3. Acquisitions

Fiscal 2014 Acquisitions

In 2014, the Company completed one acquisition at an aggregate cost of $205.1 million.

Retail Decisions Limited

On August 12, 2014, the Company completed the acquisition of ReD for $205.1 million in cash. The Company has included the financial results of ReD in the condensed consolidated financial statements from the date of acquisition. As a leader in fraud prevention solutions, the acquisition of ReD enhances the Company’s Universal Payments strategy and further strengthens the Company’s leadership position in the fast-growing payments risk management space.

To fund this acquisition and related transaction fees, the Company drew an additional $60.5 million on the Revolving Credit Facility and increased the Term portion of the Credit Agreement by an additional $150.0 million. See Note 4, Debt, for terms of the financing arrangement.

The Company incurred approximately $1.8 million in transaction related expenses during the nine months ended September 30, 2014, including fees to the investment bank, legal and other professional fees, which are included in general and administrative expenses in the accompanying condensed consolidated financial statements.

ReD contributed approximately $5.8 million in revenue and $0.1 million in operating income for the three and nine months ended September 30, 2014, which includes severance expense related to the integration activities.

The consideration paid by the Company to complete the acquisition has been allocated preliminarily to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The allocation of the purchase price is based upon certain external valuations and other analyses that have not been completed as of the date of this filing, including but not limited to, intangible assets, property and equipment, and certain tax matters. Accordingly, the purchase price allocation is considered preliminary and is subject to future adjustments during the maximum one-year allocation period.

In connection with the acquisitions, the Company recorded the following amounts based upon its purchase price allocation as of September 30, 2014. The purchase price allocation for ReD is considered preliminary and is subject to completion of valuations and other analyses.


(in thousands, except weighted average useful lives)	Weighted-Average Useful Lives	Retail Decisions
Current assets:
Cash and cash equivalents		$	795
Billed and accrued receivables, net			10,800
Deferred income taxes, net			140
Other current assets			9,479

Total current assets acquired			21,214

Noncurrent assets:
Property and equipment			2,362
Goodwill			155,597
Software	5-7 years		21,215
Customer relationships	18 years		36,260
Trademarks	5 years		3,820
Deferred income taxes			1,622
Other noncurrent assets			416

Total assets acquired			242,506

Current liabilities:
Accounts payable			4,624
Employee compensation			7,582
Other current liabilities			5,842

Total current liabilities acquired			18,048

Noncurrent liabilities:
Deferred income taxes			17,552
Other noncurrent liabilities			1,821

Total liabilities acquired			37,421

Net assets acquired		$	205,085

Factors contributing to the purchase price that resulted in the goodwill (which is not tax deductible) include the acquisition of management, sales, and technology personnel with the skills to market new and existing products of the Company, enhanced product capabilities, complementary products and customers. Pro forma results for ReD are not presented because they are not material.

Fiscal 2013 Acquisitions

In 2013, the Company completed three acquisitions at an aggregate cost of $378.1 million.

Official Payments Holdings, Inc.

On November 5, 2013, the Company completed the tender offer for OPAY and all its subsidiaries. The Company paid cash of $8.35 per share of common stock or approximately $139.8 million using funds on hand and $40 million drawn on the Revolving Credit Facility, which was repaid prior to December 31, 2013. The Company has included the financial results of OPAY in the condensed consolidated financial statements from the date of acquisition. As a leading provider of electronic bill payment solutions in the U.S., serving federal, state and local governments, municipal utilities, higher education institutions and charitable giving organizations, OPAY’s team, user base and vertical expertise made it an ideal match for the Company. The acquisition further extended the Company’s presence in the Electronic Bill Presentment and Payment (“EBPP”) space, expanding its portfolio across key sectors including federal, state and local governments, municipal utilities, higher education institutions and charitable giving organizations.

Each outstanding option to acquire OPAY common stock was cancelled and terminated at the effective time of the acquisition and converted into the right to receive cash with respect to the number of shares of OPAY common stock that would have been issuable upon a net exercise of such option, assuming the market value of the OPAY common stock at the time of such exercise was equal to the $8.35 per common stock tender offer. Any outstanding option with a per share exercise price that was greater than or equal to such amount was cancelled and terminated and no payment was made with respect thereto. In addition, each OPAY restricted stock unit award outstanding immediately prior to the effective time of the tender offer was fully vested and cancelled, and each holder of such awards became entitled to receive the $8.35 per common stock tender offer for each share of OPAY common stock into which the vested portion of the awards would otherwise have been converted.

The consideration paid by the Company to complete the acquisition of OPAY has been allocated preliminarily to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The allocation of purchase price is based upon certain external valuations and other analyses that have not been completed as of the date of this filing, including, but not limited to, certain tax matters. Accordingly, the purchase price allocation is preliminary and is subject to future adjustments during the maximum one-year allocation period.

The Company made adjustments to the preliminary purchase price allocation as additional information became available for acquired property and equipment, certain accruals and tax account balances. These adjustments and any resulting adjustments to the statements of income were not material to the Company’s previously reported operating results or financial position.

Online Resources Corporation

On March 11, 2013, the Company completed the tender offer for ORCC and all its subsidiaries. The Company paid cash of $3.85 per share of common stock for approximately $132.9 million and $127.2 million for the Series A-1 Convertible Preferred Stock for a total purchase price of $260.1 million (the “Merger”). The Company has included the financial results of ORCC in the condensed consolidated financial statements from the date of acquisition. As a leading provider of online banking and full service bill pay solutions, the acquisition of ORCC added EBPP solutions as a strategic part of ACI’s Universal Payments portfolio. It also strengthened the Company’s online banking capabilities with complementary technology, and expanded the Company’s leadership in serving community banking and credit union customers.

