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ACQUISITIONS
 3 Months Ended
Mar. 31, 2014
ACQUISITIONS [ABSTRACT]  
ACQUISITIONS

(2)       ACQUISITIONS

Sofica

In the first quarter of 2014, the Company acquired 100% interest in Sofica Group, a Bulgarian joint stock company (“Sofica”). Sofica provides customer lifecycle management and other business process outsourcing services across multiple channels in multiple sites in over 18 languages.

The total purchase price of $14.5 million, consisted of $9.0 million in up-front cash consideration (inclusive of a working capital adjustment) and earn-out payments payable in 2015 and 2016, if Sofica achieves specified earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined by the stock purchase agreement.

The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 22% and expected future value of payments of $4.0 million. The $4.0 million of expected future payments was calculated using a bell curve probability weighted EBITDA assessment with the highest probability associated with Sofica achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent payments was approximately $3.4 million. As of March 31, 2014, the fair value of the contingent consideration was $3.4 million, of which $2.0 million and $1.4 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.

The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands). The estimates of fair value of identifiable assets acquired and liabilities assumed are preliminary, pending completion of a valuation, thus are subject to revisions that may result in adjustments to the values presented below:

  Preliminary Estimate of Acquisition Date Fair Value
Cash$ 812
Accounts receivable  3,267
Other assets  599
Property, plant and equipment  491
Customer relationships  3,591
Goodwill  7,329
    16,089
   
Accounts payable   50
Accrued employee compensation and benefits  630
Accrued expenses  519
Other  393
    1,592
    
 Total purchase price$ 14,497
    

The Sofica customer relationships have an estimated useful life of five years. The goodwill recognized from the Sofica acquisition was attributable primarily to the acquired workforce of Sofica, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill are not deductible for income tax purposes. The acquired goodwill and the operating results of Sofica are reported within the Customer Management Services segment from the date of acquisition.

Other Acquisitions

WebMetro

In the third quarter of 2013, the Company acquired 100% of WebMetro, a California corporation (“WebMetro”), a digital marketing agency.

The total purchase price was $17.8 million, including $15.3 million in up-front cash consideration (inclusive of a working capital adjustment) and earn-out payments payable in 2014 and 2015, if WebMetro achieves specified EBITDA targets, as defined by the stock purchase agreement.

The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 5.3% and expected future value of payments of $2.6 million. The $2.6 million of expected future payments was calculated using a bell curve probability weighted EBITDA assessment with the highest probability associated with WebMetro achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent payments was approximately $2.5 million. During the first quarter of 2014, the first earn-out payment was completed. As of March 31, 2014, the fair value of the contingent consideration was $1.7 million which was included in Other accrued expenses in the accompanying Consolidated Balance Sheets, respectively. The fair value is higher than the fair value recorded on the acquisition date because WebMetro exceeded expected earnings.

The WebMetro customer relationships and software have an estimated useful life of six years and four years, respectively. The goodwill recognized from the WebMetro acquisition was attributable primarily to the acquired workforce of WebMetro, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill are deductible for income tax purposes. The acquired goodwill and the operating results of WebMetro are reported within the Customer Growth Services segment from the date of acquisition.

Peppers & Rogers Group

In the third quarter of 2013, the Company acquired the remaining 20% interest in Peppers & Rogers Group (“PRG”) for $425 thousand. The buy-out accelerated TeleTech's rights pursuant to the sale and purchase agreement to acquire the remaining portion of the business in 2015.

The acquired businesses noted above contributed revenues of $4.8 million and income from operations of $0.3 million, inclusive of $0.6 million of acquired intangible amortization, to the Company for the three months ended March 31, 2014.