2. Business Combinations

Qumas Acquisition

On December 9, 2013, we completed the acquisition 100% of the outstanding shares of Qumas. Qumas is a global provider of Cloud-based and on-premises enterprise compliance software supporting regulatory and quality operations in life sciences and other highly regulated industries. The Qumas acquisition further extends our informatics portfolio with the addition of mission-critical, end-to-end document and process management compliance solutions.

The total consideration for the Qumas Acquisition was $51.2 million in cash, subject to working capital adjustments. We deposited $4.5 million of the purchase price into an escrow account to support certain indemnification obligations of the Qumas stockholders and to serve as collateral and partial security against any damages arising from breaches of the representations, warranties and covenants made by Qumas pursuant to the share Purchase Agreement we entered into with Qumas in connection with the Qumas Acquisition. The escrow fund will be maintained for a period of 18 months following the acquisition date or until such earlier time as the escrow fund is exhausted. We funded the purchase price with cash on hand. All acquisition costs related to the transaction were expensed as incurred.

The preliminary determination of fair value is as follows:



	(in thousands)
Fair Value of Consideration Transferred	$	51,233
Less: Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	3,463
Accounts receivable	4,384
Other assets	1,441
Property, plant and equipment	325
Intangible assets	22,240
Other current liabilities	(2,862		)
Deferred tax liabilities	(796		)
Deferred revenue	(1,350		)
Goodwill	$	24,388

We have determined that the Qumas Acquisition was a non-material business combination. As such, pro forma disclosures are not required and are not presented in this Annual Report on Form 10-K (this “Report”). The consolidated financial statements include the operating results of Qumas from the date of acquisition.

ChemSW Acquisition

On September 3, 2013, we completed the acquisition of 100% of the outstanding shares of ChemSW, Inc. ChemSW is an environmental health & safety compliance solutions provider. We acquired ChemSW to further our scientific innovation lifecycle management strategy by providing solutions for managing and tracking the source, use and disposal of chemicals along the entire lab-to-plant value chain.

We purchased each outstanding share of capital stock of ChemSW for a price per share representing an applicable portion of $15.3 million in cash, subject to working capital and other adjustments for total estimated consideration of $15.9 million. We deposited $2.125 million of the purchase price into an escrow account to support certain indemnification obligations of the ChemSW stockholders and to serve as collateral and partial security against any damages arising from breaches of the representations, warranties and covenants made by ChemSW pursuant to the Securities Purchase Agreement. The escrow fund will be maintained for a period of 18 months following the acquisition date or until such earlier time as the escrow fund is exhausted. We funded the purchase price with cash on hand. All acquisition costs related to the transaction were expensed as incurred.

The preliminary determination of fair value is as follows:



	(in thousands)
Fair Value of Consideration Transferred	$	15,851
Less: Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	1,076
Accounts receivable	522
Other assets	42
Property, plant and equipment	—
Intangible assets	10,110
Other current liabilities	(414		)
Deferred revenue	(1,390		)
Goodwill	$	5,905

The above purchase price determination is considered preliminary and is subject to revision during the measurement period. We are reviewing the preliminary valuation of acquired intangible assets and deferred revenue. We may adjust the fair value assumptions after obtaining more information regarding preliminary determination of assets acquired and liabilities assumed, including deferred tax assets and deferred tax liabilities (due to potential limitations on their use). ChemSW was acquired in a transaction where we and the ChemSW shareholders made a joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the “Code”), the effect of which is to treat the transaction as an asset acquisition for tax purposes. Accordingly, goodwill will be deductible over a 15-year period for U.S. income tax purposes.

In addition, certain executives of ChemSW are entitled to receive additional contingent earn-out consideration of up to$2.0 million based upon the achievement by ChemSW of certain agreed-upon orders-related performance milestones during the first two years following the acquisition date. These payments are subject to forfeiture in equal amounts by each of the executives if such executive’s employment is terminated prior to the second anniversary of the closing of the ChemSW Acquisition. Accordingly, such payments were determined to be compensation for post-acquisition service, the estimated cost of which is being recognized as compensation expense over the two -year retention period based upon the expected achievement of the orders-related milestones. During the year ended December 31, 2013, we recognized $0.3 million of compensation expense related to the earn-out consideration, which is included in the “Business consolidation, restructuring and headquarter-relocation costs” line in our consolidated statement of operations.

