Business Combinations

9 Months Ended

Jan. 31, 2013

Business Combinations

4. Business Combinations

PowerReviews

On June 12, 2012, the Company acquired PowerReviews, Inc. (“PowerReviews”) for $31.1 million in cash and 6.4 million shares of the Company’s common stock. In connection with the acquisition, the Company assumed the PowerReviews option plan. After conversion, the PowerReviews options were equivalent to vested and unvested options to purchase 1.7 million shares of the Company’s common stock.

PowerReviews solutions are offered through two platforms, an enterprise platform that is similar to the Company’s current Conversations platform and an Express platform that provides certain ratings and reviews solutions as a turn-key offering. The Company accounted for the PowerReviews acquisition using the acquisition method of accounting.

The Company preliminarily allocated the purchase price to the assets acquired, including intangible assets, and liabilities assumed based on estimated fair values at the date of the acquisition. The Company estimated the value of tangible assets and liabilities based on purchase price and future intended use. The Company derived the value of intangible assets from the present value of estimated future benefits from the various intangible assets acquired.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the business combination date, its estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. The Company records adjustments to assets acquired or liabilities assumed subsequent to the measurement period in its operating results in the period in which the adjustments were determined.

The Company allocated the purchase price for PowerReviews as follows (in thousands):

Cash and cash equivalents	$	745
Restricted cash		104
Accounts receivable		497
Prepaid expenses and other current assets		156
Property and equipment		280
Current deferred tax asset		239
Intangible assets:
Domain name (indefinite useful life)		800
Developed technology (3 year useful life)		5,400
Customer relationships (3 to 10 year useful life)		35,000
Total identified intangibles		41,200
Goodwill		113,152
Total assets acquired		156,373
Accounts payable		(304	)
Accrued liabilities		(2,167	)
Deferred revenue		(2,627	)
Non-current deferred tax liability		(521	)
Total liabilities assumed		(5,619	)
Net assets acquired	$	150,754

Using a price of $17.20 per share of common stock issued, which was the closing price of the Company’s common stock on the NASDAQ Global Market on the date of the acquisition, the consideration paid was as follows (in thousands):

Cash	$	31,059
Common stock		109,745
Fair value of vested stock options assumed		9,950
Total consideration	$	150,754

Goodwill represents the excess of the purchase price over the aggregate fair value of the net identifiable assets acquired and is not deductible for tax purposes. Goodwill for PowerReviews resulted primarily from the Company’s expectations that PowerReviews solutions will enhance the Company’s product offering and delivery. The Company integrated the PowerReviews business into the Company’s operations. Therefore, there are no separate revenue and earnings for PowerReviews since the integration.

Longboard Media, Inc.

On November 5, 2012, the Company acquired Longboard Media, Inc. (“Longboard Media”) for approximately $26.9 million in cash, 0.5 million shares of the Company’s common stock and future contingent consideration with an acquisition date fair value of $4.3 million. The contingent consideration is payable on Longboard Media’s achievement of certain performance goals as of December 31, 2013. The estimated fair value of contingent consideration was determined using a discounted cash flow model and the probability of various outcomes of achieving the performance goals. Changes in the fair value of this contingent consideration will be recorded in the income statement through the date of payout. A portion of the contingent consideration is also subject to requirements that certain identified key individuals remain employed with the Company through December 31, 2013. This portion of the contingent consideration was excluded from the purchase consideration and will be recorded as compensation expense over the period the services are provided. The Company currently estimates that approximately $2.0 million will be paid for this portion of the contingent consideration and as such has recorded compensation expense of $0.2 million for the three and nine months ended January 31, 2013. The maximum amount of contingent consideration that can be paid out is capped at $11.0 million.

Longboard Media is a full service media management network for retailers, shopping publishers and advertisers. Longboard Media enables retailers to launch and manage on-site advertising solutions and site monetization strategies and enables brands to target consumers across shopping publishers, mobile commerce applications and retailers. The Company accounted for the Longboard Media acquisition using the acquisition method of accounting.

The Company preliminarily allocated the purchase price to the assets acquired, including intangible assets, and liabilities assumed based on estimated fair values at the date of the acquisition. The Company estimated the value of tangible assets and liabilities based on purchase price and future intended use. The Company derived the value of intangible assets from the present value of estimated future benefits from the various intangible assets acquired.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the business combination date, its estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The Company records adjustments to assets acquired or liabilities assumed subsequent to the measurement period in its operating results in the period in which the adjustments were determined.

The Company allocated the purchase price for Longboard Media as follows (in thousands):

Cash and cash equivalents	$	588
Accounts receivable		2,899
Prepaid expenses and other current assets		53
Deferred tax asset—current		437
Intangible assets
Customer relationships (10 year useful life)		11,300
Total identified intangibles		11,300
Goodwill		28,681
Deferred tax asset—long term		1,042
Total assets acquired		45,000
Accounts payable		(3,006	)
Accrued liabilities		(1,112	)
Deferred tax liability		(3,955	)
Total liabilities assumed		(8,073	)
Net assets acquired	$	36,927

Using a price of $12.60 per share of common stock issued, which was the closing price of the Company’s common stock on the NASDAQ Global Market on the day prior to the date of acquisition, the consideration paid was as follows (in thousands):

Cash	$	26,855
Common stock		5,802
Fair value of contingent consideration		4,270
Total consideration	$	36,927

Goodwill represents the excess of the purchase price over the aggregate fair value of the net identifiable assets acquired and is not deductible for tax purposes. The goodwill for Longboard Media primarily results from the Company’s expectation to continue developing network solutions to leverage its consumer audience reach, content and data to create incremental value for its clients.

Pro Forma Adjusted Summary

The results of operations of PowerReviews and Longboard Media have been included in the Company’s unaudited condensed consolidated financial statements subsequent to the acquisition date. The following unaudited pro forma adjusted summary for the three and nine months ended January 31, 2013 and 2012 assumes that PowerReviews and Longboard Media had been acquired on May 1, 2011 (in thousands, except net loss per share data):

	Three Months  Ended January 31,						Nine Months Ended January  31,
	2013			2012			2013			2012
Pro forma adjusted total revenue	$	42,771		$	31,621		$	120,497		$	85,142
Pro forma adjusted net loss attributable to Bazaarvoice, Inc.	$	(8,662	)	$	(10,724	)	$	(36,253	)	$	(46,225	)
Pro forma adjusted net loss per share applicable to common stockholders attributable to
Bazaarvoice, Inc.:
Basic and diluted	$	(0.12	)	$	(0.41	)	$	(0.52	)	$	(1.77	)

The unaudited pro forma results for the three months ended January 31, 2012 include $1.6 million of amortization charges for acquired intangible assets and $0.6 million of stock-based expense related to the post-combination service arrangements entered into with the continuing employees. The unaudited pro forma results for the nine months ended January 31, 2012 include $4.9 million of amortization charges for acquired intangible assets, adjustments for $9.8 million of incremental stock-based expense related to the acceleration of options due to the acquisition, $1.7 million of stock-based expense related to the post-combination service arrangements entered into with the continuing employees and $4.8 million of acquisition costs.

The unaudited pro forma adjusted summary combines the historical results for Bazaarvoice for those periods with the historical results of PowerReviews and Longboard Media for the same periods. The summary is presented for informational purposes only and is not intended to be indicative of future results of operations or whether similar results would have been achieved if the acquisition had taken place at the beginning of fiscal year 2012.