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Note 5 - Business Combinations | 12 Months Ended
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Jan. 31, 2023
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | (5) Business Combinations (a) Software Luxembourg Holdings S.A. (“Predecessor (SLH)” or “Skillsoft Legacy”) On June 11, 2021, Software Luxembourg Holding S.A. merged with and into Churchill Capital Corp II (Churchill) which subsequently changed its name to Skillsoft Corp. The Skillsoft Merger was considered a business combination under ASC 805, Business Combinations and will be accounted for using the acquisition method of accounting, whereby Churchill was determined to be the accounting acquirer based on their rights to nominate six members of the initial Board of Directors, the size of their voting interest and their rights to appoint the Chief Executive Officer of Skillsoft Corp. and other members of management of the combined company prior to closing. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values. The following summarizes the purchase consideration (in thousands):
Description |  | Amount |
Class A common stock issued |  | $ | 258,000 |
Class B common stock issued * |  |  | 48,375 |
Cash payments |  |  | 505,000 |
Second Out Term Loan |  |  | 20,000 |
Cash settlement of seller transaction costs |  |  | 1,308 |
Total purchase price |  | $ | 832,683 |
* | Shares of Class B common stock was converted into Successor Class A common stock at the time of the Merger.
The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
|  | Preliminary Purchase |  |  |  |  |  |  | Final Purchase |
Description |  | Price Allocation |  |  | Adjustments (1)(2) |  |  | Price Allocation |
Cash, cash equivalents and restricted cash |  | $ | 120,273 |  |  | $ | — |  |  | $ | 120,273 |
Current assets |  |  | 118,847 |  |  |  | 706 |  |  |  | 119,553 |
Property and equipment |  |  | 10,825 |  |  |  | 1,632 |  |  |  | 12,457 |
Intangible assets |  |  | 769,799 |  |  |  | (4,701 | ) |  |  | 765,098 |
Long term assets |  |  | 18,629 |  |  |  | — |  |  |  | 18,629 |
Total assets acquired |  |  | 1,038,373 |  |  |  | (2,363 | ) |  |  | 1,036,010 |
Current liabilities |  |  | (49,056 | ) |  |  | (350 | ) |  |  | (49,406 | )
Debt, including accounts receivable facility |  |  | (552,977 | ) |  |  | — |  |  |  | (552,977 | )
Deferred revenue |  |  | (123,300 | ) |  |  | (114,047 | ) |  |  | (237,347 | )
Deferred and other tax liabilities |  |  | (99,699 | ) |  |  | 15,920 |  |  |  | (83,779 | )
Long term liabilities |  |  | (18,325 | ) |  |  | 1 |  |  |  | (18,324 | )
Total liabilities assumed |  |  | (843,357 | ) |  |  | (98,476 | ) |  |  | (941,833 | )
Net assets acquired |  |  | 195,016 |  |  |  | (100,839 | ) |  |  | 94,177 |
Goodwill |  |  | 637,667 |  |  |  | 100,839 |  |  |  | 738,506 |
Total purchase price |  | $ | 832,683 |  |  | $ | — |  |  | $ | 832,683 |
(1) | The increase in deferred revenue (and the corresponding increase to Goodwill by the same amount) is the result of the adoption of ASU 2021‑08 in the quarter ended October 31, 2021.
(2) | All other changes represent measurement period adjustments attributable to the Company’s review of inputs and assumptions utilized in valuation models and additional information being obtained on preacquisition liabilities. The measurement period adjustments did not have a significant impact on the Company’s results of operations in prior periods.