We have determined that the ChemSW Acquisition was a non-material business combination. As such, pro forma disclosures are not required and are not presented in this Report. The consolidated financial statements include the operating results of ChemSW from the date of acquisition.

Vialis Acquisition

On January 11, 2013, we acquired 100% of the outstanding shares of Vialis. Vialis is a systems integrator based in Liestal, Switzerland that serves the pharmaceutical, biotechnology, chemicals and agro-science industries. We acquired Vialis as part of our strategy to expand our professional services offerings internationally.

The total consideration for the Vialis Acquisition was $6.5 million, consisting of (i) an upfront payment in an amount equal to five million Swiss francs (or approximately $5.2 million) made on December 31, 2012, prior to the closing date of the acquisition, of which $0.8 million was deposited into an escrow account in the name of the selling shareholders on the acquisition date and will be released 12- months following the acquisition date if and to the extent that certain breaches of the representations and warranties have not occurred, and (ii) a $1.3 million cash payment, which was paid in connection with the signing and simultaneous closing of the acquisition. We funded the purchase price with cash on hand.

The determination of fair value is as follows:



	(in thousands)
Fair Value of Consideration Transferred	$	6,508
Less: Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	1,839
Accounts receivable	1,304
Other assets	523
Property, plant and equipment	63
Intangible assets	4,510
Other current liabilities	(1,197		)
Deferred tax liabilities	(1,056		)
Deferred revenue	(288		)
Goodwill	$	810

There is no tax deductible goodwill as a result of the Vialis Acquisition.

During the year ended December 31, 2013, we made measurement period adjustments netting to $0.9 million consisting primarily of $1.0 million decrease to intangible assets, offset by $0.1 million increase to to deferred taxes.

In addition to the initial purchase price, pursuant to the terms of the purchase agreement, the selling shareholders can earn certain contingent earn-out consideration of up to five million Swiss francs payable during the next three fiscal years, subject to the satisfaction by Vialis of certain orders-related milestones. The contingent earn-out consideration is subject to forfeiture in equal amounts by each of the selling shareholders if employment is terminated prior to a three-year retention period. Accordingly, the payment was determined to be compensation for post-acquisition service, the estimated cost of which is being recognized as compensation expense over the three-year retention period based upon the expected achievement of the orders-related milestones. During the year ended December 31, 2013, we recognized $2.4 million of compensation expense related to the earn-out consideration, which is included in the “Business consolidation, restructuring and headquarter-relocation costs” line in our consolidated statement of operations.

We have determined that the Vialis Acquisition was a non-material business combination. As such, pro forma disclosures are not required and are not presented in this Report. The consolidated financial statements include the operating results of Vialis from the date of acquisition.

Aegis Acquisition

On October 23, 2012, we acquired Aegis as part of our strategy to expand our product portfolio to complement our current software offerings, expand our footprint in downstream operations and reinforce our position as a leader in scientific innovation lifecycle management software.

The total consideration for the Aegis Acquisition was $30.7 million, consisting of (i) an initial cash payment of $26.1 million, which was paid in connection with the signing and simultaneous closing of the acquisition, and (ii) additional consideration of $4.6 million, which was deposited into an escrow account in the name of the selling shareholders on the acquisition date. The escrowed funds were released to the selling shareholders on December 27, 2013 and no breaches of the representations and warranties have occurred.

The determination of fair value is as follows:



	(in thousands)
Fair Value of Consideration Transferred	$	30,729
Less: Recognized amounts of identifiable assets acquired and liabilities assumed:
Accounts receivable	661
Other assets	311
Property, plant and equipment	79
Intangible assets	11,840
Other current liabilities	(602		)
Deferred tax liabilities	(3,566		)
Deferred revenue	(510		)
Goodwill	$	22,516

There is no tax deductible goodwill as a result of the Aegis Acquisition.

During the year ended December 31, 2013, we made measurement period adjustments of $3.6 million to increase deferred tax liabilities.

