Annual report pursuant to Section 13 and 15(d)

Business Acquisitions

v3.10.0.1
Business Acquisitions
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Business Acquisitions
Business Acquisitions
 
The following acquisitions are included within the Envestnet segment, except for Wheelhouse Analytics LLC (“Wheelhouse”) and the private company, which are included within the Envestnet | Yodlee segment.
  
FinaConnect, Inc.
 
On February 1, 2016, Envestnet acquired all of the outstanding shares of capital stock of 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 two years subsequent to the acquisition date, 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. During 2018, the Company did not pay any contingent consideration for the second year earnout.
 
The consideration transferred in the acquisition was as follows:

Cash consideration
$
6,425

Contingent consideration liability
1,929

Working capital adjustment
269

Cash acquired
(1
)
Total
$
8,622


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

Total tangible assets acquired
$
430

Total liabilities assumed
(400
)
Identifiable intangible assets
3,800

Goodwill
4,792

Total net assets acquired
$
8,622


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

 
 
 
 
Estimated
 
Amortization
 
 
Amount
 
Useful Life in Years
 
Method
Customer list
 
$
2,800

 
12
 
Accelerated
Proprietary technology
 
900

 
5
 
Straight-line
Trade names and domains
 
100

 
2
 
Straight-line
Total
 
$
3,800

 
 
 
 

 
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 years ended December 31, 2018, 2017 and 2016, acquisition related costs for FinaConnect totaled $0, $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. 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. During 2018, Company paid contingent consideration in the amount of $2,193.
 
The consideration transferred in the acquisition was as follows:

Cash consideration
$
13,299

Contingent consideration liability
2,364

Purchase consideration liability
887

Working capital adjustment
110

Cash acquired
(80
)
Total
$
16,580


 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
Total tangible assets acquired
$
385

Total liabilities assumed
(1,420
)
Identifiable intangible assets
6,600

Goodwill
11,015

Total net assets acquired
$
16,580


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

 
 
 
 
Estimated
 
Amortization
 
 
Amount
 
Useful Life in Years
 
Method
Customer list
 
$
4,000

 
15
 
Accelerated
Proprietary technology
 
2,500

 
6
 
Straight-line
Trade names and domains
 
100

 
2
 
Straight-line
Total
 
$
6,600

 
 
 
 

 
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 years ended December 31, 2018, 2017 and 2016, acquisition related costs for Wheelhouse totaled $1,763, $874 and $383, respectively, and are included in general and administration in the consolidated statements of operations.  

FolioDynamix
 
On January 2, 2018, the Company acquired all of the issued and outstanding membership interests of FolioDynamics Holdings, Inc. (“FolioDynamix”) through a merger of FolioDynamix with and into a wholly owned subsidiary of Envestnet.

FolioDynamix provides financial institutions, RIAs, and other wealth management clients with an end-to-end technology solution paired with a suite of advisory tools including model portfolios, research and overlay management services. FolioDynamix is included in the Envestnet segment.

The Company acquired FolioDynamix to add complementary trading tools as well as commission and brokerage support to Envestnet’s existing suite of offerings. Envestnet expects to integrate the technology and operations of FolioDynamix into the Company’s wealth management channel, enabling the Company to further leverage its operating scale and data analytics capabilities.

The Company funded the acquisition with a combination of cash on the Company’s balance sheet, purchase consideration liabilities and borrowings under its revolving credit facility.

