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Business Combinations | 9 Months Ended
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Aug. 31, 2021
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | Business Combinations Chef Acquisition On October 5, 2020, we completed the acquisition of Chef Software Inc. (“Chef”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 4, 2020. The acquisition was completed for a base purchase price of $220.0 million, subject to certain customary adjustments as further described in the Merger Agreement (the “Aggregate Consideration”), which was paid in cash. Pursuant to the Merger Agreement, $12.0 million of the Aggregate Consideration was deposited into an escrow account to secure certain indemnification and other potential obligations of the former Chef equity holders. Chef is a global leader in DevOps and DevSecOps, providing complete infrastructure automation to build, deploy, manage and secure applications in modern multi-cloud and hybrid environments, as well as on-premises. Chef has enhanced our position as a trusted provider of the best products to develop, deploy and manage high-impact business applications by providing industry-leading compliance and application automation products for multi-cloud and on-prem infrastructure. The acquisition bolstered our core offerings, enabling customers to respond faster to business demands and improve efficiency. We funded the acquisition through a combination of existing cash resources and by drawing down $98.5 million from our existing revolving credit facility (Note 7). The Aggregate Consideration has been allocated to Chef’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. The preliminary fair value estimates of the net assets acquired were based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as we obtain additional information for those estimates during the measurement period (up to one year from the acquisition date). The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill. We recorded measurement period adjustments based on our ongoing valuation and purchase price allocation procedures. We are still finalizing the valuation and purchase price allocation as it relates to the net working capital amount in the table below. The allocation of the purchase price is as follows (in thousands):
| Initial Purchase Price Allocation |  | Measurement Period Adjustments |  | Adjusted Purchase Price Allocation |  | Life
Net working capital | $ | 52,330 |  |  | $ | 200 |  |  | $ | 52,530 |  |  |
Property, plant and equipment | 498 |  |  | — |  |  | 498 |  |  |
Purchased technology | 38,300 |  |  | — |  |  | 38,300 |  |  | 5 years
Trade name | 5,700 |  |  | — |  |  | 5,700 |  |  | 5 years
Customer relationships | 97,300 |  |  | — |  |  | 97,300 |  |  | 7 years
Other assets | 122 |  |  | — |  |  | 122 |  |  |
Other noncurrent liabilities | (841) |  |  | — |  |  | (841) |  |  |
Lease liabilities, net | (1,810) |  |  | — |  |  | (1,810) |  |  |
Deferred taxes | (7,817) |  |  | 126 |  |  | (7,691) |  |  |
Deferred revenue | (12,525) |  |  | — |  |  | (12,525) |  |  |
Goodwill | 59,858 |  |  | (326) |  |  | 59,532 |  |  |
Net assets acquired | $ | 231,115 |  |  | $ | — |  |  | $ | 231,115 |  |  |
The fair value of the intangible assets was estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital. The valuation assumptions take into consideration our estimates of customer attrition, technology obsolescence, and revenue growth projections. Tangible assets acquired and assumed liabilities were recorded at fair value. The valuation of the assumed deferred revenue was based on our contractual commitment to provide post-contract customer support to Chef customers and future contractual performance obligations under existing hosting arrangements. The fair value of this assumed liability was based on the estimated cost plus a reasonable margin to fulfill these service obligations. A significant portion of the deferred revenue is expected to be recognized in the 12 months following the acquisition. We recorded the excess of the purchase price over the identified tangible and intangible assets as goodwill. We believe that the investment value of the future enhancement of our product and solution offerings created as a result of this acquisition has principally contributed to a purchase price that resulted in the recognition of $59.5 million of goodwill, which is not deductible for tax purposes. Acquisition-related transaction costs (e.g., legal, due diligence, valuation, and other professional fees) and certain acquisition restructuring and related charges are not included as a component of consideration transferred but are required to be expensed as incurred. During the three and nine months ended August 31, 2021, we incurred approximately $0.1 million and $0.7 million of acquisition-related costs, respectively, which are included in acquisition-related expenses on our consolidated statement of operations. The operations of Chef were included in our operating results beginning on the date of acquisition. We determined that disclosing the amount of Chef related earnings included in the consolidated statements of operations is impracticable, as certain operations of Chef were integrated into the operations of the Company from the date of acquisition. Pro Forma Information The following pro forma financial information presents the combined results of operations of Progress and Chef as if the acquisition had occurred on December 1, 2018, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Chef acquisition and factually supportable. These pro forma adjustments include (i) a decrease in revenue from Chef due to the beginning balance of deferred revenue being adjusted to reflect the fair value of the acquired balance, (ii) a net increase in amortization expense to record amortization expense for the $141.3 million of acquired identifiable intangible assets, (iii) an increase in interest expense to record interest for the period presented as a result of drawing down our revolving credit facility in connection with the acquisition, and (iv) the income tax effect of the adjustments made at the statutory tax rate of the U.S. (approximately 24.5%). The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on December 1, 2018. These results are prepared in accordance with ASC 606.
(In thousands, except per share data) | Pro Forma Three Months Ended August 31, 2020
Revenue | $ | 128,782 |
Net income | $ | 22,830 |
Net income per basic share | $ | 0.51 |
Net income per diluted share | $ | 0.50 |
(In thousands, except per share data) | Pro Forma Nine Months Ended August 31, 2020
Revenue | $ | 369,814 |
Net income | $ | 47,444 |
Net income per basic share | $ | 1.06 |
Net income per diluted share | $ | 1.05 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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