Note 3. Business Combinations

Acquisition of the Custom Solutions Group of Cellular Specialties, Inc.

On February 28, 2013, the Company completed the acquisition of 100% of the assets of the Custom Solutions Group of Cellular Specialties, Inc. (“CSG”), which provides indoor and outdoor wireless DAS, small cell and Wi-Fi solutions, services, consultations and maintenance. The purchase price consists of $18.0 million in cash, earn-out payments of up to an aggregate of $17.0 million through December 31, 2015 and the assumption of certain liabilities related to the acquired business. The Company acquired CSG to expand its in-building DAS, small cell and Wi-Fi offload solutions.

The following table summarizes the consideration transferred to acquire CSG and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands):

Cash	$	18,000
Contingent consideration		9,163
Total purchase price		27,163

Current assets (accounts receivable, inventory and other current assets)		13,568
Non-current assets		541
Intangible assets		11,720
Goodwill		8,648
Total assets acquired		34,477

Current liabilities		7,276
Non-current liabilities		38
Total liabilities assumed		7,314

Net assets acquired	$	27,163

The acquisition of CSG includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to CSG’s former owners based upon the financial performance of CSG over a three-year period immediately following the close of the acquisition. Amounts payable under the contingent consideration arrangement are payable annually over a three-year period. The range of undiscounted amounts the Company could pay under the arrangement is between $0 and $17.0 million. The fair value of the contingent consideration recognized on the acquisition date of $9.2 million was estimated by applying the income approach. That measure is based on significant inputs not observable in the market, which is referred to as a Level 3 input. The liability for the contingent consideration is included within accrued liabilities on the consolidated balance sheet.

See Note 8 – Fair Value Measurements for current period activity related to the Company’s contingent consideration arrangements.

The Company acquired $7.4 million of gross contractual accounts receivable. The fair value of the acquired receivables was $7.4 million.

The goodwill is attributable to the workforce of the acquired business and the synergies expected to arise after the Company’s acquisition of CSG. The goodwill has been assigned in its entirety to the Professional Services segment. Goodwill is deductible for tax purposes.

As part of the purchase price, the Company determined that CSG’s separately identifiable intangible assets were its customer backlog, customer relationships, non-compete agreements and trade name. The intangible assets including goodwill were assigned to the Company’s Professional Services reporting unit. The Company used the income approach to value the identifiable intangibles, which is a Level 3 measurement. This approach calculates fair value by discounting the after-tax cash flow back to a present value. The baseline data for this analysis was the cash flow estimates used to price the transaction. Cash flows were forecasted and then discounted using a discount rate applicable to the intangible asset and reporting unit. Discount rates ranged from 18.5% to 23.0% and are based on the estimated weighted average cost of capital which employs an estimate of the required equity rate of return and after-tax cost of debt for the reporting unit.

The following table is a summary of the fair value estimates of the identifiable intangibles and their weighted-average useful lives:

	Estimated Useful Life (Years)		Fair Value
Intangible asset – customer backlog		0.50	$	1,400
Intangible asset – customer relationships		12.00		6,610
Intangible asset – noncompete agreements		5.00		3,150
Intangible asset – trade name		1.25		560
Total intangible assets			$	11,720

The Company incurred approximately $0.7 million of acquisition related costs, $0.4 million and $0 of which was recorded in selling, general and administrative costs for the six months ended June 30, 2013 and 2014, respectively. No expenses related to the acquisition have been capitalized.

Acquisition of Design Build Technologies

On August 8, 2013, the Company acquired 100% the assets of Design Build Technologies, LLC (“DBT”), a former subcontractor of the Company in the southeast region of the United States, for $1.3 million in cash. The Company received certain assets, tower crews, and a non-compete agreement from the owner of DBT, who became an employee of the Company upon the close of the transaction. DBT was acquired to augment Goodman Networks’ existing workforce capabilities and reduces its dependence on subcontractors.

The following table summarizes the consideration transferred to acquire DBT and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands):

Cash	$	1,306
Contingent consideration		741
Total purchase price		2,047

Current assets		8
Non-current assets		157
Goodwill		1,882
Total assets acquired	$	2,047

The acquisition of DBT includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to DBT’s former owners based upon the retention of specified thresholds of tower crew personnel measured at the end of each of the six quarterly periods subsequent to the acquisition. Amounts payable under the contingent consideration arrangement are payable quarterly over an 18-month period. The range of undiscounted amounts the Company could pay under the arrangement is between $0 and $0.9 million. The fair value of the contingent consideration recognized on the acquisition date of $0.7 million was estimated by applying the income approach. That measure is based on significant inputs not observable in the market, which is referred to as a Level 3 input. The liability for the contingent consideration is included within accrued liabilities on the consolidated balance sheet.