The final values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
Description |  | Amount |  |  | Life (in years) |
Trademark/tradename – Skillsoft |  | $ | 84,700 |  |  | indefinite |
Trademark/tradename – SumTotal |  |  | 5,800 |  |  |  | 9.6 |
Courseware |  |  | 186,600 |  |  |  | 5 |
Proprietary delivery and development software |  |  | 114,598 |  |  |  | 2.5 - 7.6 |
Publishing Rights |  |  | 41,100 |  |  |  | 5 |
Customer relationships |  |  | 271,400 |  |  |  | 12.6 |
Backlog |  |  | 60,900 |  |  |  | 4.6 |
Total |  | $ | 765,098 |  |  |  |  |
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and backlog were valued using the income approach. The trade names were valued using the relief from royalty method. The content and software were valued using the replacement cost approach. Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of the Predecessor (SLH) resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes. The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and, in the case of goodwill and indefinite-lived intangible assets, at least annually. The Company incurred $9.8 million in acquisition-related costs, which primarily consisted of transaction fees and legal, accounting and other professional services. Approximately $4.3 million was reported in the period from February 1, 2021 through June 11, 2021 (Predecessor (SLH)) and $5.5 million was reported in the period from June 12, 2021 through January 31, 2022 (Successor). These costs are included in the "acquisition-related and recapitalization costs" in the accompanying consolidated statement of operations. (b) Albert DE Holdings, Inc. (“GK”) On June 11, 2021, GK and its subsidiaries were acquired by Skillsoft, in conjunction with, and just subsequent to, its merger with Churchill Capital Corp II (then becoming merged Company). The acquisition was accounted for as a business combination under ASC805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values. The following summarized the purchase consideration (in thousands):
Description |  | Amount |
Cash consideration |  | $ | 170,199 |
Warrants issued |  |  | 14,000 |
Additional Term Loans issued |  |  | 70,000 |
Cash settlement of seller transaction costs |  |  | 4,251 |
Total purchase price |  | $ | 258,450 |
The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
|  | Preliminary Purchase |  |  |  |  |  |  | Final Purchase |
Description |  | Price Allocation |  |  | Adjustments (1)(2) |  |  | Price Allocation |
Cash, cash equivalents |  | $ | 17,524 |  |  | $ | (100 | ) |  | $ | 17,424 |
Current assets |  |  | 47,849 |  |  |  | (2,442 | ) |  |  | 45,407 |
Property and equipment |  |  | 5,531 |  |  |  | 1,625 |  |  |  | 7,156 |
Intangible assets |  |  | 185,800 |  |  |  | — |  |  |  | 185,800 |
Long term assets |  |  | 12,401 |  |  |  | (3,325 | ) |  |  | 9,076 |
Total assets acquired |  |  | 269,105 |  |  |  | (4,242 | ) |  |  | 264,863 |
Current liabilities |  |  | (74,463 | ) |  |  | 10,910 |  |  |  | (63,553 | )
Deferred revenue |  |  | (23,018 | ) |  |  | (8,191 | ) |  |  | (31,209 | )
Deferred and other tax liabilities |  |  | (16,934 | ) |  |  | (6,162 | ) |  |  | (23,096 | )
Long term liabilities |  |  | (4,248 | ) |  |  | 2,168 |  |  |  | (2,080 | )
Total liabilities assumed |  |  | (118,663 | ) |  |  | (1,275 | ) |  |  | (119,938 | )
Net assets acquired |  |  | 150,442 |  |  |  | (5,517 | ) |  |  | 144,925 |
Goodwill |  |  | 108,008 |  |  |  | 5,517 |  |  |  | 113,525 |
Total purchase price |  | $ | 258,450 |  |  | $ | — |  |  | $ | 258,450 |
(1) | The increase in deferred revenue (and the corresponding increase to Goodwill by the same amount) is the result of the adoption of ASU 2021‑08 in the quarter ended October 31, 2021.
(2) | All other changes represent measurement period adjustments attributable to the Company’s review of inputs and assumptions utilized in valuation models and additional information being obtained on preacquisition liabilities. The measurement period adjustments did not have a significant impact on the Company’s results of operations in prior periods.
The final values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
Description |  | Amount |  |  | Life (in years) |
Trademark/tradename |  | $ | 25,400 |  |  |  | 17.6 |
Courseware |  |  | 1,500 |  |  |  | 3 |
Proprietary delivery and development software |  |  | 2,500 |  |  |  | 0.6 |
Vendor relationships |  |  | 43,900 |  |  |  | 2.6 |
Customer relationships |  |  | 112,700 |  |  |  | 10.6 |
Total |  | $ | 186,000 |  |  |  |  |
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and vendor relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach. Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of GK resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes. The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually. For the year ended January 31, 2022, the Company incurred $1.0 million in acquisition-related costs, which primarily consisted of transaction fees and legal, accounting and other professional services, substantially all of which were reported in the period from June 12, 2021 through January 31, 2022 (Successor). During the fiscal year ended January 31, 2023 (Successor) the Company incurred an additional $3.0 million in acquisition-related costs in relation to GK integration. These costs are included in the "acquisition-related and recapitalization costs" in the accompanying consolidated statement of operations. (c) Ryzac, Inc. (“Codecademy”) On April 4, 2022, the Company acquired Ryzac, Inc (“Codecademy”). Codecademy is a learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity. The acquisition was accounted for as a business combination under ASC 805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values. The following summarizes the purchase consideration (in thousands):
