6.	Business combinations, goodwill and intangible assets

Business combinations

Acquisition of AutoPlaza.com in Mexico

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 vehicles and real estate (“the Acquired Business”).

On September 12, 2014, ETVE acquired the remaining 40% of the membership interest of Autopark LLC for a total amount of $4,000,000 in order to own the 100% of the membership interest of the Acquired Business. On December 10, 2014, ETVE paid with its own funds the total price.

Acquisition of online classifieds advertisement companies in Chile and Mexico

On April 8, 2014, through its subsidiaries Meli Inversiones SpA and Meli Participaciones, S.L., the Company acquired 100% of the issued and outstanding shares of capital stock of the companies VMK S.A., Inmobiliaria Web Chile S. de R.L. de C.V. and Inmuebles Online S.A., companies that operate online classified advertisements platforms dedicated to the sale of real estate in Chile through Portal Inmobiliario brand and in Mexico through Guia de Inmuebles brand, in order to increase its participation on e-commerce business in those countries.

The aggregate purchase price for the acquisition of the 100% of the acquired business was $37,989,865, measured at its fair value, amount that included: (i) the total cash payment of $32,147,755 at closing day; (ii) an escrow of $1,000,000 held in an escrow agent, according to the stock purchase agreement; (iii) the contingent additional cash considerations and escrows up to $4,621,085 in case the companies achieve certain revenue performance targets during 2014 and 2015, measured at fair value; and, (iv) an additional price adjustment escrow of $221,025, which was paid in January 2015.

In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.

As of December 31, 2014, the fair value of the contingent consideration recorded is $4,833,061. Contingent additional cash considerations are to be paid after the achievement of the performance targets.

The Company’s consolidated statement of income includes the results of operations of the acquired business as from April 8, 2014. The net revenues and net income of the acquiree included in the Company’s consolidated statement of income since the acquisition amounted to $10,631,998 and $2,207,709, respectively.

The following table summarizes the purchase price allocation for the acquisition:


	Chile			Mexico			Total
Cash and cash equivalents	$	546,736		$	474,214		$	1,020,950
Other net tangible assets / (liabilities)		2,306,226			(2,727,285	)		(421,059	)
Trademarks		5,422,000			2,155,000			7,577,000
Customer Lists		10,104,059			321,809			10,425,868
Software		446,625			—			446,625
Non solicitation agreement		587,000			—			587,000
Deferred tax assets and liabilities		(2,643,784	)		213,973			(2,429,811	)
Goodwill		14,709,583			6,073,709			20,783,292

Purchase Price	$	31,478,445		$	6,511,420		$	37,989,865

The purchase price was allocated based on the measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the date of these consolidated financial statements. The valuation of identifiable intangible assets acquired reflects management’s estimates based on the use of established valuation methods. Such assets consist of trademarks, customer lists, software and non-solicitation agreements for a total amount of $19,036,493. Management of the Company estimates that trademarks have an indefinite lifetime and the intangible assets associated with customer list will be amortized over a ten year period. The non-solicitation agreement intangible asset will be amortized over a four year period and the software in three years.

Acquisitions of Software Development Companies in Argentina

On March 22, 2013, the Company completed, through its subsidiaries Meli Participaciones S.L. (ETVE) and MercadoLibre S.R.L. (MercadoLibre Argentina) (together referred to as the “Buyer”), the acquisition of the 100% of equity interest in a software development company located and organized under the laws of the Province of Cordoba, Argentina. The objective of the acquisition was to enhance the capabilities of the Company in terms of software development.

The aggregate purchase price for the acquisition of the 100% of the acquired business was $3,454,497 (settled in Argentine pesos 17,652,480). On such same date, the Buyer paid and agreed to pay the purchase price as follows: i) $2,191,781 in cash; ii) set an escrow amounting to $489,237 for a 24-months period, aiming to cover unexpected liabilities and negative working capital; iii) set an escrow amounting to $547,945 for a 36-months period, aiming to continue the employment relationship of certain key employees; and iv) on June 24, 2013 the Company paid the remaining $225,534 net of certain negative working capital adjustments.

In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.

The above mentioned escrow for the continuing employment relationship of $547,945 is expensed over the 36-months period or a lesser period of time if certain other conditions determined in the Selling and Purchase Agreement (SPA) occur. The escrow will be released at the end of such period, together with the accrued interest.

The Company’s consolidated statement of income includes the results of operations of the acquired business as from March 22, 2013. The net revenues and net loss of the acquiree included in the Company’s consolidated statement of income as of December 31, 2013 since the acquisition amounted to $524,965 and $7,562, respectively.

The following table summarizes the definitive purchase price allocation for the acquisition:


Net assets acquired	$	237,891
Goodwill		2,668,661

Purchase price		2,906,552
Escrow for employment relationship		547,945

Aggregate price paid	$	3,454,497

Additionally, on December 15, 2014, the Company completed, through its subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, a limited liability company organized under the laws of Delaware, USA (together referred to as the “Buyers”), the acquisition of the 100% of equity interest of Business Vision S.A., a software development company located and organized under the laws of the Buenos Aires City, Argentina. The objective of the acquisition was to enhance the capabilities of the Company in terms of software development.

