6. Business Combinations

Fiscal Year 2014

FeedMagnet

On April 15, 2014, the Company acquired FeedMagnet Inc. (“FeedMagnet”) for $9.3 million in cash. FeedMagnet was a privately-owned social media curation company that enables brands to collect, curate and display consumer-generated images, video and social content on their websites and other marketing properties. The Company accounted for the FeedMagnet acquisition using the acquisition method of accounting.

The Company allocated the purchase price to the assets acquired, including intangible assets, and liabilities assumed based on estimated fair values at the date of the acquisition. The Company estimated the value of tangible assets and liabilities based on purchase price and future intended use. The Company derived the value of intangible assets from the present value of estimated future benefits from the various intangible assets acquired.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the business combination date, its estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. The Company records adjustments to assets acquired or liabilities assumed subsequent to the measurement period in its operating results in the period in which the adjustments were determined.

The Company allocated the purchase price for FeedMagnet as follows (in thousands):


Cash and cash equivalents	$	383
Accounts receivable		695
Prepaid expenses and other current assets		19
Intangible assets:
Developed technology (5 year useful life)		3,265
Customer relationships (5 year useful life)		535

Total identified intangibles		3,800
Goodwill		6,324

Total assets acquired	$	11,221
Accounts payable		(80	)
Accrued expenses and other current liabilities		(187	)
Deferred revenue		(234	)
Deferred tax liability		(1,391	)

Total liabilities assumed	$	(1,892	)

Net assets acquired	$	9,329

The consideration paid was as follows (in thousands):


Cash	$	9,329

Total consideration	$	9,329

Goodwill represents the excess of the purchase price over the aggregate fair value of the net identifiable assets acquired and is not deductible for tax purposes. Goodwill for FeedMagnet resulted primarily from the Company’s expectations that FeedMagnet’s solutions will enhance the Company’s product offerings. The Company integrated the FeedMagnet business into the Company’s operations; therefore, there are no separate revenue and earnings for FeedMagnet since the integration.

Fiscal Year 2013

PowerReviews

On June 12, 2012, the Company acquired PowerReviews for $31.1 million in cash and 6.4 million shares of the Company’s common stock. In connection with the acquisition, the Company assumed the PowerReviews option plan. After conversion, the PowerReviews options were equivalent to vested and unvested options to purchase 1.7 million shares of the Company’s common stock.

PowerReviews solutions are offered through two platforms, an enterprise platform that is similar to the Company’s current Conversations platform and an Express platform that provides certain ratings and reviews solutions as a turn-key offering. The Company accounted for the PowerReviews acquisition using the purchase method of accounting.

The Company allocated the purchase price to the assets acquired, including intangible assets and liabilities assumed based on estimated fair values at the date of the acquisition. The Company estimated the value of tangible assets and liabilities based on purchase price and future intended use. The Company derived the value of intangible assets from the present value of estimated future benefits from the various intangible assets acquired.

The Company allocated the purchase price for PowerReviews as follows (in thousands):


Cash and cash equivalents	$	745
Restricted cash		104
Accounts receivable		497
Prepaid expenses and other current assets		156
Property and equipment		280
Current deferred tax asset		239
Intangible assets:
Domain name (indefinite useful life)		800
Developed technology (3 year useful life)		5,400
Customer relationships (3 to 10 year useful life)		35,000

Total identified intangibles		41,200
Goodwill		113,152

Total assets acquired		156,373
Accounts payable		(304	)
Accrued expenses and other current liabilities		(2,167	)
Deferred revenue		(2,627	)
Non-current deferred tax liability		(521	)

Total liabilities assumed		(5,619	)

Net assets acquired	$	150,754

Using a price of $17.20 per share of common stock issued, which was the closing price of the Company’s common stock on the NASDAQ Global Market on the date of the acquisition, the consideration paid was as follows (in thousands):


Cash	$	31,059
Common stock		109,745
Fair value of vested stock options assumed		9,950

Total consideration	$	150,754

Goodwill represents the excess of the purchase price over the aggregate fair value of the net identifiable assets acquired and is not deductible for tax purposes. Goodwill for PowerReviews resulted primarily from the Company’s expectations that PowerReviews solutions will enhance the Company’s product offering and delivery. The Company integrated the PowerReviews business into the Company’s operations. Therefore, there are no separate revenue and earnings for PowerReviews since the integration.