Description |  | Amount |
Cash payments |  | $ | 202,119 |
Class A common stock issued |  |  | 182,550 |
Cash settlement of seller transaction costs and other |  |  | 1,315 |
Total purchase price |  | $ | 385,984 |
The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
|  | Preliminary Purchase |  |  |  |  |  |  | Final Purchase |
Description |  | Price Allocation |  |  | Adjustments |  |  | Price Allocation |
Cash, cash equivalents and restricted cash |  | $ | 4,262 |  |  | $ | (209 | ) |  | $ | 4,053 |
Current assets |  |  | 3,671 |  |  |  |  |  |  |  | 3,671 |
Property and equipment |  |  | 385 |  |  |  |  |  |  |  | 385 |
Intangible assets |  |  | 112,000 |  |  |  | 7,000 |  |  |  | 119,000 |
Total assets acquired |  |  | 120,318 |  |  |  | 6,791 |  |  |  | 127,109 |
Current liabilities |  |  | (4,290 | ) |  |  | (1,876 | ) |  |  | (6,166 | )
Deferred revenue |  |  | (18,396 | ) |  |  |  |  |  |  | (18,396 | )
Deferred tax liabilities |  |  | (21,615 | ) |  |  | (6 | ) |  |  | (21,621 | )
Total liabilities assumed |  |  | (44,301 | ) |  |  | (1,882 | ) |  |  | (46,183 | )
Net assets acquired |  |  | 76,017 |  |  |  | 4,909 |  |  |  | 80,926 |
Goodwill |  |  | 309,967 |  |  |  | (4,909 | ) |  |  | 305,058 |
Total purchase price |  | $ | 385,984 |  |  | $ | — |  |  | $ | 385,984 |
The final values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
Description |  | Amount |  |  | Life (in years) |
Tradename |  | $ | 44,000 |  |  |  | 13.8 |
Developed technology |  |  | 43,000 |  |  |  | 5 |
Content |  |  | 17,000 |  |  |  | 5 |
Customer relationships |  |  | 15,000 |  |  |  | 5.8 |
Total |  | $ | 119,000 |  |  |  |  |
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach. Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of Codecademy resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The goodwill is not deductible for tax purposes. The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually. In the fiscal year ended January 31, 2023 (Successor) the Company incurred $10.7 million in acquisition-related costs, which primarily consisted of transaction fees and legal, accounting, and other professional services. These costs are included in the "acquisition-related and recapitalization costs" in the accompanying consolidated statement of operations. Unaudited Pro Forma Financial Information The unaudited pro forma financial information below is presented in accordance with Regulation S-X, Article 11 to enhance comparability for all periods by including operating results for Skillsoft, Global Knowledge and Codecademy as if the mergers had closed on February 1, 2021 (in thousands):
|  | Unaudited Pro Forma |
|  | Statement of Operations |
|  | Twelve months ended January 31, |
|  | 2023 |  |  | 2022 |
Revenue |  | $ | 563,182 |  |  | $ | 587,999 |
Net loss from continuing operations |  |  | (153,640 | ) |  |  | (129,774 | )
The unaudited pro forma financial information does not assume any impacts from revenue, cost, or other operating synergies that could be generated as a result of the acquisition. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated on February 1, 2021. The pro forma include adjustments to reflect intangible asset amortization based on the economic values derived from definite-lived intangible assets and interest expense on the new debt financing. Other pro forma adjustments include the following:
| ● | The adoption of ASU 2021‑08 is reflected for all Successor and Predecessor periods presented for comparability.
| ● | Impairment of goodwill of $641 million has been excluded from the twelve months ended January 31, 2023.
| ● | The pro forma results of operations exclude acquisition-related and recapitalization costs other than the transaction costs specific to the business combinations occurring in June 2021 and April 2022. These transaction costs are presented as if they occurred in February 2021.
Other Acquisitions On June 30, 2021, the Company acquired Pluma, Inc., which the products and services subsequent to the acquisition are referred to as "Skillsoft Coaching". The acquisition enhances the Company’s leadership development offerings, adds a new modality to its blended learning model, and allows the Company to now offer a premium individualized coaching experience. Cash paid for Pluma in the Successor period was lower than the agreed upon purchase price of Pluma for $22 million due to a contractual holdback and working capital adjustment. The fair value of the net assets acquired included $17.8 million of goodwill and $8.7 million of identified intangible assets, which had a weighted average life of 7.4 years. The goodwill is not deductible for tax purposes. The business is reported as part of the Company’s Skillsoft reportable segment. Pro forma information and acquisition expenses have not been presented because such information is not material to the financial statements.

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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 https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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