4. Business combinations, goodwill and intangible assets

Business combinations

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 $37,990 thousands, measured at its fair value, amount that included: (i) the total cash payment of $32,148 thousands at closing day; (ii) an escrow of $1,000 thousand held in an escrow agent, according to the stock purchase agreement; (iii) the contingent additional cash considerations and escrows up to $4,621 thousands 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 thousands, 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 March 31, 2015 and December 31, 2014, the fair value of the contingent consideration recorded is $4,875 thousands and $4,833 thousands, respectively. Contingent additional cash considerations are to be paid after the achievement of the performance targets.

The following table summarizes the definite purchase price allocation (in thousands of U.S. dollars) for the acquisition:



	Chile		Mexico		Total
Cash and cash equivalents	$	547	$	474	$	1,021
Other net tangible assets / (liabilities)		2,306		(2,727)		(421)
Trademarks		5,422		2,155		7,577
Customer Lists		10,104		322		10,426
Software		447		—		447
Non solicitation agreement		587		—		587
Deferred tax assets and liabilities		(2,644)		214		(2,430)
Goodwill		14,709		6,074		20,783
Purchase Price	$	31,478	$	6,512	$	37,990

The purchase price was allocated based on the definite measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the date of these unaudited interim condensed 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 thousands. 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.

Acquisition of Software Development Company in Argentina

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 thousands. On such same date, the Buyer paid and agreed to pay the purchase price as follows: i) $3,804 thousands in cash, net of $111 thousands of negative working capital adjustments; ii) set an escrow amounting to $250 thousand for a 24-months period, aiming to cover unexpected adjustments to the initial aggregate purchase price; and iii) set an escrow amounting to $735 thousands, 50% for a 12-months period and 50% for a 24-months period since the closing date.

The following table summarizes the preliminary purchase price allocation (in thousands of U.S. dollars) for the acquisition:


Cash and cash equivalents	$	81
Other net tangible assets		857
Total net tangible assets acquired		938
Customer Lists		563
Non solicitation agreement		428
Deferred tax assets and liabilities		(300)
Goodwill		3,139
Purchase Price	$	4,768

In the acquisition 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 this acquisition 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.

Goodwill is 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:


	March 31,	December 31,
	2015	2014
	(In thousands)
Goodwill	$ 65,577	$ 68,829
Intangible assets with indefinite lives
— Trademarks	9,986	10,276
Amortizable intangible assets
— Licenses and others	5,862	5,111
— Non-compete / solicitation agreement	1,662	1,829
— Customer list	10,826	11,294
Total intangible assets	$ 28,336	$ 28,510
Accumulated amortization	(5,535)	(5,339)
Total intangible assets, net	$ 22,801	$ 23,171

Goodwill

The changes in the carrying amount of goodwill for the three-month period ended March 31, 2015 and the year ended December 31, 2014 are as follows:


	Period ended March 31, 2015
	(In thousands)
	Brazil	Argentina	Chile	Mexico	Venezuela	Colombia	Other Countries	Total
Balance, beginning of the period	$ 10,557	$ 11,859	$ 19,101	$ 15,719	$ 5,729	$ 4,521	$ 1,343	$ 68,829
- Effect of exchange rates changes	(1,381)	(376)	(579)	(552)	—	(314)	(50)	(3,252)
Balance, end of the period	$ 9,176	$ 11,483	$ 18,522	$ 15,167	$ 5,729	$ 4,207	$ 1,293	$ 65,577


	Year ended December 31, 2014
	(In thousands)
	Brazil	Argentina	Chile	Mexico	Venezuela	Colombia	Other Countries	Total
Balance, beginning of year	$ 10,366	$ 14,676	$ 6,520	$ 11,376	$ 5,252	$ 5,506	$ 1,405	$ 55,101
- Bussiness Acquisition	1,538	775	14,710	6,293	477	82	48	23,923
- Effect of exchange rates changes	(1,347)	(3,592)	(2,129)	(1,950)	—	(1,067)	(110)	(10,195)
Balance, end of the year	$ 10,557	$ 11,859	$ 19,101	$ 15,719	$ 5,729	$ 4,521	$ 1,343	$ 68,829

Intangible assets with definite useful life

Intangible assets with definite useful life are comprised of customer lists and user base, non-compete and solicitation agreements, acquired software licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assets totaled $510 thousands and $159 thousands for the three-month periods ended March 31, 2015 and 2014, respectively.

The following table summarizes the remaining amortization of intangible assets (in thousands of U.S. dollars) with definite useful life as of March 31, 2015:


For year ended 12/31/2015		$ 1,795
For year ended 12/31/2016		2,359
For year ended 12/31/2017		2,091
For year ended 12/31/2018		1,336
Thereafter		5,234
		$ 12,815