Business Acquisition

9 Months Ended

Jun. 30, 2011

Business Acquisition

Business Acquisition

Note 4. Business Acquisition

On January 24, 2011, we completed the acquisition of TripIt, Inc. ("TripIt"), a market leader in mobile trip management. The combination of Concur and TripIt delivers additional value to existing clients and travelers while helping to expand the addressable market for Concur's services by reaching a new class of travelers previously unaddressed by traditional managed travel solutions.

Subject to the terms of the acquisition agreement, we acquired all of the outstanding shares of TripIt for $24.7 million of cash, and 814 shares of Concur's common stock valued at approximately $41.2 million at closing, of which 217 shares are held in escrow, plus future contingent consideration with a fair value of $28.9 million (further discussed under "Top-Up Payment" below). Of the $28.9 million, $11.5 million relates to certain individuals whose ability to receive a Top-Up Payment is subject to a continued employment requirement. The portion of the fair value of the contingent consideration subject to the continued employment requirement will be recognized as compensation expense in post combination financial statements. The remainder of the Top-Up Payment fair value at $17.4 million was recorded as part of the purchase consideration.

In addition, we issued unvested Concur restricted stock units in exchange for cancellation of unvested TripIt stock options outstanding with an aggregate value of $9.9 million. The portion of the fair-value of the replacement award that is attributable to the pre-combination service period is $3.6 million and has been included as part of the purchase consideration. We accounted for this acquisition using the purchase method of accounting. We have included the financial results of TripIt in our financial statements beginning on the acquisition date.

The total purchase price for the TripIt acquisition was comprised of the following:

Net obligations assumed	$	(1,868	)
Intangible assets		19,604
Deferred tax liability, net of deferred tax asset		(599	)
Goodwill		69,672
Total purchase price	$	86,809

The following table presents the details of the intangible assets we acquired in connection with the TripIt acquisition:

	Fair value		Useful Life
Software technology	$	8,980		5 years
User base		8,524		5 years
Trademark and trade name		2,100		10 years
Total intangible assets subject to amortization	$	19,604

The goodwill recorded in connection with our business combinations are primarily related to the synergies to be achieved that are unique to our business. The goodwill balance is not deductible for tax purposes.

We expensed transaction costs associated with TripIt as incurred. These transaction costs were $0 and $1.9 million for the three and nine months ended June 30, 2011, and are included in our general and administrative expenses in our income statement.

Top-Up Payment

As part of the TripIt acquisition, we agreed to pay additional cash consideration of up to $38.3 million to the former shareholders of TripIt on the 30 month anniversary of the closing or at such earlier time as specified in the Agreement (the "Top-Up Payment Date"). If, on the Top-Up Payment Date, the value of the consideration issued at the closing (the "Market Value") is less than approximately $82.1 million or $100.9 per share (the "Guaranteed Value"), subject to adjustments, we will make a payment to such holders in an aggregate amount equal to the difference between the Guaranteed Value and the Market Value (the "Top-Up Payment"), subject to certain limited exceptions. Such right to receive the Top-Up Payment will terminate in the event the value of the shares paid at closing increases by approximately $38.3 million to $100.90 per share at any time prior to the Top-Up Payment Date. If shares were sold or transferred before the Top-Up Payment Date, such holders will not be eligible to receive a Top-Up Payment. In addition, certain former shareholders that became employees of Concur will not be eligible to receive a Top-Up Payment if these employees terminate employment with Concur prior to the required service period. As of June 30, 2011, the potential undiscounted amount of the payment that we could be required to make on the Top-Up Payment Date is between $0 and approximately $38.3 million.

As of the acquisition date, we estimated the total fair value of the contingent consideration to be $28.9 million, using the Monte Carlo Simulation valuation approach. This valuation method was based on significant inputs that are not observable in the market (Level 3 inputs), with key assumptions including (i) expected term of 30 months, (ii) rate of return based on the yield on the three year U.S. Treasury bill (iii) volatility based on our historical stock price volatility and the volatility implied by traded options in our common stock, and (iv) strike price of $100.90.

As of June 30, 2011, the total fair value of the acquisition-related contingent consideration associated with TripIt was $31.1 million, of which $24.1 million is recorded as a liability. The remaining of $7.0 million is compensation related and will be recorded during the requisite service period.

As of June 30, 2011, the acquisition-related contingent consideration liability of $24.1 million included a $5.3 million Top-Up Payment related to certain individuals whose Top-Up Payment is subject to a continued employment requirement. The acquisition-related contingent consideration also included $18.8 million related to the portion of the Top-Up Payment due to other former shareholders of TripIt. Changes in the Top-Up Payment liability since the acquisition date were recorded in the income statement. On a quarterly basis, we will continue to re-measure the fair value of the contingent Top-Up Payment and any changes in contingent consideration will be recorded in the income statement.