3. Acquisitions and Dispositions

Acquisition of Expertence

On November 30, 2019, the Company acquired Expertforce Interim Projects GmbH, LLC (“Expertence”), a leading provider of professional interim management services, based in Munich, Germany. With the acquisition of Expertence, the Company is able to offer a full range of project and management consulting services in the German market. The Company paid an initial cash consideration of $0.4 million. The initial consideration is subject to final adjustments for the impact of working capital as defined in the purchase agreement.

In addition, the purchase agreement requires earn-out payments to be made based on performance over an 18-month period ending on May 31, 2021. The Company is obligated to pay the former owners of Expertence contingent consideration if certain revenue targets are achieved, up to a maximum of $0.3 million. In determining the fair value of the contingent consideration liability, the Company used an estimate based on a number of possible projections over the earnout period and applied a probability to each possible outcome. Given the short duration of the earnout period, the fair value of contingent liability was measured on an undiscounted basis. The Company remeasures the fair value of the contingent consideration at each reporting period, and any change in fair value is recognized in the Company’s results of operations in the applicable period. The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of various potential revenue results. The Company does not expect future revisions to these assumptions to materially change the estimate of the fair value of contingent consideration and the Company’s future operating results.

Fair value of consideration transferred (in thousands):



Cash	$	383
Estimated initial contingent consideration		305
Total	$	688

Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):



Cash and cash equivalents	$	11
Accounts receivable		215
Prepaid expenses and other current assets		7
Intangible assets:
Computer software (24 months useful life)		184
Total identifiable assets		417
Accounts payable		196
Accrued expenses and other current liabilities		8
Deferred tax liability		59
Total liabilities assumed		263
Net identifiable assets acquired		154
Goodwill		534
Net assets acquired	$	688

Results of operations of Expertence are included in the Consolidated Statements of Operations from the date of acquisition and were not material to the Company’s consolidated results of operations. The amount of the acquisition costs incurred as included in the Consolidated Statements of Operations for the year ended May 30, 2020 was immaterial.

Acquisition of Veracity

On July 31, 2019, the Company acquired Veracity Consulting Group, LLC (“Veracity”), a fast-growing, digital transformation firm based in Richmond, Virginia, that delivers innovative solutions to the Fortune 500 and leading healthcare organizations. The acquisition of Veracity is a critical step in accelerating the Company’s stated objective to enhance its digital capabilities and allows the Company to offer comprehensive end-to-end solutions to its clients by combining Veracity’s customer-facing offerings with the Company’s depth of experience in transforming the back office. The Company paid an initial cash consideration of $30.3 million (net of $2.1 million cash acquired). The initial consideration is subject to final adjustments for the impact of the Internal Revenue Code Section 338(h)(10) joint election between the Company and former owners of Veracity and working capital as defined in the purchase agreement.

In addition, the purchase agreement requires earn-out payments to be made in cash based on performance after each of the first and second anniversary of the acquisition date. The Company is obligated to pay the former owners of Veracity contingent consideration if certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) requirements are achieved. In determining the fair value of the contingent consideration liability, the Company used the Monte Carlo simulation modeling which included the application of an appropriate discount rate (Level 3 fair value). The Company remeasures the fair value of the contingent consideration at each reporting period, and any change in fair value is be recognized in the Company’s results of operations in the applicable period. The estimate of fair value of contingent consideration requires very subjective assumptions to be made, including various potential EBITDA results and discount rates. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore could materially affect the Company’s future operating results.

During the quarter ended August 24, 2019, the Company made an initial provisional allocation of the purchase price for Veracity based on the fair value of the assets acquired and liabilities assumed, with the residual amount recorded as goodwill, in accordance with ASC 805, Business Combinations. The Company’s initial purchase price allocation considered a number of factors, including the valuation of identifiable intangible assets and contingent consideration. During the three months ended November 23, 2019, the Company adjusted the previously reported provisional allocation of the purchase price to reflect new information obtained during the quarter, which resulted in changes in expected future performance and cash flows as of the acquisition date. There were no additional adjustments to the provisional purchase price allocation during the remaining periods in fiscal year ended May 30, 2020.

