Quarterly report pursuant to Section 13 or 15(d)

Business Acquisitions

v2.4.0.6
Business Acquisitions
6 Months Ended
Jun. 30, 2012
Business Acquisitions [Abstract]  
Business Acquisitions
3. Business Acquisitions

FundQuest Acquisition

On December 13, 2011, the Company acquired all of the outstanding shares of FundQuest Incorporated (“FundQuest”), a subsidiary of BNP Paribas Investment Partners USA Holdings, Inc. for total consideration of approximately $27,796. FundQuest was renamed Envestnet Portfolio Solutions, Inc. (“EPS”) subsequent to the acquisition. EPS provides managed account programs, overlay portfolio management, mutual funds, institutional asset management and investment consulting to registered investment advisors, independent advisors, broker-dealers, banks and trust organizations. 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 not deductible for income tax purposes.

During the three months ended March 31, 2012, the Company finalized the estimated working capital adjustment. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of December 13, 2011 as initially reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011:

 

                         
    December 13, 2011     Consideration     December 13, 2011  
    (As initially reported)     Adjustments     (As adjusted)  

Accounts receivable

  $ 2,603     $ —       $ 2,603  

Prepaid expenses and other current assets

    46       —         46  

Property and equipment

    442       —         442  

Intangible assets

    11,830       —         11,830  

Goodwill

    20,192       (889     19,303  

Accounts payable and accrued liabilities

    (1,364     —         (1,364

Deferred income taxes

    (4,710     —         (4,710

Deferred revenue

    (354     —         (354
   

 

 

   

 

 

   

 

 

 

Total assets acquired

  $ 28,685     $ (889   $ 27,796  
   

 

 

   

 

 

   

 

 

 

The initially reported estimated fair values of assets acquired and liabilities assumed were based on the information that was available at the time the Company filed its annual report on Form 10-K for the year ended December 31, 2011. Management of the Company believes all relevant information is now available to finalize the estimates.

Prima Capital Holding, Inc. Acquisition

On April 5, 2012, the Company completed the acquisition of Prima Capital Holding, Inc. (“Prima”). In accordance with the stock purchase agreement, the Company acquired all of the outstanding shares of Prima for total consideration of approximately $13,925. Prima provides investment management due diligence, research applications, asset allocation modeling and multi-manager portfolios to the wealth management and retirement industries. Prima’s clientele includes seven of the top 20 banks in the U.S. as measured by total assets, independent RIAs, regional broker-dealers, family offices and trust companies. 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 not deductible for income tax purposes.

The consideration transferred in the acquisition was as follows:

 

         

Cash paid to owners

  $ 13,750  

Cash assumed

    (1,767

Cash paid for working capital settlement

    1,942  
   

 

 

 
    $ 13,925  
   

 

 

 

 

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

 

         

Accounts receivable

  $ 72  

Prepaid expenses and other current assets

    36  

Notes receivable

    860  

Property and equipment

    103  

Deferred income taxes - non current

    1,129  

Intangible assets

    4,940  

Goodwill

    9,555  

Accounts payable and accrued liabilities

    (171

Deferred income tax liabilities

    (1,869

Deferred revenue

    (730
   

 

 

 

Total net assets acquired

  $ 13,925  
   

 

 

 

The estimated fair value of deferred revenue is provisional and is based on the information that was available as of the acquisition date to estimate the fair value of this amount. 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 the fair value. Therefore, provisional measurements of fair value reflected are subject to change and such change could be significant. The Company expects to finalize the valuation of deferred revenue and complete the acquisition accounting as soon as practicable but no later than September 31, 2012.

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

 

                     
    Amount     Weighted Average
Useful Life in
Years
    Amortization
Method

Customer list

  $ 3,740       10     Accelerated

Proprietary technology

    700       5     Accelerated

Trade names

    500       5     Accelerated
   

 

 

             

Total

  $ 4,940              
   

 

 

             

The results of Prima’s operations are included in the consolidated statement of operations beginning April 5, 2012. Prima’s revenues and net loss for the period beginning April 5, 2012 through June 30, 2012 totaled $1,149 and ($330), respectively. The net loss included pre-tax acquired intangible asset amortization of $325.

