Note 2 - Acquisition

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Business Combination Disclosure [Text Block]

2.

ACQUISITION

On

July

22,

2014

(the “Acquisition Date”), the Company acquired

100%

of the outstanding capital stock of Sensima Technology SA (“Sensima”), a company based in Switzerland that develops magnetic sensor technologies for angle measurements as well as

three

-dimensional magnetic field sensing. The acquisition creates new opportunities with customers by offering enhanced solutions in power management for key industries such as automotive, industrial and cloud computing. As a result of the acquisition, Sensima became a subsidiary of the Company and changed its name to MPS Tech Switzerland Sarl. Its results of operations have been included in the Company’s consolidated financial statements subsequent to the acquisition.

The fair value of the purchase consideration as of the Acquisition Date consisted of the following (in thousands):  

Cash paid at the Acquisition Date	$	11,735
Contingent consideration		2,507
Total	$	14,242

The Company incurred

$0.6

million of transaction costs that were expensed as incurred and included in selling, general and administrative expenses in the Consolidated Statement of Operations for the year ended

December

31,

2014.

Cash paid at the Acquisition Date included

$1.2

million that was held in an escrow account for a

one

-year period, which was subject to Sensima’s satisfaction of certain representations and warranties. The full amount was released from the escrow account on

July

22,

2015.

The contingent consideration arrangement required the Company to pay up to an additional

$8.9

million to former Sensima shareholders if Sensima achieved a new product introduction as well as certain product revenue and direct margin targets in

2016.

The fair value of the contingent consideration at the Acquisition Date was

$2.5

million, which was estimated based on a probability-weighted analysis of possible future revenue outcomes. The fair value of the contingent consideration was initially recorded in other long-term liabilities in the Consolidated Balance Sheets and was remeasured at the end of each reporting period, with any changes in fair value recorded in operating expense in the Consolidated Statements of Operations. As part of the quarterly assessment in the

fourth

quarter of

2015,

management reviewed the sales forecast for the products and determined that the projected product revenue in

2016

would likely not meet the minimum target required to earn the contingent consideration, primarily because the product adoption process by customers would take longer than the Company had originally anticipated. Accordingly, the fair value of the contingent consideration was deemed to be

$0

as of

December

31,

2015,

and the Company released the liability of

$2.5

million and recorded the credit in selling, general and administrative expenses in the Consolidated Statement of Operations. On

December

31,

2016,

management concluded that

no

contingent consideration was earned as the actual product revenue in

2016

did not meet the minimum target.

Purchase Consideration Allocation

The fair value of assets acquired and liabilities assumed as of the Acquisition Date was as follows (in thousands):  

Cash	$	145
Other tangible assets acquired, net of liabilities assumed		42
Intangible assets:
Know-how		1,018
Developed technologies		4,421
IPR&D		2,045
Total identifiable net assets acquired		7,671
Goodwill		6,571
Total net assets acquired	$	14,242

Intangible assets with finite lives included know-how and developed technologies with estimated useful lives of

three

to

five

years. The fair value of know-how was determined using the relief from royalty method, and the fair value of developed technologies was determined using the income approach. Intangible assets with indefinite lives included in-process research and development (“IPR&D”), which consisted of incomplete R&D projects that had not reached technological feasibility as of the Acquisition Date. The fair value of IPR&D was determined using the income approach. During the

third

quarter of

2015,

management determined that the R&D projects were completed and the IPR&D amount was reclassified into developed technologies as a finite-lived intangible asset with an estimated useful life of

four

years.

Goodwill arising from the acquisition was primarily attributed to synergies which enable the Company to develop advanced solutions in power management by integrating Sensima’s magnetic sensor technologies. Goodwill is not deductible for tax purposes.

Equity Awards

On the Acquisition Date, the Board of Directors granted

$1.7

million of time-based RSUs (or

40,000

shares) to key Sensima employees who became employees of the Company. These awards vest over

four

years. In addition, the Board of Directors granted

$2.0

million of PSUs (or

47,000

shares) to these employees, with the right to earn up to

four

equal tranches totaling

$8.0

million based on the achievement of certain cumulative Sensima product revenue targets during the performance period from the Acquisition Date to

July

22,

2019.

50%

of the awards subject to each revenue goal will vest immediately when the revenue goal is met during the performance period and approved by the Board of Directors. The remaining shares will vest over the following

two

years. The vesting is subject to the employees’ continued employment with the Company. These equity awards are considered arrangements for post-acquisition services and the related compensation cost is recognized over the requisite service period if it is probable that the performance goals will be met.  As of

December

31,

2016,

stock-based compensation expense of

$2.0

million for the

first

tranche was being recognized over the requisite service period.