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Acquisitions
6 Months Ended
Jun. 30, 2011
Acquisitions  
Acquisitions

NOTE 8 – ACQUISITIONS

Fiscal Year 2011

Acquisition of Trouvé

On January 1, 2011, the Company completed the acquisition of certain assets and liabilities from Trouvé Media Inc., a California corporation, and Scott Schnuck for $12.5 million. This acquisition was made to complement the online publishing business. The Company paid $11.0 million on January 3, 2011 and $1.0 million was placed in escrow to satisfy certain indemnification obligations of Trouvé's shareholders. The Company will pay an additional $500,000 on January 3, 2012. The acquisition is accounted for under the acquisition method of accounting and the results of operations of Trouvé are included in the Company's consolidated results from the acquisition date.

The acquisition was accounted for as a purchase and the results of operations of Trouvé are included in the Company's condensed consolidated results from the acquisition date. We recorded approximately $8.6 million in goodwill, which reflects the adjustments necessary to allocate the purchase price to the fair value of the assets acquired and the liabilities assumed. The goodwill of approximately $8.6 million represents the value that is expected from combining Trouvé with Bankrate to provide buyer-specific synergies to leverage the Bankrate platform to increase revenue, reduce expenses, ultimately leading to increased profits. This type of synergy is not readily available to marketplace participants. We expect goodwill to be amortizable and deductible for income tax purposes. Approximately $3.9 million was recorded as intangible assets consisting of agent relationships for $2.3 million, developed technologies for $1.4 million, and internet domain name for $230,000.

The estimated fair value of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date. Measurement period adjustments could reflect new information obtained about facts and circumstances that existed as of the acquisition date. Such changes could be significant. We expect to finalize the valuation and complete the purchase price allocation no later than one-year from the acquisition date.

We determined the fair value of the intangible assets and the resulting goodwill in the purchase price allocations for the acquisitions. These valuations principally use the discounted cash flow methodology and were made concurrent with the effective date of the acquisition. The weighted average amortization periods for intangible assets recorded in the acquisition are as follows:

 

     Years  

Trademarks and URLs

     5.0   

Non-compete agreement

     3.0   

Affiliate network relationships

     9.0   

Developed technologies

     5.0   

Acquisition of CarInsuranceQuotes.com

On May 13, 2011, the Company completed the acquisition of certain assets and liabilities of CarInsuranceQuotes.com, LLC, a Delaware limited liability company, for $7.0 million with an additional $1.0 million in potential cash earn-out payments based on achieving certain performance metrics over the period commencing May 13, 2011 and ending May 12, 2012. The fair value of the earn-out arrangement associated with the CarInsuranceQuotes.com acquisition was estimated at $860,000. This acquisition was made to complement the online publishing business. The Company paid $7.0 million on May 13, 2011. The acquisition is accounted for under the acquisition method of accounting and the results of operations of CarInsuranceQuotes.com are included in the Company's consolidated results from the acquisition date.

The acquisition was accounted for as a purchase and the results of operations of CarInsuranceQuotes.com are included in the Company's condensed consolidated results from the acquisition date. We recorded approximately $360,000 in goodwill, which reflects the adjustments necessary to allocate the purchase price to the fair value of the assets acquired and the liabilities assumed. The fair value of the earn-out arrangement associated with the CarInsuranceQuotes.com, acquisition was estimated at $860,000 using the income approach incorporating significant inputs not observable in the market (Level 3 inputs under ASC 820). Key assumptions include probability of visitor projections and the use of the risk-free rate as a discount factor, as the risk is reflected in the visitor probability assessment. The range of potential undiscounted payments that the Company could be required to make under the earn-out arrangement was estimated to be between $0 and maximum amount of $1 million. We measured the contingent consideration liability as of June 30, 2011 using currently available facts and circumstances. We expect goodwill to be amortizable and deductible for income tax purposes. Approximately $7.5 million was recorded as intangible asset, all of which, was for the domain name.

The estimated fair value of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date. Measurement period adjustments could reflect new information obtained about facts and circumstances that existed as of the acquisition date. Such changes could be significant. We expect to finalize the valuation and complete the purchase price allocation no later than one-year from the acquisition date.

We determined the fair value of the intangible asset and the resulting goodwill in the purchase price allocation for the acquisition. These valuations principally use the discounted cash flow methodology and were made concurrent with the effective date of the acquisition. The amortization period for the domain name is 25 years.

