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Business Acquisitions
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Mar. 31, 2014
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| Business Acquisitions |
3. Business Acquisitions
Envestnet Retirement Solutions, LLC and Non-controlling Interest
Effective February 1, 2014, the Company formed Envestnet Retirement Solutions, LLC (“ERS”), with various third parties. ERS offers advisory and technology enabled services to financial advisors and retirement plans. In exchange for an approximate 65% ownership interest in ERS, the Company contributed certain assets to ERS and has agreed to fund a certain amount of the operating expenses of ERS.
The accounting for the formation of ERS and the related fair values of tangible and intangible assets contributed is not complete. The Company expects to finalize the valuation of the amounts contributed and complete the formation accounting as soon as practicable but no later than June 30, 2014.
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.
In connection with the acquisition of WMS, the Company is required to pay Prudential Investments LLC contingent consideration of up to a total of $23,000 in cash, based upon meeting certain performance targets. 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 March 31, 2014 was $17,437. This amount is the present value of an undiscounted liability of $19,670, 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, $6,745 on July 31, 2015 and $6,925 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 are recognized in earnings of the Company.
For the three month period ending March 31, 2014, the Company recognized imputed interest expense on contingent consideration of $412 which is included in general and administration expense in the condensed consolidated statement of operations.
Pro forma results for Envestnet, Inc. giving effect to the WMS acquisition
The following pro forma financial information presents the combined results of operations of Envestnet and WMS, acquired on July 1, 2013, for the three months ended March 31, 2013. The pro forma financial information presents the results as if the acquisition had occurred as of the beginning of 2013.
The unaudited pro forma results presented include amortization charges for acquired intangible assets, 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 as of the beginning of 2013.
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