On January 10, 2013, the DOJ, Antitrust Division, filed a complaint against the Company with the Court alleging that the acquisition of PowerReviews violated Section 7 of the Clayton Act, 15 U.S.C. Section 18, and seeking the Company’s divestiture of assets sufficient to create a competing business that can replace the competitive significance of PowerReviews in the marketplace. On January 8, 2014, the Court ruled that the Company’s acquisition of PowerReviews violated Section 7 of the Clayton Act, 15 U.S.C. Section 18. On April 24, 2014, the Company entered into a Joint Stipulation with the DOJ to resolve the DOJ’s claims in the antitrust action and, together with the DOJ, the Company submitted a proposed order to the Court. Under the terms of the Joint Stipulation and the proposed order, the Company is required to divest all of the net assets of the PowerReviews business. As a result, the Company has reported the results of operations and financial position of PowerReviews as discontinued operations within the consolidated statements of operations and balance sheets for all periods presented. See Note 3 to Consolidated Financial Statements for further discussion of our discontinued operations.

Longboard Media, Inc.

On November 5, 2012, the Company acquired Longboard Media, Inc. (“Longboard Media”) for approximately $26.9 million in cash, 0.5 million shares of the Company’s common stock and future contingent consideration with an acquisition date fair value of $4.3 million. The contingent consideration was payable to Longboard Media’s achievement of certain performance goals for the period from January 1, 2013 to December 31, 2013. The estimated fair value of contingent consideration was determined using a weighted average probability of various outcomes of achieving the performance goals. Changes in the fair value of this contingent consideration were recorded in the statement of operations through December 31, 2013. At the date of acquisition, the Company estimated that an additional contingent consideration of approximately $2.0 million would be paid to certain identified key individuals conditional upon being employed with the Company through December 31, 2013.

Longboard Media is a full service media management network for retailers, shopping publishers and advertisers. Longboard Media enables retailers to launch and manage on-site advertising solutions and site monetization strategies and enables brands to target consumers across shopping publishers, mobile commerce applications and retailers. The Company accounted for the Longboard Media acquisition using the acquisition method of accounting.

The Company allocated the purchase price for Longboard Media as follows (in thousands):


Cash and cash equivalents	$	588
Accounts receivable		2,899
Prepaid expenses and other current assets		53
Deferred tax asset – current		437
Intangible assets:
Customer relationships (10 year useful life)		11,300

Total identified intangibles		11,300
Goodwill		28,681
Deferred tax asset – long term		1,042

Total assets acquired		45,000
Accounts payable		(3,006	)
Accrued expenses and other current liabilities		(1,112	)
Deferred tax liability		(3,955	)

Total liabilities assumed		(8,073	)

Net assets acquired	$	36,927

Using a price of $12.60 per share of common stock issued, which was the closing price of the Company’s common stock on the NASDAQ Global Market on the day prior to the date of acquisition, the consideration paid was as follows (in thousands):


Cash	$	26,855
Common stock		5,802
Fair value of contingent consideration		4,270

Total consideration	$	36,927

Goodwill represents the excess of the purchase price over the aggregate fair value of the net identifiable assets acquired and is not deductible for tax purposes. Goodwill for Longboard Media primarily results from the Company’s expectation to continue developing network solutions to leverage its consumer audience reach, content and data to create incremental value for its clients.

As of April 30, 2013, the fair value of the contingent consideration included in the purchase consideration, which is recorded in accrued expenses and other current liabilities, was $3.3 million. On October 31, 2013, the Company determined that the probability of attaining the underlying performance goals had become remote; and, as a result, the fair value of the contingent consideration included in the purchase price and the resultant payout was estimated to be zero. On January 31, 2014, the Company concluded that the underlying performance goals were not met and the payout was zero. The decrease in fair value of $3.3 million was recorded as a benefit to general and administrative expense for the fiscal year ended April 30, 2014.

At April 30, 2013, the additional contingent consideration payable to the identified key individuals conditional upon being employed with the Company, was estimated to be $1.5 million and was being recorded over the period for which services are provided. As of October 31, 2013, since the estimated payout was determined to be zero, this additional contingent consideration was also reduced to zero. On January 31, 2014, the Company concluded that the payout was zero. As a result, $1.0 million was recorded as a benefit to general and administration expense and sales and marketing expense for the fiscal year ended April 30, 2014.

The Company did not have any contingent consideration as of April 30, 2014.