Fiscal Year 2010

Acquisition of Bargaineering.com

On January 29, 2010, the Company completed the acquisition of the website www.Bargaineering.com from Jim Wang Enterprises, LLC, a Maryland limited liability company, ("Bargaineering"), for $3.0 million in cash with an additional $500,000 in potential cash earn-out payments based on achieving certain performance metrics over the period commencing January 29, 2012 and ending January 29, 2013. Bargaineering, based in Columbia, Maryland, operates a blog site that educates consumers about personal finance in the areas of mortgages, banking products and credit cards. This acquisition was made to expand the product lines offered in the online publishing business. The Company paid $2.0 million on February 29, 2010, $500,000 on January 29, 2011 and will pay an additional $500,000 on January 29, 2012. Additional earn out payments of up to $500,000 may be payable as described above.

Results of operations of Bargaineering are included in the Company's consolidated results from the acquisition date. Except for intangible assets, no other assets or liabilities were assumed. Thus, we recorded approximately $290,000 in goodwill, which reflects the adjustments necessary to allocate the purchase price net of intangible assets acquired. We expect goodwill to be amortizable and deductible for income tax purposes. Approximately $2.8 million was recorded as finite-lived intangible assets consisting of Internet domain name for $2.7 million and non-compete agreement for $140,000.

The fair value of the earn-out arrangement associated with the Bargaineering acquisition was estimated at $130,000 using the income approach incorporating significant inputs not observable in the market (Level 3 inputs under ASC 820). Key assumptions include probability of visitor projections and the use of the risk-free rate as a discount factor, as the risk is reflected in the visitor probability assessment. The range of potential undiscounted payments that the Company could be required to make under the earn-out arrangement was estimated to be between $0 and maximum amount of $500,000. We remeasured the contingent consideration liability as of June 30, 2011 using currently available facts and circumstances including Bargaineering's 2011 first and second quarter performances, resulting in no increase in the contingent consideration liability.

We determined the fair value of the intangible assets and the resulting goodwill in the purchase price allocations for the acquisitions. These valuations principally use the discounted cash flow methodology and were made concurrent with the effective date of the acquisition. The weighted average amortization periods for intangible assets recorded in the acquisition are as follows:

 

     Years  

Trademarks and URLs

     7.0   

Non-compete agreement

     5.0   

Acquisition of InsuranceQuotes.com

On March 31, 2010, the Company acquired certain intangible assets of InsuranceQuotes.com Development, LLC, a Delaware limited liability company ("InsuranceQuotes"), for $6.0 million in cash. InsuranceQuotes, based in Newton, Massachusetts, operates a website that offer consumers competitive insurance rates for auto, home, life, and health. This acquisition was made to complement the online publishing business. The Company paid $5.3 million on March 31, 2010, and $750,000 was placed in escrow to satisfy certain indemnification obligations of InsuranceQuote's shareholders. As of June 30, 2011, no escrow payments have been made.

The results of operations of InsuranceQuotes are included in the Company's consolidated results from the acquisition date. Except for intangible assets, no other assets or liabilities were assumed. We recorded approximately $65,000 in goodwill, which reflects the adjustments necessary to allocate the purchase price to the fair value of the intangible assets acquired. We expect goodwill to be amortizable and deductible for income tax purposes. Approximately $5.9 million was recorded as intangible assets consisting of Internet domain name for $5.9 million, non-compete agreement for $20,000 and Internet content for $15,000.

We determined the fair value of the intangible assets and the resulting goodwill in the purchase price allocations for the acquisitions. These valuations principally use the discounted cash flow methodology and were made concurrent with the effective date of the acquisition. The weighted average amortization periods for intangible assets recorded in the acquisition are as follows:

 

     Years  

Trademarks and URLs

     20.0   

Non-compete agreement

     3.0   

Content

     2.0   

Acquisition of NetQuote.com

On July 13, 2010, the Company completed the stock acquisition of NetQuote Holdings, Inc. ("NetQuote"), a Delaware corporation, for $202.8 million in cash, net of cash acquired and net of NetQuote's debt and transaction costs. NetQuote, based in Denver, Colorado, operates websites that offer consumers competitive insurance rates for auto, home, life, and health. The Company paid $191.8 million, net of cash acquired, and $11 million was placed in escrow to satisfy certain indemnification obligations of NetQuote's shareholders. As of June 30, 2011, no escrow payments have been made.

This acquisition was made to complement the online publishing business. The results of operations of NetQuote is included in the Company's consolidated results from the acquisition date. We recorded approximately $133.4 million in goodwill, which reflects the adjustments necessary to allocate the purchase price to the fair value of the assets acquired and the liabilities assumed. We expect goodwill will not be deductible for income tax purposes. Approximately $92.0 million was recorded as intangible assets consisting of Internet domain name for $40.9 million, customer relationships for $46.0 million, and developed technology for $5.1 million.

