Business Combinations

12 Months Ended

Dec. 31, 2011

Business Combinations [Abstract]

Business Combinations

3. Business Combinations

The Company completed several acquisitions of privately-held entities during the years ended December 31, 2010 and 2011. These acquisitions were accounted for under the purchase method of accounting. The consolidated financial statements include the operating results of each business from its respective acquisition date.

Acquisition of North Social

On February 24, 2011, the Company acquired substantially all of the assets and assumed certain liabilities of North Venture Partners, LLC (North Social), a provider of Facebook applications that enable users to create, manage and promote their business on Facebook. The Company believes the acquisition of North Social broadens its social media solution.

The purchase consideration at the acquisition date consisted of approximately $7,000,000 in cash and $5,059,000 of contingent cash consideration for the achievement of certain financial milestones within the following 24 months. In February 2012, the Company paid $3,000,000 of contingent consideration for the achievement of certain financial milestones. The contingent consideration could result in additional payments of up to $15,000,000. The Company recorded approximately $101,000 of identifiable intangible assets, $11,880,000 of goodwill that is deductible for tax purposes, and $78,000 of other net tangible assets. Goodwill is primarily attributable to North Social’s knowledge of applications for Facebook and the opportunity to expand into the rapidly growing social media market. The fair value of the contingent consideration was estimated using probability assessments of expected future cash flows over the period in which the obligation is to be settled and applied a discount rate that appropriately captures a market participant’s view of the risk associated with the obligation. During the year ended December 31, 2011, the fair value of the contingent consideration was adjusted based on an updated assessment of the probability of achievement of the performance metrics and the discount factor reflecting the passage of time. The additional expense of $1,872,000 was included in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2011. As of December 31, 2011, the fair value of the liability for the contingent consideration was $6,931,000 of which $6,189,000 and $742,000 is included in accrued expenses and other liabilities, respectively. Acquisition-related costs associated with the acquisition were not material. Pro forma results of operations have not been presented because the acquisition was not material in relation to the Company’s consolidated financial statements.

In connection with the acquisition, the Company deposited $700,000 of the purchase price into an escrow account as security for breaches of representations and warranties, covenants and certain other expressly enumerated matters by North Social and its shareholders. The amount is excluded from cash and cash equivalents as the deposit is restricted in nature and is included in other assets in the accompanying consolidated balance sheet at December 31, 2011.

Acquisition of Datapresse

On April 16, 2010, the Company acquired all of the outstanding shares of Data Presse SAS (Datapresse), a provider of media content and cloud-based public relations software in France which expanded the Company’s presence in Europe. Datapresse’s cloud-based software complements the Company’s current suite of cloud-based solutions.

The purchase consideration at the acquisition date consisted of cash paid at closing and contingent cash consideration for the achievement of certain financial metrics for the twelve month period ending April 30, 2011. The Company incurred acquisition-related costs of approximately $747,000 for the year ended December 31, 2010, which are included in general and administrative expenses in the consolidated statements of operations. There were no acquisition related costs for the year ended December 31, 2011.

The purchase consideration at the acquisition date consisted of the following (in thousands):

Cash consideration	$	9,723
Fair value of contingent consideration		572
Total purchase consideration at date of acquisition	$	10,295

The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The identifiable intangible assets include a trade name, customer relationships and purchased technology, and are subject to amortization on a straight-line basis and are being amortized over five to seven years. The Company, with the assistance of a third-party appraiser, assessed the fair value of these assets. The trade name and purchased technology were valued using the relief from royalty method and the customer relationships were valued using a discounted cash flow method. The relief from royalty method assesses the royalty savings an entity realizes since it owns the asset and does not have to pay a license fee to a third-party for its use. These methods require several judgments and assumptions to determine the fair value of the intangible assets including royalty rates, discount rates, customer attrition rates, useful lives of assets and expected levels of cash flows, earnings and revenues. The royalty rates used in the relief from royalty method ranged from 1.5% to 10% based on an analysis of market comparable rates. The discount rate used to estimate future cash flows was approximately 20%. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill which is not deductible for tax purposes. Goodwill primarily resulted from the Company’s expectation of sales growth and cost synergies from the integration of Datapresse’s technology with the Company’s technology and operations to provide an expansion of products and market reach in Europe.

The allocation of the purchase price was as follows (in thousands):

	Estimated Useful Life		Estimated Fair Value
Cash and cash equivalents			$	2,798
Accounts receivable and other current assets				1,389
Other assets				442
Trade name		5 years		218
Customer relationships		7 years		3,617
Purchased technology		5 years		842
Goodwill				5,941
Accounts payable and accrued liabilities				(1,200	)
Notes payable and capital lease obligations				(418	)
Deferred income taxes				(1,409	)
Deferred revenue				(1,793	)
Other liabilities				(132	)
Total purchase price			$	10,295

The fair value of the contingent consideration was adjusted based on actual performance from the acquisition date through April 30, 2011. The additional expense of $44,000 and $99,000 were included in general and administrative expenses in the consolidated statement of operations for the years ended December 31, 2010 and 2011, respectively. During the year ended December 31, 2011, the Company made payments in the amount of $715,000 which represents full settlement of the contingent consideration liability.

The following unaudited pro forma consolidated results of operations for the years ended December 31, 2009 and 2010 assumes that the Datapresse acquisition occurred at January 1, 2009. The unaudited pro forma information combines the historical results for the Company with the historical results for Datapresse for the same period. The following unaudited pro forma information is not intended to be indicative of future operating results (dollars in thousands, except per share data):

	Year Ended December 31,
	2009			2010
	(unaudited)
Pro forma revenue	$	89,860		$	99,836
Pro forma net loss	$	(1,433	)	$	(2,329	)
Pro forma net loss per share:
Basic and diluted	$	(0.08	)	$	(0.13	)

The Company recognized revenue related to Datapresse of approximately $3,100,000 and incurred a net loss of $455,000 since the date of the acquisition through December 31, 2010.

Other Acquisitions

In 2010, the Company completed three additional acquisitions of privately-held entities primarily to expand its product offerings and enhance its technology base. These acquisitions were not material individually or in the aggregate in relation to the Company’s consolidated financial statements and, as such, pro forma results of operations have not been presented. The entities were acquired for a total of $3,182,000 in cash and $811,000 of contingent consideration for the achievement of revenue targets in 2010 and 2011. The Company recorded $1,436,000 of identifiable intangible assets, $1,823,000 of goodwill that is not deductible for tax purposes and $1,576,000 of goodwill that is deductible for tax purposes. In connection with one of the acquisitions, the Company identified an uncertain tax position, and, as a result recorded $758,000 in other liabilities in the consolidated balance sheet at December 31, 2010. During the years ended December 31, 2010 and 2011, the fair value of the contingent consideration was adjusted based on actual performance. The additional expense of $504,000 was included in general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2010. The fair value adjustment to contingent consideration was not material for the year ended December 31, 2011. In 2011, the Company made payments in the amount of $699,000 related to the contingent consideration. As of December 31, 2011, the fair value of the liability remaining for the contingent consideration was $606,000 and is included in accrued expenses. Acquisition-related costs incurred for these acquisitions were not material.