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Acquisitions | 12 Months Ended
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Nov. 30, 2018
Business Combinations [Abstract] |
ACQUISITIONS | ACQUISITIONS Marketo On October 31, 2018, we completed the acquisition of Marketo, a privately held marketing cloud platform company, for approximately $4.74 billion of cash consideration. Adding Marketo’s engagement platform to Adobe Experience Cloud furthers our long-term plan for strategic growth in the Digital Experience segment and enables us to offer a comprehensive set of solutions to enable customers across industries and companies automate and orchestrate their marketing activities. Under the terms of the Share Purchase Agreement (the “Purchase Agreement”), we acquired all of the issued and outstanding shares of capital stock of Milestone Topco, Inc., a Delaware corporation (“Topco”) and indirect parent company of Marketo, and other equity interests in Marketo. In connection with the acquisition, each Marketo equity award that was issued and outstanding was cancelled and extinguished in exchange for cash consideration. Also pursuant to the Purchase Agreement, upon closing of the transaction, cash was paid for the settlement of Marketo’s long-term incentive plan, the settlement of Marketo’s indebtedness and the acquisition of all remaining equity interests in Marketo K.K., a Japanese corporation and joint venture. In connection with the acquisition of Marketo, we entered into a credit agreement providing for a $2.25 billion senior unsecured term loan (the “Term Loan”). The proceeds of the Term Loan were used to (i) fund a portion of the purchase price of the acquisition and (ii) to pay fees and expenses incurred in connection with the acquisition. The Term Loan funds were received on October 31, 2018 upon closing of the acquisition and will mature 18 months following the initial funding date. See Note 15 for further details regarding our debt. Following the closing, we began integrating Marketo into our Digital Experience reportable segment. We have included the financial results of Marketo in our Consolidated Financial Statements beginning on the acquisition date. The amounts of net revenue and net loss of Marketo included in the Company’s Consolidated Statements of Income from the acquisition date through November 30, 2018 were not material. The direct transaction costs associated with the acquisition were also not material. Purchase Price Allocation Under the purchase accounting method, the total preliminary purchase price was allocated to Marketo’s net tangible and intangible assets based upon their estimated fair values as of the acquisition date. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill. The table below represents the preliminary purchase price allocation to the acquired net tangible and intangible assets of Marketo based on their estimated fair values as of the acquisition date and the associated estimated useful lives at that date. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of valuation analyses pertaining to intangible assets acquired, deferred revenue and tax liabilities assumed including the calculation of deferred tax assets and liabilities.
(in thousands) | Amount |  | Weighted Average Useful Life (years)
Customer contracts and relationships | $ | 576,900 |  |  | 11
Purchased technology | 444,500 |  |  | 7
Backlog | 105,800 |  |  | 2
Non-competition agreements | 12,100 |  |  | 2
Trademarks | 328,500 |  |  | 9
Total identifiable intangible assets | 1,467,800 |  |  |
Net liabilities assumed | (191,288 | ) |  | N/A
Goodwill (1) | 3,459,751 |  |  | N/A
Total estimated purchase price | $ | 4,736,263 |  |  |
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(1) | Non-deductible for tax-purposes.
Identifiable intangible assets—Customer relationships consist of Marketo’s contractual relationships and customer loyalty related to their enterprise and commercial customers as well as technology partner relationships. The estimated fair value of the customer contracts and relationships was determined based on projected cash flows attributable to the asset. Purchased technology acquired primarily consists of Marketo’s cloud-based engagement marketing software platform. The estimated fair value of the purchased technology was determined based on the expected future cost savings resulting from ownership of the asset. Backlog relates to subscription contracts and professional services. Non-compete agreements include agreements with key Marketo employees that preclude them from competing against Marketo for a period of two years from the acquisition date. Trademarks include the Marketo trade name, which is well known in the marketing ecosystem. We amortize the fair value of these intangible assets on a straight-line basis over their respective estimated useful lives. Goodwill—Approximately $3.46 billion has been allocated to goodwill, and has been allocated in full to the Digital Experience reportable segment. Goodwill represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant, acquiring a talented workforce and cost savings opportunities. Net liabilities assumed —Marketo’s tangible assets and liabilities as of October 31, 2018 were reviewed and adjusted to their fair value as necessary. The net liabilities assumed included, among other items, $100.1 million in accrued expenses, $74.8 million in deferred revenue and $182.6 million in deferred tax liabilities, which were partially offset by $54.9 million in cash and cash equivalents and $72.4 million in trade receivables acquired. Deferred revenue—Included in net liabilities assumed is Marketo’s deferred revenue which represents advance payments from customers related to subscription contracts and professional services. We estimated our obligation related to the deferred