Acquisition of the HEOS Platform

On May 17, 2012, we acquired the HEOS software platform from Scynexis, Inc. as part of our strategy to expand our product portfolio to complement our current software offerings. Enabled by our applications, HEOS is a proven Software-as-a-Service workspace that accelerates and streamlines collaborative drug discovery by providing secure, real-time access to chemical registration, biological assay results, computational and visual analytics, safety assessment and pharmacokinetics data, and other project information in the cloud with minimal IT overhead and effort.

The total consideration for the net assets acquired was $4.5 million, of which, based on our determination of fair value completed during the third quarter of fiscal 2012, $3.8 million was allocated to goodwill and $0.7 million was allocated to purchased technology intangible assets. We funded the purchase price with cash on hand. All acquisition costs related to the transaction were expensed as incurred. The goodwill related to the acquisition of the HEOS platform is deductible over a 15-year period for U.S. income tax purposes.

VelQuest Acquisition

On December 30, 2011, we entered into an Agreement and Plan of Merger pursuant to which VelQuest became our wholly owned subsidiary. We acquired VelQuest as part of our strategy to expand our product portfolio to complement our current software offerings. VelQuest extends our software portfolio into pharmaceutical development quality assurance and quality control, offering significant productivity improvements, faster cycle times, lower operational costs and reduced compliance risks for regulated life sciences organizations.

The total consideration for the VelQuest Acquisition was $35.0 million, consisting of (i) an initial cash payment of $29.8 million, which was paid in connection with the signing and simultaneous closing of the acquisition, and (ii) additional consideration of $5.3 million, which was deposited into an escrow account in the name of the selling shareholders on the acquisition date to cover indemnification claims under the acquisition agreement, if any, for a period of 15 months following the acquisition date. All escrow funds have been released as of December 31, 2013.

We funded the purchase price with cash on hand. All acquisition costs related to the transaction were expensed as incurred. The total acquisition date fair value of the consideration was $35.0 million. In allocating the purchase price based on estimated fair values, we recorded approximately $24.0 million of goodwill and $10.9 million of identifiable intangible assets. There is no tax deductible goodwill as a result of the VelQuest Acquisition.

Contur Acquisition

On May 19, 2011, by and through our subsidiary, Accelrys Software Inc., we entered into a Sale and Purchase Agreement (the “Contur Purchase Agreement”) pursuant to which we acquired all outstanding equity interests in Contur. We acquired Contur as part of our strategy to expand our product portfolio to complement our current software offerings. Based in Stockholm, Sweden, Contur licenses electronic laboratory notebook software solutions which enable scientific organizations to document their research and development processes and to capture their intellectual property. Contur is a provider of electronic lab notebook capabilities via a SaaS model.

The total consideration for the Contur Acquisition was to be up to $11.1 million, consisting of (i) an initial cash payment of $10.6 million, which was paid in connection with the signing and simultaneous closing of the acquisition, and (ii) additional consideration of up to $0.5 million upon the achievement by Contur of certain agreed-upon performance milestones, payable in equal increments upon each of the first and second anniversaries of the date of the acquisition. In accordance with the terms of the Contur Purchase Agreement, we deposited $0.5 million in an escrow account in our name on the acquisition date for the potential payments for the contingent consideration obligation. The first and second year performance milestones were met during the three months ended June 30, 2012 and 2013, respectively, and accordingly, $0.25 million was released in accordance with the escrow agreement in each of the three months ended June 30, 2012 and 2013.

In allocating the purchase price based on estimated fair values, we recorded approximately $7.5 million of goodwill and $4.4 million of identifiable intangible assets.

In addition to the initial purchase price, we deposited $2.0 million in an escrow account in the name of the six former equity holders of Contur. The escrowed funds were released two years following the acquisition date, in $1.0 million increments upon each of the first and second anniversaries of the date of the acquisition. The $2.0 million was also subject to forfeiture in equal amounts by each of the former equity holders if employment was terminated prior to a two-year retention period. Accordingly, the payment was determined to be compensation for post-acquisition service, the cost of which was recognized as compensation expense over the two-year retention period. During the three months ended June 30, 2012, $1.0 million of the escrowed funds were released in accordance with the escrow agreement, and the remaining $1.0 million were released during the three months ended June 30, 2013.