3.        Business Acquisitions

 

The following acquisitions are included within the Envestnet segment, except for Yodlee and Wheelhouse, which comprise the Envestnet | Yodlee segment.

 

Upside Holdings, Inc.

 

On February 24, 2015, Envestnet, Inc. (the “Company”) acquired all of the stock of Upside Holdings, Inc. (including its subsidiaries “Upside”) for consideration totaling $2,641.  

 

Upside is a technology company that was previously registered as an Internet Investment Adviser under Rule 203A-2(f) of the Investment Advisers Act of 1940 (“Advisers Act”). Upside helps financial advisors compete against other digital advisors, or “robo advisors,” by leveraging technology and algorithms to advise, manage, and serve clients who want personalized investment services. 

 

The Company acquired Upside to integrate its technology within the Company’s unified wealth management platform, which will allow advisors to compete more aggressively to engage their clients online and reach a new class of investors. The goodwill arising from the acquisition represents the advantage of this integrated technology, the expected synergistic benefits of the transaction and the knowledge and experience of the workforce in place. The goodwill is not deductible for income tax purposes.

 

The estimated consideration transferred in the acquisition as of the acquisition date was as follows:

 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

The estimated useful life and amortization method of the intangible asset acquired is as follows:

 

 

The results of Upside’s operations are included in the consolidated statements of operations beginning February 24, 2015, and are not material to the Company’s results of operations.

 

Oltis Software LLC

 

On May 6, 2015, the Company acquired all of the issued and outstanding membership interests of Oltis Software LLC (d/b/a Finance Logix®), an Arizona limited liability company (“Finance Logix”). Finance Logix provides financial planning and wealth management software solutions to banks, broker-dealers and RIAs.

 

The Company paid upfront consideration of $20,595 in cash, purchase consideration liability of $3,000, 123,410 in shares of Envestnet common stock with a fair value of $6,388 and 123,410 stock options to acquire Envestnet common stock at $52.67 per share with an estimated fair value of $2,542.

 

The Company acquired Finance Logix to integrate its technology within the Company’s unified wealth management platform, which will allow advisors to offer financial planning that flows seamlessly into portfolio construction and ongoing management on a single platform. Finance Logix allows the Company to deliver that capability and increase the breadth of our platform and the functionality gap between our platform and competing platforms.  The goodwill arising from the acquisition represents cross-selling opportunities, the expected synergistic benefits of the transaction and the knowledge and experience of the workforce in place. The goodwill is deductible for income tax purposes.

 

The estimated consideration transferred in the acquisition as of the acquisition date was as follows:

 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

A summary of intangible assets acquired, estimated useful lives and amortization method is as follows:

 

 

The results of Finance Logix’s operations are included in the consolidated statements of operations beginning May 6, 2015. Finance Logix’s revenues for the period ended December 31, 2015 totaled $1,892. Finance Logix’s net loss for the period ended December 31, 2015 totaled $999. The net loss for the period ended December 31, 2015 includes acquired intangible asset amortization of $974.

 

For the periods ended December 31, 2017, 2016 and 2015, acquisition related costs for Finance Logix totaled $145,  $548 and $465, respectively, and are included in general and administration expenses.

 

Castle Rock Innovations, Inc.

 

On August 30, 2015, the Company acquired all of the outstanding shares of stock of Castle Rock Innovations, Inc., a Delaware corporation (“Castle Rock”). Castle Rock provides data aggregation and plan benchmark solutions to retirement plan record-keepers, broker-dealers, and advisors.

 

The Company combined the acquired Castle Rock assets with ERS on December 1, 2016.  Castle Rock’s AXIS Retirement Plan Analytics Platform enables retirement plan fiduciaries to comply with 408(b)(2) and 404a-5 regulatory fee disclosure reporting requirements. The AXIS platform offers a single web-based interface and data repository to service the reporting needs of all types of retirement plans, and can be integrated with all record-keeping systems. AXIS also includes features for editing and generating reports for filings, reporting plan expenses, and comparing retirement plans and participants to those of their peers by industry, company size, and other characteristics. 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 is not deductible for income tax purposes.

