v3.25.1
Note 3 - Business Combination
 3 Months Ended
Mar. 31, 2025
Notes to Financial Statements  
Business Combination [Text Block]

3. Business Combination

 

Ydentic Acquisition

 

On January 29, 2025, the Company consummated its acquisition of 80% of the outstanding shares of Ydentic Holding B.V., which owns 100% of the outstanding equity interests of Ydentic B.V. (together, “Ydentic”). The acquisition was made pursuant to the Share Purchase Agreement, by and among the Company and the former Ydentic shareholders. The Company completed the acquisition of Ydentic to further expand its SaaS solutions for providing robust, simple, centralized multi-tenant management for managed service providers (“MSPs”) that utilize Microsoft solutions. The estimated fair value of the transaction consideration is approximately $20.4 million, consisting of $14.9 million in cash paid at closing and a $5.5 million unconditional purchase obligation with variability in the timing and amount of settlement.

 

The acquisition-related costs incurred by the Company totaled $1.3 million, of which $0.5 million was incurred during the three months ended March 31, 2025. These costs are recognized as an expense in the general and administrative item in the condensed consolidated statements of income (loss).

 

The financial results of Ydentic have been included in our condensed consolidated financial statements since the date of the acquisition. The Company established a deferred tax liability with an offset to goodwill in connection with the accounting for the opening balance sheet of the Ydentic acquisition as a result of book-to-tax differences primarily related to the technology and software intangibles and customer related assets.

 

The valuation of assets acquired and liabilities assumed has not yet been finalized as of  March 31, 2025. The purchase price allocation is preliminary and subject to change, including the valuation of intangible assets, income taxes, and goodwill, among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value.

 

The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:

 

  

Preliminary Allocation

 
  

(in thousands)

 

Accounts receivable, net

 $618 

Prepaid expenses and other current assets

  30 

Property and equipment, net

  68 

Goodwill

  18,214 

Intangible assets, net

  2,802 

Operating lease right-of-use assets

  562 

Other assets

  30 

Accounts payable

  (340)

Accrued expenses and other current liabilities

  (410)

Current portion of deferred revenue

  (2)

Long-term operating lease liabilities

  (457)

Other liabilities

  (723)

Total purchase consideration, net of cash acquired

 $20,392 

 

 

 

The goodwill, which is generally not tax-deductible, is attributed to intangible assets that do not qualify for separate recognition, including the assembled workforce of the acquired business and the synergies expected to arise as a result of the acquisition.

 

The following table summarizes the purchase price allocated to the intangible assets acquired:

 

  

Amount

  

Weighted Average Life

 
  

(in thousands)

  

(in years)

 

Technology and software

 $2,283   4.0 

Customer related assets

  519   5.0 

Fair value of intangible assets acquired

 $2,802   4.2 

 

The estimated fair values of identifiable intangible assets were determined using the multiperiod excess earnings method and distributor method. The multiperiod excess earnings method is a method of estimating the value of the primary income-generating intangible asset within a group of assets, by calculating the cash flow attributable to that asset after deducting contributory asset charges. The distributor method is a form of the multiperiod excess earnings method that relies upon market-based distributor data to value customer relationship intangible assets. Some of the significant assumptions inherent in the development of such asset valuations include revenues, contributory asset charges, discount rate and useful life. The fair value of intangible assets as of March 31, 2025 is based on publicly available benchmarking information as well as preliminary assumptions which are subject to change as we complete our valuation procedures.

 

Mandatorily Redeemable Noncontrolling Interest

 

As part of the acquisition, the Company agreed to purchase the remaining 20% of the outstanding shares of Ydentic. The unconditional purchase obligation is a liability-classified mandatorily redeemable noncontrolling interest with subsequent measurement at its estimated redemption value. The liability was initially recognized at fair value of $5.5 million. The Company estimated the fair value of the mandatorily redeemable noncontrolling interest using a Monte Carlo simulation model, with the significant input of risk-free rate at 4.27%. The model incorporated multiple random iterations, simulating various potential future price paths over the contractual life of the noncontrolling interest shares, based on appropriate probability distributions.

 

Subsequent to the initial measurement, mandatorily redeemable noncontrolling interests are measured at the amount of cash that would be paid under the conditions specified in the applicable agreement, assuming settlement occurred as of the reporting date. Any change in the estimated redemption amount compared to the prior reporting date is recognized as interest cost in the condensed consolidated statements of operations.

 

As of March 31, 2025, the liability was $6.6 million and is included in accrued expenses and other current liabilities within the condensed consolidated balance sheets. During the three months ended March 31, 2025, the Company recorded interest expense of $0.8 million to adjust the redemption value of the mandatorily redeemable noncontrolling interest. The expenses are included in other income, net within the condensed statements of income (loss).