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ACQUISITIONS | 12 Months Ended
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Dec. 31, 2014
ACQUISITIONS [ABSTRACT] |
ACQUISITIONS | (2) ACQUISITIONS rogenSi In the third quarter of 2014, as an addition to the Customer Strategy Services (“CSS”) segment, the Company acquired substantially all operating assets of rogenSi Worldwide PTY, Ltd., a global leadership, change management, sales, performance training and consulting company. The total purchase price was $34.3 million, subject to certain working capital adjustments, and consists of $18.0 million in cash at closing and an estimated $14.5 million in three earn-out payments, contingent on the acquired companies and TeleTech's CSS segment achieving certain agreed earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined in the sale and purchase agreement. Additionally, the estimated purchase price included a $1.8 million hold-back payment for contingencies as defined in the sale and purchase agreement which will be paid in the first quarter of 2016, if required. The total contingent consideration possible per the sale and purchase agreement ranges from zero to $17.6 million and the earn-out payments are payable in early 2015, 2016 and 2017, based on July 1, 2014 through December 31, 2014, and full year 2015 and 2016 performance, respectively. The fair value of the contingent consideration was measured by applying a probability weighted discounted cash flow model based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 4.6% and expected future value of payments of $15.3 million. The $15.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with the highest probability associated with rogenSi achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent consideration was approximately $14.5 million. During the fourth quarter of 2014, the Company recorded a fair value adjustment of the contingent consideration of $0.5 million based on revised estimates noting higher probability of exceeding the EBITDA targets (see Note 10). As of December 31, 2014, the fair value of the contingent consideration was $15.2 million, of which $6.4 million and $8.8 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):
|  | Preliminary Estimate of Acquisition Date Fair Value
Cash | $ | 2,670
Accounts receivable, net |  | 6,417
Other assets |  | 3,328
Property, plant and equipment |  | 578
Customer relationships |  | 9,314
Goodwill |  | 20,860
|  |  | 43,167
Accounts payable |  | 708
Accrued employee compensation and benefits |  | 2,203
Accrued expenses |  | 1,146
Other |  | 4,845
|  |  | 8,902
| Total purchase price | $ | 34,265
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 above. The rogenSi customer relationships have been estimated based on similar acquisitions and are amortized over an estimated useful life of five years. The goodwill recognized from the rogenSi acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies within CSS. None of the tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and the operating results of rogenSi are reported, as its own reporting unit, within the CSS segment from the date of acquisition. Sofica In the first quarter of 2014, as an addition to the Customer Management Services (“CMS”) segment, the Company acquired a 100% interest in Sofica Group, a Bulgarian joint stock company (“Sofica”). Sofica provides customer lifecycle management and other business process services across multiple channels in multiple sites in over 18 languages. The purchase price of $14.2 million included $9.4 million in cash consideration (including working capital adjustments) and an estimated $3.8 million in earn-out payments, payable in 2015 and 2016, contingent on Sofica achieving specified EBITDA targets, as defined by the stock purchase agreement. The total contingent consideration possible per the stock purchase agreement ranges from zero to $7.5 million. Additionally, the purchase price includes a $1.0 million hold-back payment for contingencies as defined in the stock purchase agreement which will be paid in the second quarter of 2016, if required. The fair value of the contingent consideration was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 5.0% and expected future value of payments of $4.0 million. The $4.0 million of expected future payments was calculated using a 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 consideration was approximately $3.8 million. During the third and fourth quarters of 2014, the Company recorded fair value adjustments of the contingent consideration of $1.8 million and $0.6 million, respectively based on revised estimates noting higher probability of exceeding the EBITDA targets (see Note 10). As of December 31, 2014, the fair value of the contingent consideration was $6.3 million, of which $2.8 million and $3.5 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively. The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
|  | Acquisition Date Fair Value
Cash | $ | 857
Accounts receivable, net |  | 3,175
Other assets |  | 378
Property, plant and equipment |  | 653
Customer relationships |  | 4,915
Goodwill |  | 6,358
|  |  | 16,336
Accounts payable |  | 296
Accrued employee compensation and benefits |  | 697
Accrued expenses |  | 664
Other |  | 507
|  |  | 2,164
| Total purchase price | $ | 14,172