The aggregate purchase price for the acquisition of the 100% of the acquired business was $4,768,549. On such same date, the Buyer paid and agreed to pay the purchase price as follows: i) $3,803,955 in cash, net of $111,045 of negative working capital adjustments; ii) set an escrow amounting to $250,000 for a 24-months period, aiming to cover unexpected adjustments to the initial aggregate purchase price; and iii) set an escrow amounting to $735,000, 50% for a 12-months period and 50% for a 24-months period since the closing date.

The Company’s consolidated statement of income includes the results of operations of the acquired business as from December 15, 2014. The net revenues and net loss of the acquiree included in the Company’s consolidated statement of income as of December 31, 2014, are immaterial to the consolidated financial statements.

The following table summarizes the definitive purchase price allocation for the acquisition:


Cash and cash equivalents	$	81,219
Other net tangible assets		856,781

Total net tangible assets acquired	$	938,000

Customer Lists		563,000
Non solicitation agreement		427,976
Deferred tax assets and liabilities		(299,770	)
Goodwill		3,139,343

Purchase Price	$	4,768,549

Supplemental pro-forma information required by U.S. GAAP, is impracticable after making every reasonable effort to do so, however, amounts involved are deemed to be immaterial.

In both acquisitions described above, arising goodwill has been allocated proportionally to each of the segments identified by the Company’s management, considering the synergies expected from this acquisition and it is expected that the acquiree will contribute to the earnings generation process of such segments.

The Company recognized goodwill for those acquisitions based on management expectation that the acquired businesses will increase the software capabilities of the Company and will improve the Company’s business in Latin America.

Goodwills are not deductible for tax purposes, except for the proportion acquired by Meli Inversiones SpA (Chile) of the Portal Inmobiliario brand in Chile.

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

Goodwill and intangible assets

The composition of goodwill and intangible assets is as follows:


	December 31, 2014			December 31, 2013
Goodwill	$	68,828,504		$	55,101,218

Intangible assets with indefinite lives
– Trademarks		10,276,386			5,238,090
Amortizable intangible assets
– Licenses and others		5,110,836			3,430,003
– Non-compete / solicitation agreement		1,829,208			1,025,605
– Customer list		11,293,828			1,568,190

Total intangible assets	$	28,510,258		$	11,261,888
Accumulated amortization		(5,338,909	)		(4,670,303	)

Total intangible assets, net	$	23,171,349		$	6,591,585

Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 are as follows:


	Year ended December 31, 2014
	Brazil			Argentina			Chile			Mexico			Venezuela		Colombia			Other Countries			Total
Balance, beginning of the year	$	10,366,018		$	14,676,145		$	6,520,194		$	11,376,140		$	5,251,667	$	5,506,062		$	1,404,992		$	55,101,218
– Business acquisition		1,538,278			775,418			14,709,583			6,293,463			477,180		81,623			47,090			23,922,635
– Effect of exchange rates change		(1,347,193	)		(3,592,495	)		(2,128,326	)		(1,950,906	)		—		(1,066,229	)		(110,200	)		(10,195,349	)

Balance, end of the year	$	10,557,103		$	11,859,068		$	19,101,451		$	15,718,697		$	5,728,847	$	4,521,456		$	1,341,882		$	68,828,504


	Year ended December 31, 2013
	Brazil			Argentina			Chile			Mexico			Venezuela		Colombia			Other Countries			Total
Balance, beginning of year	$	10,706,281		$	18,889,094		$	7,115,211		$	11,404,780		$	4,846,030	$	5,897,136		$	1,507,531		$	60,366,063
– Business Acquisition		1,307,644			659,159			—			186,806			405,637		69,385			40,030			2,668,661
– Effect of exchange rates changes		(1,647,907	)		(4,872,108	)		(595,017	)		(215,446	)		—		(460,459	)		(142,569	)		(7,933,506	)

Balance, end of the year	$	10,366,018		$	14,676,145		$	6,520,194		$	11,376,140		$	5,251,667	$	5,506,062		$	1,404,992		$	55,101,218

Intangible assets with definite useful life

Intangible assets with definite useful life are comprised of customer lists and user base, non-compete and non-solicitation agreements, acquired software licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assets totaled $1,691,771, $781,074 and $891,661 for the years ended December 31, 2014, 2013 and 2012, respectively.

The following table summarizes the remaining amortization of intangible assets with definite useful life as of December 31, 2014.


For year ended 12/31/2015	$	2,301,349
For year ended 12/31/2016		2,144,583
For year ended 12/31/2017		1,852,736
For year ended 12/31/2018		1,291,703
Thereafter		5,304,592

	$	12,894,963