Business Combination

9 Months Ended

Jun. 30, 2023

MPEG LA

On April 28, 2023, our wholly-owned subsidiary Via Licensing Corporation ("Via Corp") acquired 100% of MPEG LA, L.L.C. ("MPEG LA"), a privately held patent pool administrator that managed several collaborative licensing programs in video imaging and other technologies. In connection with the transaction, Via Corp changed its structure and name to Via Licensing Alliance LLC ("Via LA") and became a majority owned subsidiary of Dolby. The acquisition is expected to strengthen Via LA's licensing capabilities, particularly in video, diversify its revenues, and reinforce its ability to develop new patent licensing programs. The total consideration for the acquisition was as follows (in thousands):


	Amount
Cash	$	135,739
Non-controlling interest in Via LA (24.8 million common equity units)	24,815
Total amount paid to sellers	$	160,554
Less: amount deemed post-acquisition expense	(2,174)
Total consideration paid to sellers	$	158,380
Assumed settlement of pre-existing relationships due to Dolby	61,313
Total consideration	$	219,693
Less: unrestricted cash acquired	(80,633)
Total consideration, net of unrestricted cash acquired	$	139,060

The non-controlling interest in Via LA includes $3.6 million of cash held in escrow that will be remitted to Dolby in exchange for Via LA common equity units at the end of the escrow period. The fair value of the noncontrolling interest was determined through the issuance of equity in lieu of cash. The assumed settlement of pre-existing relationships was determined based on the contractual amounts of payables and receivables between the parties as such amounts approximate fair value.

We have accounted for the taxable transaction under the acquisition method of accounting for business combinations, and the results of operations of MPEG LA have been included in the Company's consolidated statements of operations from the date of acquisition and were not material. Additionally, we have estimated the fair values of the net tangible and intangible assets acquired, and liabilities assumed as of the acquisition date, with any amounts paid in excess of the net assets recorded as goodwill. The fair values assigned to assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received and certain tax returns are finalized, including potential changes to income tax-related accounts. We expect to finalize the valuation within the one year measurement period.

The following table summarizes the preliminary acquisition date fair values allocated to the net assets acquired:


Recognized Identifiable Assets Acquired and Liabilities Assumed	Purchase Price Allocation (Preliminary)
Cash and cash equivalents	$	80,633
Restricted cash	143,564
Other current assets	73,556
Intangible assets	86,000
Goodwill	56,683
Other non-current assets	39,029
Amounts payable to patent administrative program partner	(199,955)
Other current liabilities	(22,205)
Non-current liabilities	(37,612)
Purchase Consideration	$	219,693

Goodwill is representative of our expectation of the benefits and synergies from the integration of MPEG LA operations and the assembled workforce of MPEG LA, which does not qualify for separate recognition as an intangible asset. All of the goodwill recognized is expected to be deductible for income tax purposes.

The following table summarizes the preliminary fair values allocated to the various intangible assets acquired (in thousands) and the weighted-average useful lives over which they will be amortized using the straight-line method:


Intangible Assets Acquired	Purchase Price Allocation		Weighted-Average Useful Life (Years)
Licensor Relationships – AVC & Other	$	36,000	13
Licensor Relationships - HEVC	31,000		10
Implementer Relationships – AVC & Other	12,000		13
Implementer Relationships - HEVC	7,000		10
Total	$	86,000	12

The preliminary value of acquired intangibles was determined based on the present value of estimated future cash flows using the following methodologies and inputs:

•Licensor Relationships - the multi-period excess earnings method using inputs such as projected revenue attributable to licensors in the patent pools, revenue retention rate, maintenance sales and marketing expenses, income tax rate, post-tax returns for contributory assets, and discount rate.

•Implementer Relationships - the distributor method using inputs such as projected revenue attributable to the existing implementers in the patent pools, distributor margin, income tax rate, and discount rate.

Acquisition-related costs of $0.8 million and $3.8 million were incurred during the third quarter of fiscal 2023 and during the year-to-date period ended June 30, 2023, respectively. These acquisition-related costs were included in general and administrative expenses in the condensed consolidated statements of operations.