The following table presents the January 1, 2011 estimated fair value of assets acquired and liabilities assumed at acquisition date, measurement period adjustments during the six months ended June 30, 2011 and the final adjusted acquisition date fair values as of June 30, 2011.

 

( $ in thousands)    Acquisition
Date
Estimated
Fair Value
    Measurement
Period
Adjustments
    Adjusted
Acquisition
Date
Estimated
Fair Value
 

Current assets, net of cash acquired

   $ 9,323      $ —        $ 9,323   

Property and equipment, net

     3,070        —          3,070   

Intangible assets

     92,000        —          92,000   

Goodwill

     133,184        205        133,389   

Other noncurrent assets

     82        —          82   

Current liabilities

     (10,386     445        (9,941

Deferred tax liability

     (18,294     (650     (18,944

Other noncurrent liabilities

     (6,184     —          (6,184
  

 

 

   

 

 

   

 

 

 

Preliminary purchase price

   $ 202,795      $ —        $ 202,795   
  

 

 

   

 

 

   

 

 

 

The measurement period adjustments relate to current assets, goodwill and other noncurrent liabilities and are due to a change in the valuation of receivables and deferred tax liabilities.

The Company has adjusted the provisional amounts at December 31, 2010 that were recognized at the acquisition dates to reflect new information obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates. Such adjustments resulted in a net increase of $205,000 in goodwill, a decrease of $445,000 to accrued expenses and an increase to deferred income tax liability of $650,000. These amounts were not retrospectively adjusted as of December 31, 2010 as the amounts were not deemed material. The fair values of assets acquired and liabilities assumed have been finalized as of June 30, 2011.

The valuations used to determine the estimated fair value of the intangible assets and the resulting goodwill in the purchase price allocation principally use the discounted cash flow methodology and were made concurrent with the effective date of the acquisition. The weighted average amortization periods for intangible assets recorded in the acquisition are as follows:

 

     Years  

Trademarks and URLs

     15.0   

Customer relationships

     8.3   

Developed technologies

     3.0   

Acquisition of CreditCards.com

On August 6, 2010, the Company completed the stock acquisition of CreditCards.com, Inc. ("CreditCards"), a Delaware corporation, for $143.1 million in cash, net of cash acquired and net of CreditCards' debt and transaction costs. CreditCards, based in Austin, Texas, operates websites that offer consumers information on credit cards. The Company paid $135.8 million, net of cash acquired, and $7.3 million was placed in escrow to satisfy certain indemnification obligations of CreditCards' shareholders. As of June 30, 2011, no escrow payments have been made.

This acquisition was made to complement the online publishing business. The results of operations of CreditCards is included in the Company's consolidated results from the acquisition date. We recorded approximately $81.2 million in goodwill, which reflects the adjustments necessary to allocate the purchase price to the fair value of the assets acquired and the liabilities assumed. We expect goodwill will not be deductible for income tax purposes. The goodwill of approximately $81.2 million represents the value that is expected from combining CreditCards with Bankrate to provide buyer-specific synergies to leverage the Bankrate platform to increase revenue, reduce expenses, ultimately leading to increased profits. This type of synergy is not readily available to marketplace participants. Approximately $67.8 million was recorded as finite-lived intangible assets consisting of Internet domain name for $26.5 million, customer relationships for $39.4 million, and developed technology for $1.9 million.

 

The following table presents the January 1, 2011 estimated fair value of assets acquired and liabilities assumed at acquisition date, measurement period adjustments during the six months ended June 30, 2011 and the final adjusted acquisition date fair values as of June 30, 2011.

 

     Acquisition
Date
    Measurement     Adjusted
Acquisition
Date
 
( $ in thousands)    Estimated
Fair Value
    Period
Adjustments
    Estimated
Fair Value
 

Current assets, net of cash acquired

   $ 10,445      $ —        $ 10,445   

Property and equipment, net

     571        —          571   

Intangible assets

     71,900        (4,100     67,800   

Goodwill

     75,795        5,400        81,195   

Other noncurrent assets

     59        —          59   

Current liabilities

     (7,676     292        (7,384

Deferred tax liability

     (6,584     (1,592     (8,176

Other noncurrent liabilities

     (1,446     —          (1,446
  

 

 

   

 

 

   

 

 

 

Preliminary purchase price

   $ 143,064      $ —        $ 143,064   
  

 

 

   

 

 

   

 

 

 

The measurement period adjustments relate to goodwill and intangible assets, other noncurrent assets and current liabilities and are due to changes in working capital and changes in the valuation of deferred tax liabilities.