The following table provides a summary of the adjusted provisional purchase price allocation.

Fair value of consideration transferred (in thousands):



Cash	$	32,314
Estimated initial contingent consideration		6,290
Total	$	38,604

Recognized provisional amounts of identifiable assets acquired and liabilities assumed (in thousands):


Cash and cash equivalents	$	2,056
Accounts receivable		3,299
Prepaid expenses and other current assets		116
Intangible assets:
Backlog (17 months useful life)		1,210
Customer relationships (7 years useful life)		9,300
Trademarks (3 years useful life)		570
Property and equipment		117
Total identifiable assets		16,668
Accounts payable		305
Accrued expenses and other current liabilities		712
Total liabilities assumed		1,017
Net identifiable assets acquired		15,651
Goodwill		22,953
Net assets acquired	$	38,604

The remeasured purchase price allocation above may be subject to further adjustments during the measurement period if new information is obtained about facts and circumstances that existed as of the acquisition date. A final determination of fair value of assets acquired and liabilities assumed relating to the acquisition could differ from the stated purchase price allocation.

During fiscal 2020, the fair value of the Veracity contingent consideration increased by $1.3 million. Such amounts were recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. As of May 30, 2020, this contingent consideration liability was $7.6 million, of which $5.0 million was included in Other current liabilities and $2.6 million was included in Other long-term liabilities in the Consolidated Balance Sheet.

Results of operations of Veracity are included in the Consolidated Statements of Operations from the date of acquisition. Veracity contributed $18.8 million to consolidated revenue and $4.1 million to income from operations during fiscal 2020. The Company incurred $0.6 million in acquisition costs which were recorded in selling, general and administrative expenses in the Consolidated Statements of Operations during fiscal 2020.

Prior Year Acquisitions

During fiscal 2018, the Company completed two acquisitions. The first acquisition, completed August 31, 2017 (the second quarter of fiscal 2018), was of taskforce – Management on Demand AG (“taskforce”), a German based professional services firm founded in 2007, that provided clients with senior interim management and project management expertise. Subsequent to the acquisition, taskforce continues to operate as a separate brand. The Company paid initial consideration of €5.8 million (approximately $6.9 million at the date of acquisition) in a combination of cash and restricted stock.

The following table summarizes the consideration for the acquisition of taskforce and the amounts of the identified assets acquired and liabilities assumed at the acquisition date:

Fair Value of Consideration Transferred (in thousands, except share and per share amounts):



Cash	$	4,384
Working capital adjustment -receivable		(123)
Common stock - 226,628 shares @ $11.48 (closing price on acquisition date discounted for restriction on sale)		2,602
Estimated initial contingent consideration		6,514
Total	$	13,377

Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):



Cash and cash equivalents	$	974
Accounts receivable		1,930
Prepaid expenses and other current assets		45
Intangible assets		5,727
Property and equipment		39
Total identifiable assets		8,715
Accounts payable and accrued expenses		2,116
Accrued salaries and related obligations		16
Other current liabilities		140
Total liabilities assumed		2,272
Net identifiable assets acquired		6,443
Deferred tax liability		(1,815)
Goodwill		8,749
Net assets acquired	$	13,377

In addition, the purchase agreement for taskforce required additional earn-out payments to be made based on performance in calendar years 2017, 2018 and 2019. Under accounting rules for business combinations, obligations that are contingently payable to the sellers based upon the occurrence of one or more future events are recorded as a discounted liability on the Company’s balance sheet. The Company was obligated to pay the sellers in Euros as follows: for calendar year 2017, Adjusted EBITDA times 6.1 times 20%; and for both calendar years 2018 and 2019, Adjusted EBITDA times 6.1 times 15%; (Adjusted EBITDA is calculated as defined in the purchase agreement). The Company estimated the fair value of the obligation to pay the remaining contingent consideration based on a number of different projections of the estimated Adjusted EBITDA for the year. Each reporting period, the Company estimates changes in the fair value of contingent consideration and any change in fair value is recognized in the Company’s Consolidated Statements of Operations. The estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential Adjusted EBITDA results and discount rates. During the year ended May 25, 2019, the Company decreased the remaining estimated contingent consideration for calendar year 2019 by €523,000 ($590,000) and also recognized accretion expense on the discounted liability. These amounts are included in SG&A for the respective periods. During the year ended May 30, 2020, the Company did not have any material adjustment to the contingent consideration liability relating to taskforce. Results of operations of taskforce are included in the Consolidated Statements of Operations from the date of acquisition.

