3. Acquisitions and Dispositions

Acquisition of Expertence

On November 30, 2019, the Company acquired Expertforce Interim Projects GmBH, LLC (“Expertence”), a leading provider of professional interim management services, based in Munich Germany. With the acquisition of Expertence, the Company is able to offer a full range of project and management consulting services in the Germany market. The Company paid initial cash consideration of $0.4 million. The initial consideration is subject to final adjustments for the impact of working capital as defined in the purchase agreement.

In addition, the purchase agreement requires earn-out payments to be made based on performance over an 18-month period ending on May 31, 2021. The Company is obligated to pay the former owners of Expertence contingent consideration if certain revenue targets are achieved, up to a maximum of $0.3 million. In determining the fair value of the contingent consideration liability, the Company used an estimate based on a number of possible projections over the earnout period and applied a probability to each possible outcome. Given the short duration of the earnout period, the fair value of contingent liability was measured on an undiscounted basis. Each reporting period, the Company will estimate changes in the fair value of contingent consideration and any change in fair value will be recognized in the Company’s Consolidated Statements of Operations. The estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential revenue results. We do not expect future revisions to these assumptions to materially change the estimate of the fair value of contingent consideration and the Company’s future operating results.

Fair value of consideration transferred (in thousands):



Cash	$	383
Estimated initial contingent consideration		305
Total	$	688



Cash and cash equivalents	$	11
Accounts receivable		215
Prepaid expenses and other current assets		7
Intangible assets:
Computer software (24 months useful life)		184
Total identifiable assets		417
Accounts payable		196
Accrued expenses and other current liabilities		8
Deferred tax liability		59
Total liabilities assumed		263
Net identifiable assets acquired		154
Goodwill		534
Net assets acquired	$	688

Results of operations of Expertence are included in the Consolidated Statements of Operations from the date of acquisition and were not material to the Company’s consolidated results. During the third quarter of fiscal 2020, the Company incurred $0.1 million in acquisition costs which were recorded in selling, general and administrative expenses in the Consolidated Statement of Operations.

Acquisition of Veracity

On July 31, 2019, the Company acquired Veracity Consulting Group, LLC (“Veracity”), a fast-growing, digital transformation firm based in Richmond, Virginia, that delivers innovative solutions to the Fortune 500 and leading healthcare organizations. The acquisition of Veracity is a step in accelerating the Company’s stated objective to enhance its digital capabilities and allows the Company to offer comprehensive end-to-end solutions to its clients by combining Veracity’s customer-facing offerings with the Company’s depth of experience in transforming the back office. The Company paid initial cash consideration of $30.3 million (net of $2.1 million cash acquired). The initial consideration is subject to final adjustments for the impact of the Internal Revenue Code Section 338(h)(10) joint election between the Company and former owners of Veracity and working capital as defined in the purchase agreement.

In addition, the purchase agreement requires earn-out payments to be made based on performance after each of the first and second anniversary of the acquisition date. The Company is obligated to pay the former owners of Veracity contingent consideration if certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) requirements are achieved. In determining the fair value of the contingent consideration liability, the Company used the Monte Carlo simulation modeling which included the application of an appropriate discount rate (Level 3 fair value). Each reporting period, the Company will estimate changes in the fair value of contingent consideration and any change in fair value will be recognized in the Company’s Consolidated Statements of Operations. The estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential EBITDA results and discount rates. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore could materially affect the Company’s future operating results.

During the quarter ended August 24, 2019, the Company made an initial provisional allocation of the purchase price for Veracity based on the fair value of the assets acquired and liabilities assumed, with the residual amount recorded as goodwill, in accordance with Accounting Standards Codification (“ASC”) 805. The Company’s initial purchase price allocation considered a number of factors, including the valuation of identifiable intangible assets and contingent consideration. During the three months ended November 23, 2019, the Company adjusted the previously reported provisional allocation of the purchase price to reflect new information obtained during the quarter, which resulted in changes in expected future performance and cash flows as of the acquisition date. There were no additional adjustments to the provisional purchase price allocation during the three months ended February 22, 2020.

The following table provides a summary of the adjusted provisional purchase price allocation.