 

The estimated consideration transferred in the acquisition as of the acquisition date was as follows:

 

 

In connection with the acquisition of Castle Rock, the Company is required to pay contingent consideration of 40% of the first annual post-closing period revenues minus $100,  35% of the second annual post-closing period revenue minus $100 and 30% of the third annual post-closing period revenue minus $100.  

 

On December 1, 2016, the Company and Castle Rock amended the stock purchase agreement to fix the remaining post-closing period payments. The first post-closing payment was made during October 2016 in the amount of $805. The second post-closing period payment of $445 was paid in January 2017 and the third post-closing payment of $1,250 was paid in January 2018.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

A summary of intangible assets acquired, estimated useful lives and amortization method is as follows:

 

 

The results of Castle Rock’s operations are included in the consolidated statements of operations beginning September 1, 2015. Castle Rock’s revenues and net income for the period ended December 31, 2015 totaled $1,011 and $109, respectively. The net income includes acquired intangible asset amortization of $178.

 

On September 1, 2015, ERS accepted the subscription of certain former owners of Castle Rock (the “Castle Rock Parties”) to purchase a 6.5% ownership interest of ERS for $900. The Castle Rock Parties have the right to require ERS to repurchase units issued pursuant to the subscription in approximately 36 months after September 1, 2015 for the amount of $900. This purchase obligation is guaranteed by the Company and is reflected outside of permanent equity in the consolidated balance sheets.  

 

Yodlee, Inc.

 

On November 19, 2015, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated August 10, 2015, among Yodlee, the Company and Yale Merger Corp. (“Merger Sub”), a wholly owned subsidiary of Envestnet, Merger Sub was merged (the “Merger”) with and into Yodlee with Yodlee continuing as a wholly owned subsidiary of Envestnet.

 

Yodlee, operating as Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services. The Company acquired Yodlee to enhance the Company’s wealth management solutions with a deeply integrated data aggregation capability, expand the Company’s addressable market by delivering the Company’s wealth management solutions to Yodlee’s clients and partners, and benefit from the revenue potential resulting from Yodlee’s fast growing data analytics solutions.

 

Under the terms of the Merger Agreement, Yodlee stockholders received $11.51 in cash and 0.1889 of a share of Envestnet common stock per Yodlee share.  Based upon the volume weighted average price per share of Envestnet common stock for the ten consecutive trading days ending on (and including) November 17, 2015, the second trading day immediately prior to completion of the Merger, Yodlee stockholders received total consideration with a value of $17.49 per share.

 

Net cash consideration totaled approximately $375,658 and the Company issued approximately 5,974,000 shares of Envestnet common stock to Yodlee stockholders in the Merger. Holders of 577,829 shares of Yodlee common stock have exercised their statutory appraisal rights under Delaware law. As of December 31, 2015, the Company recognized a liability in the amount of $10,061, which represented $17.49 in cash for each share of Yodlee common stock held by them. Although the Company believed the fair value of these shares did not exceed the consideration paid in the Acquisition, nevertheless, during the first quarter of 2016, the Company settled the appraisal claim in order to avoid the costs, uncertainties, disruptions and distraction of potential litigation. The difference between the liability as of December 31, 2015 and the settlement amount resulted in an increase to goodwill and total consideration paid.

 

The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenues as a result of potential cross selling opportunities and new lines of business, as well as lower future operating expenses.  The goodwill is also related to the knowledge and experience of the workforce in place. The goodwill is not deductible for income tax purposes.

 

The estimated consideration transferred in the acquisition was as follows:

 

 

In connection with the Yodlee merger, the Company issued 1,052,000 shares of Envestnet restricted stock awards (“replacement awards”) issued in connection with unvested Yodlee employee equity awards. The Yodlee unvested stock options and unvested restricted stock units were canceled and exchanged for the replacement awards. See “Note 16 – Stock-Based Compensation” for additional information related to the replacement awards.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:

 

 

As part of the final acquisition accounting, management assigned $24,613 of the total acquired goodwill of $282,429 to the Envestnet segment given the expected benefit to that segment related to the synergies resulting from the combination.   