See Note 8 – Fair Value Measurements for current period activity related to the Company’s contingent consideration arrangements.

The goodwill is attributable to the workforce of the acquired business and the synergies expected to arise after the Company’s acquisition of DBT. The goodwill has been assigned in its entirety to the Infrastructure Services segment. Goodwill is deductible for tax purposes.

Merger with Multiband

On August 30, 2013, the Company completed its acquisition of Multiband. The aggregate purchase price, excluding merger-related fees and expenses, was approximately $101.1 million. The Merger provided the Company with customer diversification, a large and talented work force and new strategic capabilities. The Company believes the Merger will allow the combined company to continue to serve its current customers, while enabling it to support emerging wireless opportunities, such as the evolution toward small cell architectures currently occurring in the telecommunications industry.

The following table summarizes the consideration transferred to acquire Multiband and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands):

Cash	$	101,092
Total purchase price		101,092

Accounts receivable		28,035
Inventory		9,984
Deferred tax assets		1,665
Other current assets		9,367
Non-current assets		27,279
Intangible assets		33,640
Goodwill		58,648
Total assets acquired		168,618

Accounts payable		23,358
Accrued liabilities		22,902
Other current liabilities		5,291
Other non-current liabilities		15,975
Total liabilities assumed		67,526

Net assets acquired	$	101,092

The Company acquired $28.4 million of gross contractual accounts receivable. The fair value of the acquired receivables was $28.0 million.

The goodwill is attributable to the workforce of the acquired business and the synergies expected to arise after the Company’s acquisition of Multiband. The goodwill has been assigned primarily to the Field Services segment. The Company does not expect the goodwill to be deductible for tax purposes.

As part of the purchase price, the Company determined that Multiband’s separately identifiable intangible assets were its customer contracts, customer relationships, customer backlog, trade name, software and right of entry contracts. The intangible assets including goodwill were assigned to two of the Company’s four reporting units, Field Services and Other. The Company used the income approach to value the identifiable intangibles, which is a Level 3 measurement. This approach calculates fair value by discounting the after-tax cash flow back to a present value. The baseline data for this analysis was the cash flow estimates used to price the transaction. Cash flows were forecasted and then discounted using a discount rate applicable to the intangible asset and reporting unit. Discount rates ranged from 9.5% to 11.5% and are based on the estimated weighted average cost of capital which employees an estimate of the required equity rate of return and after-tax cost of debt for each reporting unit.

Because the Merger was accounted for as a stock purchase, assets acquired cannot be revalued for tax purposes; accordingly, a deferred tax asset of $1.7 million was recorded at the date of the Merger for the book tax cost basis difference related to the assets.

The following table is a summary of the fair value estimates of the identifiable intangibles and their weighted-average useful lives (dollars in thousands):

	Estimated Useful Life (Years)		Fair Value
Intangible asset – customer contracts	9.0 - 10.0		$	24,900
Intangible asset – customer relationships		12.0		1,100
Intangible asset – customer backlog		0.5		70
Intangible asset – trade name		5.0		3,700
Intangible asset – software		4.8		3,810
Intangible asset – right of entry contracts		2.0		60
Total intangible assets			$	33,640

As of December 31, 2012, Multiband had generated net operating loss carryforwards (“NOLs”), of approximately $47.5 million to reduce future federal taxable income and $46.0 million to reduce future state taxable income. Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), limits a corporation’s future ability to utilize any NOLs generated before a change in ownership, as well as certain subsequently recognized “built-in” losses and deductions, if any, existing as of the date of the change in ownership. As a result of the Merger, Multiband’s ability to utilize NOLs may be subject to additional limitations under Section 382 of the Code.

The amounts recorded for the acquired deferred taxes assets are provisional pending receipt of the final valuations for those assets.

Pursuant to the Merger Agreement, all restricted stock and stock options held by directors and employees of Multiband as of the Merger date became fully vested. The Company recorded a charge of $1.4 million during the three months ended September 30, 2013 for the acceleration of these awards, which has been recorded in selling, general and administrative expenses.

The Company incurred approximately $3.8 million of acquisition related costs, $1.4 million and $0 of which was recorded in selling, general and administrative costs for the six months ended June 30, 2013 and 2014, respectively. No expenses related to the acquisition have been capitalized.