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Business Combinations, Goodwill and Intangible Assets | 6 Months Ended
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Jun. 30, 2015
Business Combinations, Goodwill And Intangible Assets [Abstract] |
Business Combinations, Goodwill and Intangible Assets | 4. Business combinations, goodwill and intangible assets Business combinations Acquisition of online classifieds advertisement company in Mexico On April 22, 2015, through its subsidiaries Deremate.com de Mexico, S. de R.L. de C.V. and MercadoLibre, S. de R.L. de C.V., the Company acquired 100% of the issued and outstanding shares of capital stock of Metros Cúbicos, S.A. de C.V., company that operates an online classified advertisement platform dedicated to the sale of real estate in Mexico, in order to increase its participation on e-commerce business in that country. The aggregate purchase price for the acquisition of the 100% of the acquired business was $29,917 thousands, measured at its fair value, amount that included: (i) the total cash payment of $26,917 thousands at closing day; and (ii) an escrow of $3,000 thousands held in an escrow account, according to the stock purchase agreement. In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred. The Company’s unaudited interim condensed consolidated statement of income includes the results of operations of the acquired business as from April 22, 2015. The net revenues and net income of the acquiree included in the Company’s unaudited interim condensed consolidated statement of income since the acquisition amounted to $831 thousands and $296 thousands, respectively. The following table summarizes the preliminary purchase price allocation for the acquisition:
|  | Metros Cúbicos S.A. de C.V. In thousands of U.S. dollars
Cash and cash equivalents |  | $ | 593
Other net tangible assets / (liabilities) |  |  | 241
Trademarks |  |  | 4,568
Customer Lists |  |  | 3,924
Non-solicitation and Non-compete agreements |  |  | 229
Deferred tax assets and liabilities |  |  | (2,616)
Goodwill |  |  | 22,978
Purchase Price |  | $ | 29,917
The purchase price was allocated based on the provisional 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 and non-solicitation and non-compete agreements for a total amount of $8,721 thousands. Management of the Company estimates that trademarks have an indefinite useful life and the intangible asset associated with the customer list will be amortized over a five-year period. The non-solicitation and non-compete agreement intangible asset will be amortized over a three-year period. The Company recognized goodwill for this acquisition based on management expectation that the acquired business will improve the Company’s business in Mexico. Arising goodwill ha s been allocated to the Mexican segment 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 segment. Goodwill is not deductible for tax purposes. Acquisition of a software development company in Brazil On April 1, 2015, through its subsidiaries Ebazar.com.br Ltda. and MercadoLivre.com Atividades de Internet Ltda, the Company acquired 100% of the issued and outstanding shares of capital stock of the company KPL Soluções Ltda., a company that develops ERP software for the e-commerce industry in Brazil. The aggregate purchase price for the acquisition of the 100% of the acquired business was $22,685 thousands, measured at its fair value, amount that included: (i) the total cash payment of $12,529 thousands at closing day; (ii) an escrow of $3,316 thousands, and (i i i) the contingent additional cash considerations up to $6,840 thousands in case the company achieve s certain performance targets during the 24 months since the acquisition date, measured at fair value. Additionally, a payment of $1,584 thousands will be transferred to the sellers after the end of the second year after the acquisition date, aiming to continue the employment relationship as key employees. This additional payment will be expensed over the 24 month-period up to fulfillment of the conditions required by the selling and purchase agreement. The Company’s unaudited interim condensed consolidated statement of income includes the results of operations of the acquired business as from April 1, 2015. The net revenues and net loss of the acquiree included in the Company’s interim condensed consolidated statement of income since the acquisition amounted to $838 thousands and $299 thousands, respectively. In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred. As of June 30, 2015, the fair value of the contingent consideration recorded is $7,158 thousands. Contingent additional cash considerations are to be paid after the achievement of the performance targets. The following table summarizes the preliminary purchase price allocation for the acquisition:
|  | KPL Soluções Ltda. In thousands of U.S. dollars
Cash and cash equivalents |  | $ | 159
Other net tangible assets / (liabilities) |  |  | 27
Customer lists |  |  | 3,137
Software |  |  | 4,791
Non-solicitation and Non-compete agreements |  |  | 505
Goodwill |  |  | 14,066
Purchase Price |  | $ | 22,685
The purchase price was allocated based on the provisional 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 customer lists, software, non-solicitation and non-compete agreements for a total amount of $8,433 thousands. Management of the Company estimates that customer lists, the software and the non-solicitation and non-compete agreements will be amortized over a five-year period. The Company recognized goodwill for this acquisition based on management expectation that the acquired business will improve the Company’s business. Arising goodwill has been allocated to the Brazilian segment 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 segment. Goodwill is deductible for tax purposes. Supplemental pro forma financial information required by U.S. GAAP for each acquisition, both individually and in the aggregate, was not material to the interim condensed consolidated financial statements of income of the Company and, accordingly, such information has not been presented. Goodwill and intangible assets The composition of goodwill and intangible assets is as follows:
|  | June 30, |  | December 31,
|  | 2015 |  | 2014
|  | (In thousands)
Goodwill |  | $ 101,840 |  | $ 68,829
Intangible assets with indefinite lives |  |  |  |
— Trademarks |  | 14,312 |  | 10,276
Amortizable intangible assets |  |  |  |
— Licenses and others |  | 10,033 |  | 5,111
— Non-compete / solicitation agreement |  | 1,679 |  | 1,829
— Customer lists |  | 14,631 |  | 11,294
Total intangible assets |  | $ 40,655 |  | $ 28,510
Accumulated amortization |  | (6,390) |  | (5,339)
Total intangible assets, net |  | $ 34,265 |  | $ 23,171
Goodwill The changes in the carrying amount of goodwill for the six-month period ended June 30, 2015 and the year ended December 31, 2014 are as follows:
|  | Period ended June 30, 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
- Business acquisition |  | 14,066 |  | — |  | — |  | 22,978 |  | — |  | — |  | — |  | 37,044
- Effect of exchange rates changes |  | (819) |  | (614) |  | (924) |  | (1,268) |  | — |  | (324) |  | (84) |  | (4,033)
Balance, end of the period |  | $ 23,804 |  | $ 11,245 |  | $ 18,177 |  | $ 37,429 |  | $ 5,729 |  | $ 4,197 |  | $ 1,259 |  | $ 101,840
|  | 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 $853 thousands and $189 thousands for the three-month periods ended June 30, 2015 and 2014, respectively, while for the six-month periods ended at such dates amounted to $1,364 thousands and $348 thousands, respectively. The following table summarizes the remaining amortization of intangible assets (in thousands of U.S. dollars) with definite useful life as of June 30, 2015:
For year ended 12/31/2015 |  | $ 2,099
For year ended 12/31/2016 |  | 4,169
For year ended 12/31/2017 |  | 3,902
For year ended 12/31/2018 |  | 2,956
Thereafter |  | 6,827
|  | $ 19,953

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