 

A summary of intangible assets acquired, estimated useful lives and amortization method is as follows:

 

 

The results of Envestnet | Yodlee’s operations are included in the consolidated statements of operations beginning November 20, 2015. Envestnet | Yodlee’s revenues and net loss for the period ended December 31, 2015 totaled $14,081 and $5,963, respectively. The net loss includes acquired intangible asset amortization of $3,953.

 

For the periods ended December 31, 2017, 2016 and 2015, acquisition related costs for Yodlee totaled $1,289,  $2,186 and $6,624, respectively, and are included in general and administration expenses.

 

FinaConnect, Inc.

 

On February 1, 2016 Envestnet acquired all of the outstanding shares of capital stock of FinaConnect, Inc. (“FinaConnect”). FinaConnect is a software as a service (SaaS) platform that provides reporting and practice management capabilities to financial professionals servicing the retirement plan market and is the technology platform supporting the ERS service offering. FinaConnect is included in the Envestnet segment.

 

On May 1, 2016, the Company combined the assets of FinaConnect with ERS. In addition to adding the client list serviced directly by FinaConnect, the goodwill arising from the acquisition represents the advantage of ownership of the technology powering the ERS solution, removal of ongoing licensing payments made to FinaConnect and the full integration of the knowledge and experience of the FinaConnect workforce. The goodwill is deductible for income tax purposes.

 

In connection with the acquisition of FinaConnect, the Company paid upfront cash consideration of $6,425 and Company is required to pay contingent consideration of four times the incremental revenue on a certain book of business for the next two years, not to exceed a total amount of $3,500.  

 

As of December 31, 2016, the estimated fair market value of contingent consideration liability for FinaConnect increased from $1,929 to $2,286. As a result, the Company recorded a fair market value adjustment of $357 which is recognized in general and administration in the consolidated statements of operations. During 2017, the Company paid contingent consideration in the amount of $2,286 for the first year earnout and estimated the second year earnout to be $0 as of December 31, 2017.

 

The estimated consideration transferred in the acquisition as of the acquisition date was as follows:

 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

A summary of intangible assets acquired, estimated useful lives and amortization methods are as follows:

 

 

The results of FinaConnect’s operations are included in the consolidated statements of operations beginning February 1, 2016, and are not considered material to the Company’s results of operations.

 

For the periods ended December 31, 2017 and 2016, acquisition related costs for FinaConnect totaled $135 and $116, respectively, and are included in general and administration in the consolidated statements of operations.  

 

Wheelhouse Analytics LLC

 

On October 3, 2016, the Company acquired all of the issued and outstanding membership interests of Wheelhouse Analytics LLC (“Wheelhouse”). Wheelhouse is a technology company that provides data analytics, mobile sales solutions, and online education tools to financial advisors, asset managers and enterprises. Wheelhouse is included in the Envestnet | Yodlee segment.

 

The Company acquired Wheelhouse to be integrated with Yodlee’s industry-leading data and analytics solutions to strengthen Envestnet’s data-driven insights to financial advisors, asset managers and enterprises enabling them to better manage their businesses and client relationships and deliver better outcomes to their clients. Envestnet expects to deeply integrate Wheelhouse’s tools, delivering robust online dashboards and reporting that provides actionable intelligence.

 

In connection with the acquisition of Wheelhouse, the Company paid cash consideration of $13,299 and is required to pay contingent consideration with the aggregate amount not to exceed $4,000 and certain holdbacks upon release. Changes to the estimated fair value of the contingent consideration, if any, will be recognized in earnings of the Company.

 

The consideration transferred in the acquisition was as follows:

 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:

 

 

The results of Wheelhouse’s operations are included in the consolidated statements of operations beginning October 3, 2016, and are not considered material to the Company’s results of operations.

 

For the periods ended December 31, 2017 and 2016, acquisition related costs for Wheelhouse totaled $874 and $383, respectively, and are included in general and administration in the consolidated statements of operations.  

 

Unaudited pro forma results for Envestnet, Inc. giving effect to recent acquisitions

 

The results of the FinaConnect and Wheelhouse acquisitions were not considered material to the Company’s results of operations and as such no unaudited pro forma financial information is presented for the years ended December 31, 2017 and December 31, 2016.