XML 29 R13.htm IDEA: XBRL DOCUMENT v3.21.2
Business Combinations
 9 Months Ended
Oct. 31, 2021
Business Combination and Asset Acquisition [Abstract]  
Business Combinations Business Combinations
Slack Technologies, Inc.
On July 21, 2021, the Company acquired all outstanding stock of Slack, a leading channel-based messaging platform. The Company has included the financial results of Slack in the condensed consolidated financial statements from the date of acquisition. The transaction costs associated with the acquisition were approximately $54 million and were recorded in general and administrative expense during the nine months ended October 31, 2021. The preliminary acquisition date fair value of the consideration transferred for Slack was approximately $27.1 billion, which consisted of the following (in millions):
Fair Value
Cash$15,799 
Common stock issued11,064 
Fair value of stock options, restricted stock units and restricted stock awards assumed205 
Total$27,068 
The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. A share conversion ratio of 0.1885 and 0.1804 was applied to convert Slack's outstanding (i) stock options and restricted stock units and (ii) restricted stock awards, respectively, into equity awards for shares of the Company’s common stock.
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in millions):
Fair Value
Cash and cash equivalents $1,508 
Accounts receivable97 
Acquired customer contract asset70 
Operating lease right-of-use assets208 
Other assets404 
Goodwill21,220 
Intangible assets6,350 
Accounts payable, accrued expenses and other liabilities(186)
Unearned revenue(382)
Slack Convertible Notes (see Note 8)(1,339)
Operating lease liabilities(283)
Deferred tax liability (599)
Net assets acquired$27,068 
The excess of purchase consideration over the fair value of other assets acquired and liabilities assumed was recorded as goodwill. The resulting goodwill is primarily attributed to the assembled workforce and expanded market opportunities, including integrating the Slack product offering with existing Company service offerings in a digital-first, work anywhere world. The goodwill has no basis for U.S. income tax purposes. The fair values assigned to tangible assets acquired and liabilities assumed are preliminary based on management’s estimates and assumptions and may be subject to change as additional information is received and certain tax matters are finalized. Certain adjustments were made during the three months ended October 31, 2021 to the preliminary fair values resulting in a net increase to goodwill of $233 million primarily related to the customer relationships intangible asset and the corresponding deferred tax liability. 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$2,360 5 years
Customer relationships3,690 8 years
Other purchased intangible assets 300 6 years
Total intangible assets subject to amortization$6,350 
Developed technology represents the preliminary estimated fair value of Slack's data analysis technologies. Customer relationships represent the preliminary estimated fair values of the underlying relationships with Slack customers.
The Company assumed unvested stock options, restricted stock units and restricted stock awards with a preliminary estimated fair value of $1.7 billion. Of the total consideration, $205 million was preliminarily allocated to the purchase consideration and $1.5 billion was preliminarily allocated to future services and will be expensed over the remaining service periods on a straight-line basis.
Revenues and pretax loss of Slack included in the Company’s condensed consolidated statements of operations from the acquisition date of July 21, 2021 to October 31, 2021 are as follows (in millions):
Total revenues $280 
Pretax loss(619)
The following pro forma financial information summarizes the combined results of operations for the Company and Slack, as though the companies were combined as of the beginning of the Company’s fiscal 2021. The pro forma financial information was as follows (in millions):
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
Total revenues $6,863 $5,610 $19,606 $15,968 
Pretax income404 738 1,169 611 
Net income545 715 1,108 2,656 
The pro forma financial information for all periods presented above has been calculated after adjusting the results of Slack to reflect the business combination accounting effects resulting from this acquisition, including the fair value adjustment to revenue contracts, the amortization expense from acquired intangible assets and the stock-based compensation expense for unvested stock options, restricted stock units and restricted stock awards assumed as though the acquisition occurred as of the beginning of the Company’s fiscal year 2021. The historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2021.
Acumen Solutions, Inc.
In February 2021, the Company acquired all outstanding stock of Acumen Solutions, Inc. (“Acumen”), a professional services firm that provides innovative and critical solutions to clients using the Company’s service offerings and other advanced cloud technologies. The acquisition date fair value of the consideration transferred for Acumen was approximately $433 million, in cash. The Company recorded approximately $99 million for customer relationships with estimated useful lives of eight years. The Company recorded approximately $337 million of goodwill which is primarily attributed to the assembled workforce. 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 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 Company has included the financial results of Acumen in its condensed consolidated financial statements from the date of acquisition, which were not material. The transaction costs associated with the acquisition were not material.