countries. Pro forma adjustments include only the effects of events directly attributable to transactions that are factually supportable. The pro forma results contained in the table below include pro forma adjustments for amortization of acquired intangibles, interest expense incurred on borrowings to fund the acquisition, stock-based compensation expense, other employee-related payments, the related tax effects of the pro forma adjustments and the issuance of shares. The pro forma financial information, as presented below, is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition and any borrowings undertaken to finance the acquisition had taken place at the beginning of fiscal periods presented.
Fiscal year 2013 acquisitions In April 2013, the Company acquired substantially all of the assets of Supercom Canada Limited ("Supercom Canada"), a distributor of IT and consumer electronics products and services in Canada. The purchase price was approximately CAD37,593, or US$36,665, in cash, including CAD4,450, or US$4,340, in deferred payments, subject to certain post-closing conditions, payable within 18 months. The Company has paid CAD1,800 of the deferred amount as of May 31, 2014. Subsequent to the acquisition, the Company repaid debt and working capital lines in the amount of US$53,721. Based on the purchase price allocation, the Company recorded net tangible assets of US$26,912, goodwill of US$5,384 and intangible assets of US$4,369 in relation to this acquisition. This acquisition did not meet the conditions of a material business combination and was not subject to the disclosure requirements of accounting guidance for business combinations utilizing the purchase method of accounting. The acquisition is integrated into the Technology Solutions segment and has expanded the Company's existing product and service offerings in Canada. |
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