|9 Months Ended|
Sep. 30, 2013
3. Business Acquisitions
Acquisition of Wealth Management Solutions
On July 1, 2013, the Company completed the acquisition of the Wealth Management Solutions (“WMS”) division of Prudential Investments. In accordance with the purchase agreement, the Company acquired substantially all of the assets and assumed certain liabilities of WMS for total consideration of $24,730. WMS is a provider of technology solutions that enables financial services firms to develop and enhance their wealth management offerings. The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction and the knowledge and experience of the workforce in place. The goodwill recognized is deductible for income tax purposes.
The consideration in the acquisition was as follows:
In connection with the acquisition of WMS, the Company is required to pay Prudential Investments, contingent consideration of up to a total of $23,000 in cash, based upon meeting certain performance targets. The Company has recorded a liability as of the date of acquisition of $15,738, which represents the estimated fair value of contingent consideration on the date of acquisition and is considered a Level 3 fair value measurement as described in Note 8. This amount is the present value of an undiscounted liability of $19,043, applying a discount rate of 10%. Payments will be made at the end of three twelve month closing periods. The future undiscounted payments are anticipated to be $6,000 on July 31, 2014, $6,434 on July 31, 2015 and $6,609 on July 31, 2016. The final future payments may be greater or lower than these amounts, based upon the attainment of performance targets. Changes to the estimated fair value of the contingent consideration will be recognized in earnings of the Company.
During the three months ended September 30, 2013, the Company recognized imputed interest expense on contingent consideration of $392, which is included in general and administration expense in the condensed consolidated statement of operations.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
The estimated fair value of the intangible assets is provisional and is based on the information that was available as of the acquisition date to estimate the fair value of these amounts. The Company believes the information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation of intangible assets, and complete the acquisition accounting as soon as practicable but no later than December 31, 2013.
A summary of intangible assets acquired, estimated useful lives and amortization method is as follows:
The results of WMS operations are included in the condensed consolidated statement of operations beginning July 1, 2013. WMS’s revenues and net loss for the three and nine month periods ended September 30, 2013 totaled $16,130 and $392, respectively. The net loss includes acquired intangible asset amortization of $1,082 and imputed interest expense on contingent consideration of $392.
For the three and nine months ended September 30, 2013, acquisition related costs for WMS totaled $197 and $844, respectively, and are included in general and administration expenses. The Company may incur additional WMS acquisition related costs during the fourth quarter of 2013.
Pro forma results for Envestnet, Inc. giving effect to the Prima Capital Holding, Inc., Tamarac, Inc. and WMS acquisitions
The following pro forma financial information presents the combined results of operations of Envestnet, Prima Capital Holding, Inc. (“Prima”), acquired on April 1, 2012, Tamarac, Inc. (“Tamarac”), acquired on May 1, 2012, and WMS, acquired on July 1, 2013, for the three and nine months ended September 30, 2012 and the nine months ended September 30, 2013. The pro forma financial information presents the results as if the acquisitions had occurred as of the beginning of 2012.
The unaudited pro forma results presented include amortization charges for acquired intangible assets, the elimination of intercompany transactions, restructuring charges, unrealized gain or loss on warrant and imputed interest expense, stock-based compensation expense and the related tax effect on the aforementioned items.
Pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place as of the beginning of 2012.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://www.xbrl.org/2003/role/presentationRef