Fair value of consideration transferred (in thousands):



Cash	$	32,314
Estimated initial contingent consideration		6,290
Total	$	38,604

Recognized provisional amounts of identifiable assets acquired and liabilities assumed (in thousands):


Cash and cash equivalents	$	2,056
Accounts receivable		3,299
Prepaid expenses and other current assets		116
Intangible assets:
Backlog (17 months useful life)		1,210
Customer relationships (7 years useful life)		9,300
Trademarks (3 years useful life)		570
Property and equipment		117
Total identifiable assets		16,668
Accounts payable		305
Accrued expenses and other current liabilities		712
Total liabilities assumed		1,017
Net identifiable assets acquired		15,651
Goodwill		22,953
Net assets acquired	$	38,604

The remeasured purchase price allocation above may be subject to further adjustments during the measurement period if new information is obtained about facts and circumstances that existed as of the acquisition date. A final determination of fair value of assets acquired and liabilities assumed relating to the acquisition could differ from the stated purchase price allocation. As of the acquisition date, the gross contractual amount of accounts receivable of $3.3 million was expected to be fully collected.

During the three and nine months ended February 22, 2020, the fair value of contingent consideration decreased by $0.8 million and $0.6 million, respectively. Such amounts were recorded in selling, general and administrative expense in the Consolidated Statements of Operations. As of February 22, 2020, the contingent consideration liability was $5.6 million of which $3.0 million was included in Other current liabilities and $2.6 million was included in Long-term liabilities in the Consolidated Balance Sheet. The change in fair value of contingent consideration from the remeasurement was recorded in selling, general and administrative expense in the Consolidated Statement of Operations for the three months ended February 22, 2020.

Results of operations of Veracity are included in the Consolidated Statements of Operations from the date of acquisition. Veracity contributed $5.4 million and $12.6 million to consolidated revenue and $1.1 million and $2.5 million to income from operations in the three and nine months ended February 22, 2020, respectively. The Company incurred $0.6 million in acquisition costs which were recorded in selling, general and administrative expenses in the Consolidated Statement of Operations for the nine months ended February 22, 2020.

Prior Period Acquisitions

During fiscal 2018, the Company completed two acquisitions, the acquisition of Taskforce – Management on Demand AG (“Taskforce”) and Accretive Solutions, Inc. (“Accretive”). See Note 3 to the consolidated financial statements included in Part II, Item 8 in the Fiscal Year 2019 Form 10-K for additional detail.

During the three months ended February 22, 2020, the Company did not have any material adjustment to the contingent consideration liability relating to Taskforce. A final contingent consideration payment of €1.6 million ($1.8 million) was paid to the sellers of Taskforce on March 30, 2020.

In addition, on October 14, 2019, the Company reached a final settlement on a pre-acquisition claim with the seller of Accretive. As a part of the settlement, the Company issued 82,762 shares of common stock to the seller and received $0.6 million in cash from the escrow. The resulting gain of $0.5 million was included in Other (income) expense in the Consolidated Statements of Operations for the nine months ended February 22, 2020.

Dispositions

On September 2, 2019, the Company completed the sale of certain assets and liabilities of its foreign subsidiary, Resources Global Professionals Sweden AB, to Capacent Holding AB (publ), a Swedish public company, for SEK1,016,862 (approximately $105,000) in cash resulting in a loss on sale of assets of approximately $38,000. As a part the sale, the Company transferred the majority of its local customer contracts, the existing office lease as well as all its employee consultants. As a result of the sale, the nearby Denmark and Norway markets also discontinued serving local Sweden customer contracts. The Company expects to continue to serve its global client base and to a lesser extent, its remaining local client contracts, in Sweden and Denmark.

In addition, during the quarter ended February 22, 2020, the Company continued to wind down business in the Belgium, (including its wholly owned subsidiary in Luxembourg) and Norway markets. The Company expects to fully dissolve all three entities by the end of fiscal 2020. In connection with the foregoing sale of assets and exit activities, the Company incurred costs of approximately $0.7 million primarily related to employee termination benefits. Such expenses were included in selling, general and administrative expenses in the Consolidated Statements of Operations for the nine months ended February 22, 2020. None of the markets sold or exited are considered strategic components of the Company’s operations.

In connection with exiting the above-mentioned entities, the Company analyzed the facts and circumstances regarding its historical and current investments, along with its associated accounting and tax positions. Based on the analysis, the Company recorded a tax benefit related to the worthless stock loss in the investment in its wholly owned subsidiaries as well as worthless loans to these subsidiaries. See Note 6 – Income taxes.