The consideration transferred in the acquisition was as follows:

 
 
 
 
Measurement
 
 
 
 
Preliminary
 
Period
 
Revised
 
 
Estimate
 
Adjustments
 
Estimate
Cash consideration
 
$
187,580

 
$
12,297

 
$
199,877

Purchase consideration liability
 
12,297

 
(12,297
)
 

Working capital and other adjustments
 
(3,893
)
 
(2,849
)
 
(6,742
)
Total
 
$
195,984

 
$
(2,849
)
 
$
193,135



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

 
 
 
 
Measurement
 
 
 
 
Preliminary
 
Period
 
Revised
 
 
Estimate
 
Adjustments
 
Estimate
Cash and cash equivalents
 
$
4,876

 
$

 
$
4,876

Accounts receivable
 
4,962

 

 
4,962

Prepaid expenses and other current assets
 
1,600

 
2,173

 
3,773

Property and equipment, net
 
927

 

 
927

Other non-current assets
 
441

 

 
441

Identifiable intangible assets
 
117,700

 
18,000

 
135,700

Goodwill
 
97,248

 
(17,357
)
 
79,891

Total assets acquired
 
227,754

 
2,816

 
230,570

Accounts payable
 
(5,358
)
 

 
(5,358
)
Accrued expenses
 
(7,173
)
 
(734
)
 
(7,907
)
Deferred tax liability
 
(18,245
)
 
(5,055
)
 
(23,300
)
Deferred revenue
 
(930
)
 
124

 
(806
)
Other non-current liabilities
 
(64
)
 

 
(64
)
Total liabilities assumed
 
(31,770
)
 
(5,665
)
 
(37,435
)
Total net assets acquired
 
$
195,984

 
$
(2,849
)
 
$
193,135



The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to lower future operating expenses and the knowledge and experience of the workforce in place. The goodwill is not deductible for income tax purposes. During 2018, after obtaining additional information, the estimated fair value of the customer list intangible was revised due to a change in the assumed attrition rate of the customer base acquired.

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

 
 
 
 
Measurement
 
 
 
 
 
 
 
 
Preliminary
 
Period
 
Revised
 
Estimated
 
Amortization
 
 
Estimate
 
Adjustments
 
Estimate
 
Useful Life in Years
 
Method
Customer list
 
$
95,000

 
$
18,500

 
$
113,500

 
13
 
Accelerated
Proprietary technology
 
18,000

 
(500
)
 
17,500

 
5
 
Straight-line
Trade names and domains
 
4,700

 

 
4,700

 
6
 
Straight-line
Total
 
$
117,700

 
$
18,000

 
$
135,700

 
 
 
 



The results of FolioDynamix’s operations are included in the consolidated statements of operations beginning January 2, 2018. FolioDynamix’s revenues for the year ended December 31, 2018 totaled $68,122. FolioDynamix’s pre-tax loss for the year ended December 31, 2018 totaled $13,777. The pre-tax loss includes estimated acquired intangible asset amortization of $17,908 for the year ended December 31, 2018.

For the year ended December 31, 2018, acquisition related costs for FolioDynamix totaled $1,557, and are included in general and administration expenses. The Company may incur additional acquisition related costs in 2019.

Acquisition of private company

In August 2018, the Company acquired all of the issued and outstanding membership interests of a private technology company that provides market research analytics. In connection with this acquisition, the Company paid estimated net consideration of $6,585, subject to certain closing and post-closing adjustments.

The preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition are not material. As a result the remaining balance was allocated to goodwill in the amount of $6,885. The goodwill is not deductible for income tax purposes.

Unaudited pro forma results for Envestnet, Inc. giving effect to the FolioDynamix acquisition
 
The following pro forma financial information presents the combined results of operations of Envestnet and FolioDynamix for the year ended December 31, 2017. The pro forma financial information presents the results as if the acquisition had occurred as of the beginning of 2017. The results of the private company acquisition are not included in the pro forma financial information presented below as they were not considered material to the Company's results of operations.

The unaudited pro forma results presented primarily include adjustments for amortization charges for acquired intangible assets, stock-based compensation expense, transaction related expenses and interest expense.

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 2017.

 
 
Year Ended
 
 
December 31, 2017
Revenues
 
$
724,618

Net loss
 
(21,194
)
Net loss per share:
 
 
Basic
 
$
(0.48
)
Diluted
 
$
(0.48
)