The Sofica customer relationships, trade name and non-compete agreements have an estimated useful life of six years, three years and five years, respectively. The goodwill recognized from the Sofica acquisition was attributable primarily to the acquired workforce of Sofica, expected synergies, and other factors. None of the tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and the operating results of Sofica are reported within the CMS segment from the date of acquisition. WebMetro In the third quarter of 2013, as an addition to the Customer Growth Services (“CGS”) segment, 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 cash consideration (inclusive of working capital adjustments) and an estimated $2.5 million in earn-out payments, payable in 2014 and 2015, contingent on WebMetro achieving specified EBITDA targets, as defined by the stock purchase agreement. The Company was also obligated to make earn-out payments over the next two years if WebMetro achieved 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. The first contingent payment of $1.0 million was completed in the second quarter of 2014. During the third quarter of 2014, the Company recorded a fair value adjustment to reduce the contingent consideration by $1.7 million based on revised estimates noting the achievement of the EBITDA target is remote (see Note 10). As of December 31, 2014, the fair value of the remaining contingent consideration was zero. In the third quarter of 2014, the Company finalized its valuation of WebMetro for the acquisition date assets acquired and liabilities assumed. There were no material measurement period adjustments in 2014. Other Acquisitions iKnowtion In the first quarter of 2012, as an addition to the CSS segment, the Company acquired an 80% interest in iKnowtion, LLC (“iKnowtion”). iKnowtion integrates proven marketing analytics methodologies and business consulting capabilities to help clients improve their return on marketing expenditures in such areas as demand generation, share of wallet, and channel mix optimization. The total cash consideration paid was $1.2 million. The Company is also obligated to make earn-out payments over the next four years if iKnowtion achieves specified earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined by the purchase and sale 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 21% and expected future value of payments of $4.3 million. The $4.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with iKnowtion achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $2.9 million. The first contingent payment of $1.4 million was completed during the first quarter of 2014. As of December 31, 2014, the fair value of the remaining contingent consideration was $2.3 million, of which $1.8 million and $0.5 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively. In the event iKnowtion meets certain EBITDA targets for calendar year 2015, the purchase and sale agreement requires TeleTech to purchase the remaining 20% interest in iKnowtion in 2016 for an amount equal to a multiple of iKnowtion's 2015 EBITDA as defined in the purchase and sale agreement. Refer to Note 17 for more information related to the mandatorily redeemable noncontrolling interest. Guidon In the fourth quarter of 2012, as an addition to the CSS segment, the Company acquired 100% of the stock of Guidon Performance Solutions' (“Guidon”) parent company. Guidon provides operational consulting services and designs solutions for operational and cultural transformation for global clients. The total cash consideration paid was $5.7 million. The Company was also obligated to make earn-out payments over the next two years if Guidon achieved specified EBITDA targets as defined in 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 included in the fair value calculation include a discount rate of 21% and expected future value of payments of $2.8 million. The $2.8 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with Guidon achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $2.1 million. The first contingent payment of $1.4 million was completed during the first quarter of 2014. During the first quarter of 2014, an agreement was reached in which a fixed final payment was established of $1.0 million which will be paid in the first quarter of 2015. As of December 31, 2014, the $1.0 million accrual was included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets. TSG In the fourth quarter of 2012, as an addition to the Customer Technology Services (“CTS”) segment, the Company acquired a 100% interest in Technology Solutions Group, Inc. (“TSG”). TSG designs and implements custom communications systems for a variety of business types and sizes. The total purchase price was $44.5 million and the total up-front cash consideration paid was $33.3 million. The Company is also obligated to make earn-out payments over three years if TSG 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 included in the fair value calculation include a discount rate of 4.6% and expected future value of payments of $12.2 million. The $12.2 million of expected future payments was calculated using a bell curve probability weighted EBITDA assessment with the highest probability associated with TSG achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent payments was approximately $11.1 million. The first contingent payment of $5.3 million was completed during the second quarter of 2014. During the second and fourth quarters of 2014, the Company recorded fair value adjustments of $4.0 million and $3.9 million, respectively, to reduce the contingent consideration based on revised estimates noting the achievement of the EBITDA targets for 2014 and 2015 are remote (see Note 10). As of December 31, 2014 the fair value of the contingent consideration was zero. Globant The Company signed an agreement effective January 31, 2014 to transfer its assets, operations and employees in Argentina to IAFH Global S.A., better known as Globant, a technology service provider based in Argentina. This action placed our assets and employees with a leader focused on developing innovative software products. As part of this agreement, Globant will provide services to TeleTech through their Development Center in Buenos Aires. Financial Impact of Acquired Businesses The acquired businesses purchased in 2014, 2013 and 2012 noted above contributed revenues of $91.9 million, $69.1 million and $8.9 million and income from operations of $7.7 million, $10.0 million and $1.4 million, inclusive of $6.3 million, $4.2 million and $0.4 million of acquired intangible amortization, to the Company for the years ended December 31, 2014, 2013 and 2012, respectively.

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