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Business Combinations, Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2012

Business Combinations, Goodwill and Intangible Assets [Abstract]

Business Combinations, Goodwill and Intangible Assets

4. Business Combinations, Goodwill and Intangible Assets

Business Combinations

On September 14, 2011, the Company completed, through one of its subsidiaries, Meli Participaciones S.L. (“ETVE” or “the Buyer”), the acquisition of the 60 % of outstanding membership interest of Autopark LLC, a limited liability company organized under the laws of Delaware, from Hasteny Trading S.A. (“Hasteny”or “the Seller”), a parent company organized under the laws of Uruguay, who owned all the shares of the capital stock of Autopark LLC.

Autopark LLC owns directly and indirectly the 100% of the membership interest of AP Clasificados S.R.L. de C.V. (“AP Clasificados”), a company organized under the laws of Mexico. AP Clasificados operates an online classified advertisements platform in Mexico primarily dedicated to the sale of automobiles at www.autoplaza.com.mx and real estate at www.homeshop.com.mx (“the Acquired Business”).

The aggregate purchase price paid by the Company to the Seller for the 60% of the Acquired Business was $5,472,056. In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.

On September 12, 2011 (the “settlement date”), part of the purchase price amounting to $1,500,000, was placed into an escrow account, in order to cover unexpected liabilities and working capital. On September 12, 2012 and 2013, 50% of the escrow amount less the amount of all claims made by the Buyer, if any, will be released, respectively.

In addition, ETVE has the right and option (but not the obligation) to purchase the remaining 40% of the membership interest of Autopark LLC following the earlier to occur of (i) third anniversary of the settlement date, or (ii) additional capital contribution be required to capitalize Autopark LLC by their own member’s decision and Hasteny does not make such additional capital contribution within ten (10) days of such members’ consent. The total consideration to be paid shall be the greater of (i) $4,000,000 and (ii) the amount resulting from multiplying (A) the percentage of the membership interest held by Hasteny as of the date of the Call Notice by (B) an amount equal to 3.5 times the amount of invoiced sales of the Acquired Business for the twelve months period ending on the date of Call Notice.

On the other hand, Hasteny has the right and option (but not the obligation) to sell and transfer, all of the Hasteny interest in Autopark LLC, to ETVE and ETVE has the obligation to buy following the earlier to occur (i) the third anniversary of the effective date, (ii) the termination of the employment of the main operating officer of the acquired company, or (iii) death or incapacitation of the main operating officer of the acquired company. The total consideration to be paid by ETVE for the Hasteny Interests shall be the same as described in the preceding paragraph.

The Seller and its affiliates have also agreed to enter into certain non-compete agreements with the Company for 5 years since September 12, 2011.

The Company’s statement of income includes the results of operations of the Acquired Businesses from September 15, 2011.

The following table summarizes the allocation of the cash paid in the acquisition:


Net Tangible Assets	$	153,349
Identifiable Intangible Assets		3,290,998
Deferred Tax Liabilities		(987,299	)
Goodwill		6,663,045
Noncontrolling interest		(3,648,037	)

Aggregate Purchase Price	$	5,472,056

Assets acquired were valued at their respective fair values at the acquisition date accordingly to U.S. GAAP. The valuation of identifiable intangible assets acquired as well as non-controlling interest reflects management’s estimates based on, among other factors, use of established valuation methods. The identifiable intangible assets consist of trademarks and domains, customer lists and non-compete agreements. Management of the Company estimates that trademarks have an indefinite useful life, for that reason, these intangible assets are not amortized but they are subject to an annual impairment test. Intangible assets associated with customer list and non-compete agreements are amortized over a five year period.

The Company recognized a goodwill because the acquired business is expected to expand the company’s business in Mexico and to strengthen the Company`s leadership position in that country.

Goodwill is not expected to be deductible for tax purposes.

The results of operations for periods prior to the acquisition, individually and in the aggregate, were not material to the condensed consolidated statements of operations of the Company and, accordingly, pro forma results of operations have not been presented.

Goodwill and Intangible Assets

The composition of goodwill and intangible assets is as follows:


	March 31,			December 31,
	2012			2011
Goodwill	$	63,935,487		$	62,093,948
Intangible assets with indefinite lives
- Trademarks		5,363,349			5,068,147
Amortizable intangible assets
- Licenses and others		2,808,875			2,798,112
- Non-compete agreement		1,304,151			1,270,807
- Customer list		1,795,001			1,742,087

Total intangible assets	$	11,271,376		$	10,879,153
Accumulated amortization		(4,644,589	)		(4,384,296	)

Total intangible assets, net	$	6,626,787		$	6,494,857

Goodwill

The changes in the carrying amount of goodwill for the three-month period ended March 31, 2012 and the year ended December 31, 2011, are as follows:


	Period ended March 31, 2012
	Brazil			Argentina			Chile			Mexico			Venezuela		Colombia			Other Countries		Total
Balance, beginning of year	$	11,663,443		$	21,583,774		$	6,577,459		$	10,621,839		$	4,846,030	$	5,367,526		$	1,433,877	$	62,093,948
- Effect of exchange rates changes		343,739			(369,670	)		428,566			945,932			—		475,320			17,652		1,841,539

Balance, end of the period	$	12,007,182		$	21,214,104		$	7,006,025		$	11,567,771		$	4,846,030	$	5,842,846		$	1,451,529	$	63,935,487


	Year ended December 31, 2011
	Brazil			Argentina			Chile			Mexico			Venezuela		Colombia			Other Countries		Total
Balance, beginning of year	$	13,130,649		$	23,364,326		$	7,296,888		$	5,025,623		$	4,846,030	$	5,448,068		$	1,384,730	$	60,496,314
- Purchase of Autoplaza.com		—			—			—			6,663,045			—		—			—		6,663,045
- Effect of exchange rates changes		(1,467,206	)		(1,780,552	)		(719,429	)		(1,066,829	)		—		(80,542	)		49,147		(5,065,411	)

Balance, end of the year	$	11,663,443		$	21,583,774		$	6,577,459		$	10,621,839		$	4,846,030	$	5,367,526		$	1,433,877	$	62,093,948

Amortizable intangible assets

Amortizable intangible assets are comprised of customer lists and user base, trademarks and trade names, non-compete agreements, acquired software licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assets totaled $268,163 and $236,121 for the three-month periods ended March 31, 2012 and 2011, respectively.

Expected future intangible asset amortization completed as of March 31, 2012 is as follows:


For year ended 12/31/2012	$	461,383
For year ended 12/31/2013		455,163
For year ended 12/31/2014		184,970
For year ended 12/31/2015		99,948
Thereafter		61,974

	$	1,263,438