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Acquisitions
 9 Months Ended
Apr. 30, 2014
Acquisitions [Abstract]  
Acquisitions

NOTE 13 – Acquisitions

During the nine months ended April 30, 2013, the Company acquired salvage vehicle auction businesses in Brazil and the U.A.E. and an auction platform in Germany for a total purchase price of $34.9 million.

During the nine months ended April 30, 2014, the Company acquired salvage vehicle auction businesses in Brazil which did not include any facilities, and in Canada, as well as the assets of an online marketing company, which included the rights to hundreds of web domains including www.cashforcars.com and www.cash4cars.com. The aggregate purchase price totaled $14.8 million.

The total acquisition price was as follows:

    Three Months Ended April 30,     Nine Months Ended April 30,
(In thousands)   2014     2013     2014   2013
Total cash paid, net of cash acquired   $ 533     $ —       $          14,761   $          31,243
Contingent consideration     (533 )     —       -   3,690
Total acquisition price   $ —       $ —       $          14,761   $          34,933

 

These acquisitions were undertaken because of their strategic fit and have been accounted for using the purchase method in accordance with ASC 805, Business Combinations, which has resulted in the recognition of goodwill in the Company's consolidated financial statements. This goodwill arose because the purchase price of each acquisition reflected a number of factors, including their future earnings and cash flow potential; the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers; the competitive nature of the process by which the Company acquired the businesses; and because of the complementary strategic fit and resulting synergies brought to existing operations. The goodwill that arose from these acquisitions was within Level III of the fair value hierarchy as it was valued using unobservable inputs. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine the value of acquired assets at the reporting date based on the best information available in the circumstances. When a determination is made to classify items within Level III of the fair value hierarchy, the evaluation is based upon the significance of the unobservable inputs to the overall fair value measurement. Due to the limitation of goodwill asset market value or pricing information, the determination of fair value of the goodwill asset is inherently more difficult. Goodwill is not amortized for financial reporting purposes, and most of the balance is not amortized for tax purposes. The intangible assets that arose from these acquisitions were also within Level III of the fair value hierarchy as it was valued using unobservable inputs, primarily utilizing the Multi-Period Excess Earnings Method (MPEEM) model, which is an income-based approach that allocates to goodwill any acquisition costs not specifically assigned to intangibles, fixed assets or working capital. Intangible assets acquired include covenants not to compete, supply contracts, customer relationships, trade names, licenses and databases and software with a useful life ranging from three to eight years.

 The purchase price allocation for the acquired auction platform in Spain, the salvage vehicle auction businesses in Canada and Brazil, and the acquired online marketing company, are not final for property and equipment, income taxes, liabilities and intangible assets acquired pending the final valuation by the Company. The Company believes any potential changes to its preliminary purchase price allocations will not have a material impact on the Company’s consolidated financial position and results of operations.

During the three months ended April 30, 2014, the purchase price allocation for Salvage Parent, Inc. was finalized. As a result, from the preliminary purchase price allocation as of July 31, 2013, goodwill increased $5.3 million, primarily related to a $11.5 million increase in accrued liabilities, a $7.3 million increase in intangible assets, and changes to deferred taxes on acquired intangible assets and working capital adjustments. Accrued liabilities were adjusted after obtaining new information on a pre-acquisition contingency related to a lack of documentation on the historical sales of Salvage Parent, Inc. The Company noted that the potential exposure from this contingency ranged from $7.0 million to $28.0 million. The Company recorded the fair value of this contingency of $14.0 million. In accordance with ASC 805, any adjustments to the fair value of acquired assets and liabilities that occur subsequent to the measurement period will be reflected in the Company’s results of operations.

The acquisitions do not result in a significant change in the Company’s consolidated results of operations individually or in the aggregate; therefore, pro forma financial information has not been presented. The operating results have been included in the Company’s consolidated financial position and results of operations since the acquisition dates.