Business Combinations

9 Months Ended

Sep. 30, 2011

Business Combinations [Abstract]

Business Combinations

8. Business Combinations

eCarList Acquisition

On July 1, 2011, we acquired substantially all of the assets of eCarList, LLC. eCarList provides a suite of inventory management and online marketing tools for the retail automotive industry, enabling dealers to appraise, price, and merchandise vehicle inventory online in real-time. eCarList's solutions and services are now a part of the DealerTrack inventory management solutions group, which now includes inventory management, inventory distribution, vehicle appraisal and pricing tools, mobile software, dealership health reporting, CRM, custom web design, and digital marketing solutions via an integrated Software as a Service (SaaS) platform. We expect this acquisition will expand our subscription business and further strengthen our relationships with automobile dealers.

The initial purchase price of eCarList was $36.4 million, consisting of the following components (in thousands):

Cash consideration	$	23,451
Fair value of note payable		10,179
Discount on note payable		(123	)
Fair value of contingent consideration		2,900
Total purchase price	$	36,407

The note payable has a face value of $11.4 million and has a term of either two years or six years, based on certain factors related to the retention of key individuals. As a result, the note has a compensatory element that will result in compensation expense of approximately $1.3 million to be recorded in our consolidated statement of operations over two years from the date of acquisition. Additionally, we expect to make payments to certain former employees of eCarList related to continued employment that will result in compensation expense of approximately $2.2 million to be recorded in our consolidated statement of operations over two years from the date of acquisition.

The sellers may earn additional consideration of up to $10.0 million, consisting of up to $5.0 million payable in each of 2012 and 2013 based upon the achievement of certain revenue targets in 2011 and 2012, respectively. The fair value of the additional consideration will be measured on a quarterly basis until the contingency is resolved. Any subsequent changes to the fair value of the additional consideration will be recorded in our consolidated statement of operations. For the three months ended September 30, 2011, we determined that there was no change to the fair value of the additional consideration. As of September 30, 2011, $1.5 million of the fair value of the additional consideration was classified in accrued liabilities – other and $1.4 million was classified in other liabilities – long-term.

We expensed approximately $0.6 million and $1.2 million of professional fees associated with the acquisition in the three and nine months ended September 30, 2011. We do not expect to incur any additional professional fees related to the acquisition subsequent to September 30, 2011.

This business combination was accounted for under the acquisition method of accounting, resulting in the total purchase price being allocated to the assets acquired and liabilities assumed according to their estimated fair values at the date of acquisition as follows (in thousands):

Current assets	$	414
Property and equipment		72
Intangible assets		13,530
Goodwill		23,427
Total assets acquired		37,443
Total liabilities assumed		(1,036	)
Net assets acquired	$	36,407

Goodwill represents the excess of the purchase price over the fair values of the acquired net tangible and intangible assets. In accordance with the provisions of ASC 350, goodwill is not amortized but will be tested for impairment at least annually. The allocated value of goodwill of $23.4 million primarily relates to the anticipated synergies resulting from combining eCarList with our current products and the acquired workforce. Both the acquired goodwill and intangible assets are deductible for tax purposes.

The amounts allocated to acquired intangible assets, and their associated weighted-average useful lives which were determined based on the period which the assets are expected to contribute directly or indirectly to our future cash flows, consist of the following:

			Weighted-
			Average
	Amount		Useful Life
	(In thousands)		(Years)
Customer relationships	$	4,500	7.0
Technology		6,500	4.0
Non-compete agreements		730	5.0
Trade names		1,800	7.0
Total acquired identifiable intangible assets	$	13,530	5.5

The results of eCarList were included in our consolidated statement of operations from the date of acquisition. eCarList's revenue from the date of acquisition through September 30, 2011, was $3.2 million. We are unable to provide eCarList's earnings since the date of acquisition as we do not have stand alone earnings reporting for that business.

triVIN Holdings, Inc. Acquisition

On January 31, 2011, we acquired all of the outstanding shares of triVIN Holdings, Inc., now known as DealerTrack Processing Solutions, Inc., for a purchase price of $125.5 million, net of acquired cash, and reflecting the final working capital adjustment. DealerTrack Processing Solutions is a leading provider of automobile title management services to lenders and vehicle registration services to automobile dealers. We expect this acquisition will significantly expand our transaction business and further strengthen our relationship with lenders and automobile dealers. We expensed approximately $0.5 million of professional fees associated with the acquisition in the fourth quarter of 2010 and $0.3 million for the nine months ended September 30, 2011. For the three months ended September 30, 2011, there were no professional fees associated with the acquisition.

This business combination was accounted for under the acquisition method of accounting, resulting in the total purchase price being allocated to the assets acquired and liabilities assumed according to their estimated fair values at the date of acquisition as follows (in thousands):

Current assets	$	33,442
Property and equipment		825
Non-current assets		6,526
Intangible assets		83,760
Goodwill		74,217
Total assets acquired		198,770
Total liabilities assumed		(58,406	)
Net assets acquired	$	140,364

Included in current assets is approximately $14.9 million of cash acquired. The liabilities assumed includes a $33.5 million deferred tax liability that relates to the future amortization of certain acquired intangibles.

Goodwill represents the excess of the purchase price over the fair values of the acquired net tangible and intangible assets. In accordance with the provisions of ASC 350, goodwill is not amortized but will be tested for impairment at least annually. The allocated value of goodwill of $74.2 million primarily relates to the anticipated synergies resulting from combining DealerTrack Processing Solutions with our current products and the acquired workforce. Neither the acquired goodwill nor intangible assets are deductible for tax purposes.

The amounts allocated to acquired intangible assets, and their associated weighted-average useful lives which were determined based on the period which the assets are expected to contribute directly or indirectly to our future cash flows, consist of the following:

			Weighted-
			Average
	Amount		Useful Life
	(In thousands)		(Years)
Customer relationships	$	43,900		6.4
Technology		27,500		5.0
State DMV contractual relationships		6,190		6.0
Non-compete agreements		5,180		3.0
Trade names		990		3.0
Total acquired identifiable intangible assets	$	83,760		5.7

The results of DealerTrack Processing Solutions were included in our consolidated statement of operations from the date of acquisition. DealerTrack Processing Solutions revenue from the date of acquisition through September 30, 2011, was $42.0 million. We are unable to provide DealerTrack Processing Solutions earnings since the date of acquisition as we do not have stand alone earnings reporting for that business.

Unaudited Pro Forma Summary of Operations

The accompanying unaudited pro forma summary represents our consolidated results of operations as if the acquisition of DealerTrack Processing Solutions and eCarList had been completed as of January 1, 2010. The unaudited pro forma financial information includes the accounting effects of the business combination, including adjustments to the amortization of intangible assets, professional fees associated with the acquisition, interest expense on short-term and long-term debt which was not acquired by DealerTrack, compensation expense related to amounts to be paid for continued employment, and compensation expense and interest expense related to the note payable. The unaudited pro forma information does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of our future consolidated results.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011		2010
	(In thousands, except per share data)
Net revenue	$	95,793	$	80,203		$	272,102	$	229,378
Net income (loss)		6,068		(419	)		4,188		(6,999	)
Basic net income (loss) per share		0.15		(0.01	)		0.10		(0.17	)
Diluted net income (loss) per share		0.14		(0.01	)		0.10		(0.17	)