3. Business Acquisitions

Prima Capital Holding, Inc.

        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 banks, 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 is not deductible for income tax purposes.

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

                                                                                                                                                                                    

        The results of Prima's operations are included in the consolidated statements of operations beginning April 5, 2012. Prima's revenues and pre-tax loss for the nine months ended December 31, 2012 totaled $3,626 and ($791), respectively. The loss for the nine months ended December 31, 2012 included acquired intangible asset amortization of $1,005.

Tamarac, Inc.

        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 provides leading portfolio accounting, rebalancing, trading, performance reporting and client relationship management software, principally to high-end RIAs. 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:

                                                                                                                                                                                    

        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 Tamarac's operations are included in the consolidated statements of operations beginning May 1, 2012. Tamarac's revenues and pre-tax loss for the eight-month period ended December 31, 2012 totaled $9,971 and ($1,236), respectively. The loss for the eight months ended December 31, 2012 included acquired intangible asset amortization of $1,304.

        In accordance with the terms of the merger agreement between Envestnet and Tamarac, Tamarac senior management was 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 (see Note 12).

        In addition, 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 (see 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 (see Note 13).

Wealth Management Solutions

        On July 1, 2013, the Company acquired the Wealth Management Solutions ("WMS") division of Prudential Investments LLC. 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 Company acquired WMS to better serve the wealth management needs of the bank channel, deepen the Company's practice management capabilities, and benefit from the operational leverage resulting from consolidating WMS's business onto the Company's unified wealth management platform.

        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, as well as lower future operating expenses, including a reduction in headcount from pre-acquisition levels and lower technology platform-related costs due to the migration of WMS's clients to the Company's platform. The goodwill is also related to the knowledge and experience of the workforce in place.

        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 $6,000 per year for three years, based upon WMS's annualized net revenue relative to a target of $28,000 per year, with lower payments for performance below the target and higher payments for performance above the target, subject to an aggregate maximum of $23,000. The Company recorded a liability as of the date of acquisition of $15,738, which represented 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.

        The estimated fair value of contingent consideration as of December 31, 2014 was $11,667. This amount is the present value of an undiscounted liability of $12,750, applying a discount rate of 10%. Payments will be made at the end of three twelve month closing periods. The first undiscounted payment of $6,000 was paid on August 12, 2014. The second and third undiscounted payments are anticipated to be $7,102 on August 15, 2015 and $5,648 on August 15, 2016. Changes to the estimated fair value of the contingent consideration are recognized in earnings of the Company. During the year ended December 31, 2014, the Company recorded a fair value adjustment to decrease the contingent consideration liability by $1,231 as a result of a decrease in the revenue assumptions for years 2 and 3. This adjustment is included in general and administration expense in the consolidated statements of operations.

        The following table summarizes the 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 WMS operations are included in the consolidated statement of operations beginning July 1, 2013. WMS's revenues and pre-tax loss for the six-month period ended December 31, 2013 totaled $33,517 and ($1,056), respectively. The loss includes acquired intangible asset amortization of $2,164, imputed interest expense on contingent consideration of $787 and an estimated fair value adjustment on contingent consideration of $501.

Klein Decisions, Inc.

        On July 1, 2014, ERS, LLC completed the acquisition of Klein Decisions, Inc. ("Klein"). In accordance with the stock purchase agreement, ERS, LLC acquired all of the outstanding shares of Klein for cash consideration of approximately $1,288, a promissory note in the amount of $1,500, and estimated fair value of $2,800 in contingent consideration (with a minimum guaranteed amount of $1,175), to be paid over three years. The promissory note was paid by ERS, LLC on July 31, 2014. Klein develops dynamic decision systems that incorporate investor preferences, goals, and priorities into the investment process. ERS, LLC acquired Klein for its capabilities in delivering personal participant solutions, as well as its personnel to further build out ERS's business of serving advisors who support the small retirement plan market. The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, which relate to an increase in future ERS, LLC revenues as a result of leveraging Klein's systems and expertise of its employees. The goodwill is not deductible for income tax purposes.

