NOTE 13: ACQUISITIONS

Acquisition of Iris Data Services, Inc.

On April 30, 2015, Epiq and two of its wholly-owned subsidiaries completed the acquisition of all of the capital stock of Iris Data Services, Inc., a Texas corporation ("Iris") pursuant to a Stock Purchase Agreement, dated April 7, 2015 (the "Purchase Agreement").

Under the terms of the Purchase Agreement, the aggregate purchase consideration was $133.8 million (the "Purchase Consideration"), consisting of $124.7 million in cash consideration ("Cash Consideration") and $9.1 million of assumed capital lease obligations of the seller. The Cash Consideration was funded with existing cash and borrowings under our Credit Agreement. Of the Cash Consideration, $68.6 million was paid to the seller at closing and $55.2 million was paid to and then distributed by Iris to participants in the Amended and Restated Iris Data Services, Inc. Participation Plan (the "Plan"), in accordance with the terms of the Plan and the Purchase Agreement. The remaining Cash Consideration of $0.9 million was paid post-closing, consisting of $0.6 million due to Plan participants and $0.3 million related to a working capital adjustment. The aggregate distributions to Plan participants resulted in post-closing tax benefits to Epiq of approximately $23.0 million. In addition, approximately $13.0 million of the Cash Consideration was placed in escrow for fifteen months after the closing as security for potential future indemnification claims.

Iris is a leading provider of managed services for the legal profession. The Iris acquisition significantly accelerated Epiq's strategic plan to offer managed services solutions to its existing global client base while bringing Epiq's eDiscovery and document review resources to a new client base.

The results of operations of Iris have been included in Epiq's Consolidated Statements of Operations subsequent to the April 30, 2015 acquisition date. Total revenue and net loss related to Iris included in our results of operations for the year ended December 31, 2015 were $29.0 million and $7.1 million, respectively.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The Purchase Consideration was allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the date of acquisition. This allocation resulted in goodwill of $73.7 million, all of which has been assigned to Epiq's Technology segment. The recognized goodwill is primarily attributable to expected long-term growth in Iris's operating results. Approximately $5.3 million of the goodwill is deductible for income tax purposes. The valuations consist of appraisal reports, discounted cash flow analysis, or other appropriate valuation techniques to determine the fair value of the assets acquired or liabilities assumed.

(in thousands)	Original Allocation(1)		Allocation Adjustments			Adjusted Allocation(3)
Cash and cash equivalents	$	197	$	—		$	197
Accounts receivable		15,623		(415	)		15,208
Other current assets		2,517		(966	)		1,551
Deferred income tax assets		21,041		(12,557	)(2)		8,484
Property and equipment		10,642		—			10,642
Other long-term assets		246		—			246
Intangible assets		34,694		—			34,694
Goodwill		74,852		(1,176	)		73,676

Total assets acquired		159,812		(15,114	)		144,698

Accounts payable		4,407					4,407
Accrued liabilities		4,868		(31	)		4,837
Deferred revenue		1,580		109			1,689
Deferred income tax liabilities		15,149		(15,149	)(2)		—
Capital lease obligations		9,061		—			9,061

Total liabilities assumed		35,065		(15,071	)		19,994

Net assets acquired	$	124,747	$	(43	)	$	124,704


(1)	Represents the preliminary allocation of assets acquired and liabilities assumed as of the acquisition date reported in our June 30, 2015 Form 10-Q.
(2)	Includes the impact of reclassifying current deferred income tax assets and liabilities as non-current in accordance with the retroactive adoption of ASU 2015-17 during the fourth quarter of 2015 and the related netting of deferred income tax assets with deferred income tax liabilities by income tax jurisdiction.
(3)	Represents the final allocation of assets acquired and liabilities assumed as of the acquisition date.

The fair values of intangible assets acquired have been estimated by utilizing a discounted cash flow approach, with the assistance of an independent appraisal firm. The intangible assets acquired as part of the Iris acquisition are being amortized over their expected estimated economic benefit period. The preliminary fair values consist of the following:

(in thousands)	Fair Value		Useful Life
Customer relationships	$	15,400	8 years
Technology		8,400	3 years
Trade name		7,000	10 years
Non-compete agreements		3,894	2 - 5 years

Total	$	34,694

Pro Forma Results of Operations

The following table presents the unaudited pro forma combined results of operations of Epiq and Iris for the years ended December 31, 2015 and 2014, after giving effect to certain pro forma adjustments including: (i) amortization of acquired intangible assets, (ii) the impact of acquisition-related expenses, and (iii) interest expense adjustment for historical long-term debt of Iris that was repaid and interest expense on additional borrowings by Epiq to fund the acquisition.

	Year Ended December 31,
(in thousands)	2015			2014
Total revenues	$	561,038		$	513,277
Net income (loss)		(13,649	)		(10,230	)

The unaudited pro forma financial results assume that the Iris acquisition occurred on January 1, 2014 and are not necessarily indicative of the actual results that would have occurred had those transactions been completed on that date. Furthermore, they do not reflect the impacts of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma financial results are not necessarily indicative of the future results to be expected for the consolidated operations.

Transaction costs related to the Iris acquisition were $2.5 million for fiscal year 2015 and are included in "Other operating income (expense)" in the Consolidated Statements of Operations. Debt financing costs associated with the Iris acquisition were $1.0 million for fiscal year 2015. Approximately $0.7 million of the debt financing costs were expensed and included in "Interest expense" in the Consolidated Statements of Operations. These expenses were included in the unaudited pro forma combined results of operations of Epiq and Iris in fiscal 2014.

Acquisition of Minus 10

On April 1, 2014, we completed the acquisition of Minus 10, a company that develops and maintains software products and provides related services to its clients with respect to web-enabled bankruptcy preparation and case management and expanded our Chapter 11 restructuring service offerings. Minus 10 is included in our Bankruptcy and Settlement Administration segment.

The purchase price of Minus 10 was comprised of the following:

	(in thousands)
Cash paid at closing	$	302
Net working capital liability		17
Deferred cash consideration		43
Fair value of contingent consideration		933

Total purchase price	$	1,295

Total purchase consideration was allocated to the identifiable intangible assets based on their respective fair values on the acquisition date. The purchase price allocation is summarized in the following table:

	(in thousands)
Intangible assets:
Acquired technology	$	1,142
Goodwill		153

Net assets acquired	$	1,295

The entire balances of goodwill and acquired technology related to Minus 10 are amortizable for tax purposes.

Transaction costs related to Minus 10, which were expensed during the period in which they were incurred, were not material to the consolidated financial statements.

The operating results of Minus 10 from the date of acquisition through December 31, 2014 were immaterial to our operating results. Pro-forma results of operations, assuming the Minus 10 acquisition was made at the beginning of the earliest period presented, have not been presented because the effect was not material to our consolidated operating results.

See Note 9 to the Consolidated Financial Statement for additional information related to the Minus 10 contingent consideration obligation and the sale of our equity interest in Minus 10 during 2015.