revenue using the cost build-up approach. The cost build-up approach determines fair value by estimating the direct and indirect costs related to supporting the obligation plus an assumed operating margin. The sum of the costs and assumed operating profit approximates, in theory, the amount that Marketo would be required to pay a third party to assume the obligation. The estimated costs to fulfill the obligation were based on the near-term projected cost structure for subscription and professional services. As a result, we recorded an adjustment to reduce Marketo’s carrying value of deferred revenue to $74.8 million, which represents our estimate of the fair value of the contractual obligations assumed based on a preliminary valuation. Taxes—As part of our accounting for the Marketo acquisition, a portion of the overall purchase price was allocated to goodwill and acquired intangible assets. Amortization expense associated with acquired intangible assets is not deductible for tax purposes. Thus, approximately $348.8 million, included in the net liabilities assumed, was established as a deferred tax liability for the future amortization of the intangible assets, and was partially offset by other tax assets of $166.2 million, which primarily consist of net operating loss carryforwards. Any impairment charges made in the future associated with goodwill will not be tax deductible and will result in an increased effective income tax rate in the quarter the impairment is recorded. Unaudited Pro Forma Results The financial information in the table below summarizes the combined results of operations of Adobe and Marketo, on a pro forma basis, as though the companies had been combined as of the beginning of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on December 3, 2016 or of results that may occur in the future. The following unaudited pro forma financial information for fiscal 2018 and 2017 combines the historical results for Adobe for the years ended November 30, 2018 and December 1, 2017 and the historical results of Marketo for the period January 1, 2018 through October 31, 2018 and the year ended December 31, 2017, respectively (in thousands):
| 2018 |  | 2017
Net revenues | $ | 9,338,790 |  |  | $ | 7,568,713 |
Net income | $ | 2,362,238 |  |  | $ | 1,404,864 |
Magento On June 18, 2018, we completed our acquisition of Magento, a privately held commerce platform company. During the third quarter of fiscal 2018, we began integrating Magento into our Digital Experience reportable segment. The table below represents the preliminary purchase price allocation to the acquired net tangible and intangible assets of Magento based on their estimated fair values as of the acquisition date and the associated estimated useful lives at that date. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of valuation analyses pertaining to tax liabilities assumed including the calculation of deferred tax assets and liabilities.
(in thousands) | Amount |  | Weighted Average Useful Life (years)
Customer contracts and relationships | $ | 208,000 |  |  | 8
Purchased technology | 84,200 |  |  | 5
In-process research and development (1) | 39,100 |  |  | N/A
Trademarks | 21,100 |  |  | 3
Other intangibles | 43,400 |  |  | 3
Total identifiable intangible assets | 395,800 |  |  |
Net liabilities assumed | (67,417 | ) |  | N/A
Goodwill (2) | 1,316,217 |  |  | N/A
Total estimated purchase price | $ | 1,644,601 |  |  |
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(1) | Capitalized as purchased technology and are considered indefinite lived until the completion or abandonment of the associated research and development efforts.
(2) | Non-deductible for tax-purposes.
Pro forma information has not been presented for the Magento acquisition as the impact to our Consolidated Financial Statements was not material. TubeMogul On December 19, 2016, we completed our acquisition of TubeMogul, a publicly held video advertising platform company. As of the end of fiscal 2018, we have integrated TubeMogul into our Digital Experience reportable segment. Under the acquisition method of accounting, the total final purchase price was allocated to TubeMogul’s net tangible and intangible assets based upon their estimated fair values as of December 19, 2016. During fiscal 2017, we recorded immaterial purchase accounting adjustments based on changes to management’s estimates and assumptions in regards to tangible assets, liabilities assumed, and their related impact to goodwill. The total final purchase price for TubeMogul was $560.8 million of which $348.4 million was allocated to goodwill that was non-deductible for tax purposes, $113.1 million to identifiable intangible assets and $99.3 million to net assets acquired. Pro forma information has not been presented for the TubeMogul acquisition as the impact to our Consolidated Financial Statements was not material. Other We also completed other immaterial business acquisitions during the fiscal years presented. Pro forma information has not been presented for these acquisitions as the impact to our Consolidated Financial Statements was not material. Allegorithmic Subsequent to November 30, 2018, we acquired the remaining interest in Allegorithmic SAS (“Allegorithmic”), a privately-held 3D editing and authoring software company for gaming and entertainment, for approximately $105.0 million in cash consideration. The initial purchase accounting for this transaction has not yet been completed given the short period of time between the acquisition date and the issuance of these financial statements. Allegorithmic will be integrated into our Digital Media reportable segment for financial reporting purposes in the first quarter of fiscal 2019.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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