The payment for calendar year 2017 of €2.1 million (approximately $2.6 million) was made on March 28, 2018. The payment for calendar year 2018 of €1.6 million (approximately $1.9 million) was made on March 27, 2019. A final contingent consideration payment of €1.6 million ($1.8 million) was made on March 30, 2020.

The second acquisition occurred December 4, 2017 (the third quarter of fiscal 2018) when the Company acquired substantially all of the assets and assumed certain liabilities of Accretive Solutions, Inc. (“Accretive”). Accretive was a professional services firm that provided expertise in accounting and finance, enterprise governance, business technology and business transformation solutions to a wide variety of organizations in the U.S. and supported startups through its Countsy suite of back office services. The Company paid consideration of $20.0 million in cash and issued 1,072,000 shares of Resources Connection, Inc. common stock restricted for sale for four years.

The following table summarizes the consideration paid for Accretive and the amounts of the identified assets acquired and liabilities assumed at the acquisition date (in thousands, except number of shares and per share amount):



Cash	$	20,047
Common stock - 1,072,474 shares @ $10.96 (closing price on acquisition date discounted for restriction on sale)		11,754
Total	$	31,801

Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):



Accounts receivable	$	11,360
Prepaid expenses and other current assets		1,084
Intangible assets		15,200
Property and equipment		979
Total identifiable assets		28,623
Accounts payable and accrued expenses		3,649
Accrued salaries and related obligations		4,562
Other current liabilities		136
Total liabilities assumed		8,347
Net identifiable assets acquired		20,276
Goodwill		11,525
Net assets acquired	$	31,801

On October 14, 2019, the Company reached a final settlement on a pre-acquisition claim with the seller of Accretive. As a part of the settlement, the Company issued 82,762 shares of common stock to the seller and received $0.6 million in cash from the escrow. The resulting gain of $0.5 million was included in Other income in the Consolidated Statements of Operations for the year ended May 30, 2020.

Dispositions

On September 2, 2019, the Company completed the sale of certain assets and liabilities of its foreign subsidiary, Resources Global Professionals Sweden AB, to Capacent Holding AB (publ), a Swedish public company, for SEK1,016,862 (approximately $105,000) in cash, resulting in a loss on sale of assets of approximately $38,000. As a part the sale, the Company transferred the majority of its local customer contracts, the existing office lease as well as all its employee consultants. As a result of the sale, the nearby Denmark and Norway markets also discontinued serving local Sweden customer contracts. The Company expects to continue to serve its global client base and to a lesser extent, its remaining local client contracts, in Sweden and Denmark.

In addition, during the fourth quarter of fiscal 2020, the Company discontinued its operations in Belgium, Luxembourg and Norway. All three legal entities were dissolved as of the end of fiscal 2020. In connection with the foregoing sale of assets and exit activities, the Company incurred costs of approximately $0.7 million primarily related to employee termination benefits. Such expenses were included in selling, general and administrative expenses in the Consolidated Statements of Operations for the year ended May 30, 2020. None of the markets sold or exited are considered strategic components of the Company’s operations.

In connection with exiting the above-mentioned entities, the Company analyzed the facts and circumstances regarding its historical and current investments, along with its associated accounting and tax positions. Based on the analysis, the Company recorded a tax benefit related to the worthless stock loss in the investment in its wholly owned subsidiaries as well as worthless loans to these subsidiaries. See Note 8 – Income taxes.