        The consideration in the acquisition was as follows:

                                                                                                                                                                                    

        The contingent consideration liability of $2,800 is the present value of an undiscounted liability of $3,520, applying a discount rate of 9% and is considered a Level 3 fair value measurement as described in Note 8. Payments will be made at the end of three twelve month closing periods. The future undiscounted payments are anticipated to be $332 on July 31, 2015, $906 on July 31, 2016, and $2,282 on July 31, 2017. Changes to the estimated fair value of the contingent consideration are recognized in earnings of the Company.

        For the six-month period ended December 31, 2014, the Company recognized imputed interest expense on contingent consideration of $75 and an estimated decrease in the fair value of contingent consideration of $675, which are included in general and administration expense in the consolidated statement of operations.

        The following table summarizes the 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 Klein's operations are included in the consolidated statement of operations beginning July 1, 2014. Klein's revenues and pre-tax loss for the six-month period ended December 31, 2014 totaled $468 and ($926), respectively. The loss includes acquired intangible asset amortization of $286, imputed interest expense on contingent consideration of $75 and an estimated fair value adjustment to decrease the contingent consideration liability by $675.

        On July 9, 2014, the former owners of Klein (the "Klein Parties") purchased an 11.7% ownership interest in ERS, LLC for $1,500. The Klein Parties have the right to require ERS, LLC to repurchase units issued anytime between 18 and approximately 36 months after July 1, 2014 for the amount of $1,500. This purchase obligation is guaranteed by the Company and is reflected outside of permanent equity in the condensed consolidated balance sheet. After taking into account the purchase of the Klein Parties, the Company's ownership interest in ERS, LLC is 57%.

Placemark Holdings, Inc.

        On October 1, 2014, Envestnet, Inc. completed the acquisition (the "Acquisition") of Placemark Holdings, Inc., a Delaware corporation ("Placemark"). Under the terms of the Acquisition, total consideration was $58,282 for all of the outstanding capital stock of Placemark. Envestnet funded the Acquisition with available cash and borrowings under its Credit Agreement (see Note 11).

        Placemark develops UMA programs and other portfolio management outsourcing solutions, including patented portfolio overlay and tax optimization services, for banks, full-service broker-dealers and RIA firms. Envestnet acquired Placemark for its UMA and overlay capabilities, to strengthen the Company's position as a leading provider of UMA offerings, and to expand its presence in the full-service broker-dealer and RIA markets. The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, which relate to an increase in future Envestnet revenues as a result of leveraging Placemark's systems and expertise of its employees, and lower future operating expenses and technology platform-related costs due to the migration of Placemark's clients to the Company's platform. The goodwill is not deductible for income tax purposes.

        The consideration in the acquisition was as follows:

                                                                                                                                                                                    

        The following table summarizes the 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 Placemark's operations are included in the consolidated statement of operations beginning October 1, 2014. Placemark's revenues and pre-tax income for the three-month period ended December 31, 2014 totaled $6,157 and $209, respectively. The loss includes acquired intangible asset amortization of $1,254.

        Acquisition related costs of $2,430, $946 and $2,317 are included in general and administration expenses in the consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012, respectively.

Pro forma results for Envestnet, Inc. giving effect to the WMS and Placemark acquisitions

        The following unaudited pro forma financial information presents the combined results of operations of Envestnet and Placemark for the year ended December 31, 2014 and Envestnet, WMS, and Placemark for the year ended December 31, 2013. The unaudited pro forma financial information presents the results as if the acquisitions had occurred as of the beginning of 2013. The results of Klein are not included in the pro forma financial information presented below as the Klein acquisition was not material to the Company's results of operations.

        The unaudited pro forma results presented include amortization charges for acquired intangible assets and stock-based compensation expense, and the elimination of intercompany transactions, imputed interest expense, and transaction-related expenses 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 2013.

                                                                                                                                                                                    

Subsequent event

        On February 24, 2015, the Company entered into a stock purchase agreement with the shareholders of Upside Holdings, Inc. ("Upside") to acquire all of the outstanding shares of Upside for cash consideration of approximately $3,040, subject to certain post-closing adjustments. Upside is a technology company providing digital advice solutions to financial advisors.