Business Combinations

9 Months Ended

Oct. 31, 2020

Vlocity

In June 2020, the Company acquired all outstanding stock of Vlocity, Inc. ("Vlocity"), a leading provider of industry-specific cloud and mobile software. The Company has included the financial results of Vlocity in the condensed consolidated financial statements from the date of acquisition, which were not material to date. The transaction costs associated with its acquisition were immaterial. The acquisition date fair value of the consideration transferred for Vlocity was approximately $1.4 billion, which consisted of the following (in millions):


	Fair Value
Cash	$	1,166
Fair value of stock options and restricted stock awards assumed	6
Fair value of pre-existing relationship	208
Total	$	1,380

The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. The share conversion ratio of 0.05817 was applied to convert Vlocity's outstanding equity awards for Vlocity's common stock into equity awards for shares of the Company's common stock.

The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the date of acquisition (in millions):


	Fair Value
Cash and cash equivalents	$	12
Accounts receivable	22

Goodwill	1,024
Intangible assets	473
Other assets	15
Accounts payable, accrued expenses and other liabilities, current and noncurrent	(35)
Unearned revenue	(64)
Deferred tax liability	(67)
Net assets acquired	$	1,380

The excess of purchase consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, legal and other contingencies as of the acquisition date, income and non-income based taxes and residual goodwill. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in millions):


	Fair Value		Useful Life
Developed technology	$	174	4 years
Customer relationships	299		8 years
Total intangible assets subject to amortization	$	473

Developed technology represents the fair value of Vlocity’s industry-specific cloud and mobile software. Customer relationships represent the fair values of the underlying relationships with Vlocity customers.

The Company assumed unvested options with a fair value of $139 million. Of the total consideration, $6 million was allocated to the purchase consideration and $133 million was allocated to future services and will be expensed over the remaining service periods on a straight-line basis.

The Company had a noncontrolling equity investment in Vlocity valued at $167 million prior to the acquisition. The Company recognized a gain of approximately $41 million as a result of remeasuring its prior equity interest in Vlocity held before the business combination. The gain is included in gains on strategic investments, net in the condensed consolidated statement of operations.

Evergage

In February 2020, the Company acquired all outstanding stock of Evergage Inc. ("Evergage"), for consideration consisting of cash and equity awards assumed. Evergage is a cloud-based real-time personalization and customer data platform. The acquisition date fair value of the consideration transferred for Evergage was approximately $100 million, which consisted of cash and the fair value of stock options and restricted stock awards assumed. The Company recorded approximately $25 million for developed technology and customer relationships with estimated useful lives of three to five years. The Company recorded approximately $74 million of goodwill which is primarily attributed to the assembled workforce and

expanded market opportunities from integrating Evergage's technology with the Company's other offerings. For the goodwill balance there is no basis for U.S. income tax purposes. The fair values assigned to tangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received and certain tax returns are finalized. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. The Company has included the financial results of Evergage in the condensed consolidated financial statements from the date of acquisition, which were not material. The transaction costs associated with the acquisition were not material.