Each outstanding option to acquire ORCC common stock was cancelled and terminated at the effective time of the Merger and converted into the right to receive an equivalent number of options to purchase ACI common stock. Each ORCC restricted stock unit was vested immediately prior to the effective time of the Merger and each holder received $3.85 per share.

The Company used funds from the $300.0 million of Senior Notes financing arranged through Wells Fargo Securities, LLC to fund the acquisition. See Note 4, Debt, for terms of the financing arrangement.

The consideration paid by the Company to complete the Merger has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The allocation of the purchase price is based upon certain external valuations and other analyses.

The Company made adjustments to finalize the purchase price allocation as additional information became available for certain accruals and deferred income taxes. These adjustments and any resulting adjustments to the statements of income were not material to the Company’s previously reported operating results or financial position.

Profesionales en Transacciones Electronicas S.A.

During the first quarter of 2013, the Company acquired 100% of Profesionales en Transacciones Electronicas S.A. – Venezuela (“PTESA-V”), 100% of Profesionales en Transacciones Electronicas S.A. – Ecuador (“PTESA-E”), and the ACI related assets of Profesionales en Transacciones Electronicas S.A. – Colombia (“PTESA-C”), collectively “PTESA”. The common stock of PTESA-E and PTESA-V were acquired for $2.8 million and the assets of PTESA-C were acquired for $11.4 million, for a total aggregate purchase price of $14.2 million paid in cash. The Company has included the financial results of PTESA in our condensed consolidated financial statements from the date of acquisition. PTESA had been a long-term partner of the Company, serving customers in South America in sales, service and support functions. The addition of the PTESA team to the Company reinforces its commitment to serve the Latin American market.

Factors contributing to the purchase price that resulted in the goodwill (approximately $1.5 million of which is not tax deductible) include the acquisition of management, sales, and services personnel with the skills to market and support products of the Company in the Latin America region. Pro forma results are not presented because they are not material.

In connection with the 2013 acquisitions, the Company recorded the following amounts based upon its purchase price allocations as of September 30, 2014. The purchase price allocation for OPAY is considered preliminary and is subject to completion of valuations and other analyses.


(in thousands, except weighted average useful lives)	Weighted-Average Useful Lives	Official Payments Holdings, Inc.		Online Resources Corporation		PTESA
Current assets:
Cash and cash equivalents		$	25,871	$	9,930	$	193
Billed and accrued receivables, net			2,858		19,394		327
Deferred income taxes, net			4,034		11,726		—
Other current assets			27,779		17,643		95

Total current assets acquired			60,542		58,693		615

Noncurrent assets:
Property and equipment			6,340		7,335		6
Goodwill			39,301		122,247		7,113
Software	10 years		26,125		62,215		7,732
Customer relationships	14 -15 years		47,400		68,750		—
Trademarks	3 - 5 years		3,000		3,050		—
Other noncurrent assets			7,818		459		7

Total assets acquired			190,526		322,749		15,473

Current liabilities:
Accounts payable			8,932		15,394		341
Employee compensation			15,006		10,549		261
Note payable			—		7,500		—
Other current liabilities			25,978		7,559		—

Total current liabilities acquired			49,916		41,002		602

Noncurrent liabilities:
Deferred income taxes, net			—		18,290		225
Other noncurrent liabilities			828		3,339		439

Total liabilities acquired			50,744		62,631		1,266

Net assets acquired		$	139,782	$	260,118	$	14,207

OPAY and ORCC contributed approximately $66.9 million in revenue and $11.3 million in operating income for the three months ended September 30, 2014, which includes significant transaction related expenses related to integration activities. OPAY and ORCC contributed approximately $214.0 million in revenue and $25.2 million in operating income for the nine months ended September 30, 2014, which includes significant transaction related expenses related to integration activities.

ORCC contributed approximately $36.6 million in revenue and $2.1 million in operating income for the three months ended September 30, 2013, which includes significant transaction related expenses related to integration activities. ORCC contributed approximately $83.8 million in revenue and $2.6 million in operating income for the nine months ended September 30, 2013, which includes significant transaction related expenses related to integration activities.

Unaudited Pro Forma Financial Information

The pro forma financial information in the table below presents the combined results of operations for the Company, ORCC and OPAY as if both acquisitions had occurred January 1, 2012 (in thousands, except per share data). The pro forma information is shown for illustrative purposes only and is not necessarily indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred had the transactions been in effect for the periods presented. This pro forma information is not intended to represent or be indicative of actual results had the acquisition occurred as of the beginning of each period, nor is it necessarily indicative of future results and does not reflect potential synergies, integration costs, or other such costs or savings. Certain pro forma adjustments have been made to net income for the three and nine months ended September 30, 2013 to give effect to estimated adjustments to expenses to remove the amortization on eliminated OPAY and ORCC historical identifiable intangible assets and add amortization expense for the value of identified intangibles acquired in the acquisitions (primarily acquired software, customer relationships, trade names, and covenants not to compete), adjustments to interest expense to reflect the elimination of preexisting OPAY and ORCC debt and add estimated interest expense on the Company’s additional Term Credit Facility borrowings and to eliminate share-based compensation expense for eliminated positions. Additionally, certain transaction expenses that are a direct result of the acquisitions have been excluded from the three and nine months ended September 30, 2013.


(in thousands, except per share data)	Pro Forma Results of Operations for the three Months Ended		Pro Forma Results of Operations for the Nine Months Ended
	September 30, 2013		September 30, 2013
Total Revenues	$	247,046	$	728,510
Net Income		18,135		20,303

Income per share
Basic	$	0.15	$	0.17
Diluted	$	0.15	$	0.17