The Company has adjusted the provisional amounts at December 31, 2010 that were recognized at the acquisition dates to reflect new information obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates. Such adjustments resulted in a decrease of $4.1 million to intangible assets, an increase of $5.4 million in goodwill, a decrease of $292,000 to accrued expenses and an increase to deferred income tax liability of $1.6 million. These amounts were not retrospectively adjusted as of December 31, 2010 as the amounts were not deemed material. The fair values of assets acquired and liabilities assumed have been finalized as of June 30, 2011.

The valuations used to determine the estimated fair value of the intangible assets and the resulting goodwill in the purchase price allocation principally use the discounted cash flow methodology and were made concurrent with the effective date of the acquisition. The weighted average amortization periods for intangible assets recorded in the acquisition are as follows:

 

     Years  

Trademarks and URLs

     20.0   

Customer relationships

     8.0   

Developed technologies

     3.0   

Acquisition of InfoTrak

On September 30, 2010, the Company acquired certain assets and liabilities of Infotrak National Data Services, a Massachusetts corporation ("Infotrak"), for $1.6 million in cash. Infotrak, based in Boston, Massachusetts, operates a print publication business with major newspapers in the United States. This acquisition was made to expand the product lines offered in the print publishing business. The Company paid $1.45 million on September 30, 2010, and $150,000 was placed in escrow to satisfy certain indemnification obligations of Infotrak National Data Services, Inc.'s shareholders. As of June 30, 2011, no escrow payments have been made.

The results of operations of Infotrak are included in the Company's consolidated results from the acquisition date. Except for intangible assets, no other assets or liabilities were assumed. Thus, we recorded approximately $285,000 in goodwill, which reflects the adjustments necessary to allocate the purchase price net of intangible assets acquired. We expect goodwill will be deductible for income tax purposes. Approximately $1.3 million was recorded as finite-lived intangible assets consisting of Customer relationships for $680,000, non-compete agreement for $625,000 and trademark for $10,000. The fair value of assets acquired and liabilities assumed have been finalized.

We determined the fair value of the intangible assets and the resulting goodwill in the purchase price allocations for the acquisitions. These valuations principally use the discounted cash flow methodology and were made concurrent with the effective date of the acquisition. The weighted average amortization periods for intangible assets recorded in the acquisition are as follows:

 

     Years  

Customer relationships

     13.7   

Developed technologies

     5.0   

Acquisition of CD.com

On October 15, 2010, the Company completed the acquisition of the internet domain name CD.com from Rick Latona Auctions, LLC, a Georgia Limited Liability Company for $500,000. This acquisition was made to complement the online publishing business. The results of operations of CD.com are included in the Company's consolidated results from the acquisition date. The purchase price allocation resulting in the recording of $500,000 to internet domain name has been finalized.

Acquisition of CreditCards.ca

On November 23, 2010, the Company completed the acquisition of internet domain name CreditCards.ca from an Enterprise Analyticals Modeling and Process, LLC, for $650,000. This acquisition was made to complement the online publishing business. The results of operations of CreditCards.ca are included in the Company's consolidated results from the acquisition date. The purchase price allocation resulting in the recording of $650,000 to internet domain name has been finalized.

Pro Forma Data

The following unaudited pro forma data summarizes the results of operations for the periods presented as if the acquisitions of NetQuote and CreditCards had been completed on January 1, 2010. The pro forma data give effect to the actual operating results prior to the acquisitions and adjustments to revenue of $1.7 million, cost of revenue of $1.7 million, depreciation and intangible assets amortization of $1.8 million, interest expense of $913,000, and income taxes of $316,000 for the three months ended June 30, 2010. The pro forma data give effect to the actual operating results prior to the acquisitions and adjustments to revenue of $3.6 million, cost of revenue of $3.6 million, depreciation and intangible assets amortization of $3.4 million, interest expense of $1.7 million, and income taxes of $635,000 for the six months ended June 30, 2010. The pro forma data does not give effect to transaction costs related to the acquisitions. These pro forma amounts are not intended to be indicative of the results that would have been actually reported if the acquisitions of NetQuote and CreditCards had occurred on January 1, 2010 or that may be reported in the future.

 

     Three months ended     Six months ended  

($ in thousands )

   June 30,
2010
    June 30,
2010
 

Total revenue

   $ 75,366      $ 144,869   
  

 

 

   

 

 

 

Income from operations

   $ 6,116      $ 10,170   
  

 

 

   

 

 

 

Net loss

   $ (1,507   $ (4,914
  

 

 

   

 

 

 

Basic and diluted net loss per share:

    

Basic and diluted

   $ (0.03   $ (0.09