Tamarac, Inc. Acquisition

On May 1, 2012, the Company completed the acquisition of Tamarac, Inc. (“Tamarac”). In accordance with the merger agreement, a newly formed subsidiary of Envestnet merged with and into Tamarac, and Tamarac became a wholly owned subsidiary of Envestnet. Under the terms of the merger agreement, total consideration was approximately $48,427 for all of the outstanding stock of Tamarac. Tamarac is a provider of sophisticated portfolio management technology that enables RIAs to efficiently deliver customized individual account management to their clients. 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 expected to be non-deductible for income tax purposes.

As a result of the merger with Tamarac, the Company adopted the Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac Management Employees (the “2012 Plan”). The 2012 Plan provides for the grant of up to 559,551 shares of unvested common stock. The unvested common stock vests based upon Tamarac meeting certain performance conditions and then a subsequent two year service condition (Note 13). The Company also granted to certain Tamarac employees 232,150 stock options to acquire Envestnet common stock at an exercise price of $12.51. These stock options vest on the second anniversary of the grant date (Note 13).

In accordance with the terms of the merger agreement between Envestnet and Tamarac, Tamarac senior management were required to apply at least 50% (up to 100%) of the aggregate proceeds of the Tamarac change of control payment totaling $2,759 to purchase registered shares of Envestnet common stock (232,150 shares) in an amount equal to 95% multiplied by the Envestnet closing market price on the day before the merger closed (Note 12).

 

The consideration transferred in the acquisition was as follows:

 

         

Cash paid to owners

  $ 54,000  

Non-cash consideration

    101  

Cash assumed

    (2,533

Receivable from working capital settlement

    (3,141
   

 

 

 
    $ 48,427  
   

 

 

 

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

 

         

Accounts receivable

  $ 489  

Other receivables

    681  

Prepaid expenses and other current assets

    216  

Deferred income tax assets

    7,235  

Property and equipment

    444  

Deposits

    379  

Intangible assets

    16,150  

Goodwill

    35,263  

Accounts payable and accrued liabilities

    (2,356

Deferred income tax liabilities

    (6,143

Deferred revenue

    (3,931
   

 

 

 

Total net assets acquired

  $ 48,427  
   

 

 

 

The estimated fair value of deferred revenue and the working capital settlement 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 deferred revenue and working capital settlement, and complete the acquisition accounting as soon as practicable but no later than the contractual period.

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

 

                     
    Amount     Weighted Average
Useful Life in
Years
    Amortization
Method

Customer list

  $ 8,680       12     Accelerated

Proprietary technology

    5,880       8     Accelerated

Trade names

    1,590       5     Accelerated
   

 

 

             

Total

  $ 16,150              
   

 

 

             

The results of Tamarac’s operations are included in the consolidated statement of operations beginning May 1, 2012. Tamarac’s revenues and net loss for the period May 1, 2012 through June 30, 2012 totaled $1,784 and ($589), respectively. The net loss includes acquired intangible asset amortization of $326

 

For the three and six months ended June 30, 2012, acquisition related costs for FundQuest, Tamarac and Prima, totaled $1,265 and $1,881, respectively, and are included in general and administration expenses.

Pro forma results for Envestnet, Inc. giving effect to the FundQuest, Prima and Tamarac acquisitions

The following unaudited pro forma financial information presents the combined results of operations of Envestnet, Prima and Tamarac for the three and six months ended June 30, 2012. The following unaudited pro forma financial information presents the combined results of operations of Envestnet, FundQuest, Prima and Tamarac for the three and six months ended June 30, 2011. For the three and six months ended June 30, 2012 and 2011, the unaudited pro forma financial information presents the results as if the acquisitions had occurred as of the beginning of 2011.

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 acquisition had taken place at the beginning of the period presented.

 

                                 
    Three Months ended
June 30,
    Six Months ended
June 30,
 
    2012     2011     2012     2011  
         

Revenue

  $ 39,082     $ 37,968     $ 76,197     $ 73,606  

Net income (loss)

    (957     2,146       (1,980     2,158  

Net income (loss) per share:

                               

Basic

    (0.03     0.07       (0.06     0.07  

Diluted

    (0.03     0.06       (0.06     0.06