Note 3 - Business Combinations

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note

3

. Business Combinations

OCO Holdings, Inc

.

(“

Olson

”)

On November 5, 2014, the Company completed the acquisition of Olson, a leading provider of marketing technology and digital services based in Minneapolis, Minnesota.

As a result of the acquisition, Olson became a wholly-owned subsidiary of the Company. The aggregate purchase price of approximately $298.2 million in cash was funded by the Company’s Credit Facility (as defined in Note 7 below). The acquisition expands the Company’s existing digital technology and strategic communications work and strengthens its ability to bring more integrated solutions to an expanded client base including multi-channel marketing initiatives across web, mobile, email, social, print, broadcast and off-premise platforms. For further discussion of the Olson acquisition, refer to “Note F,

Business Combinations

” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015.

The acquisition was accounted for under the purchase method. The preliminary allocation of the total purchase price to the tangible and intangible assets and liabilities of Olson is based on management’s preliminary estimate of fair value as of the acquisition date and is subject to revision until the purchase price adjustments and valuations of intangible assets and goodwill are finalized, which will be completed within a one-year measurement period ending November 5, 2015. Due to the significance of the Olson acquisition, use of the measurement period is necessary to adequately analyze all the factors used in establishing the asset and liability fair values as of the acquisition date. The Company engaged an independent valuation firm to assist management in the allocation of the purchase price to goodwill and to other acquired intangible assets. During the first quarter of 2015, the Company recorded an increase to goodwill of $5.1 million related to measurement period adjustments to the preliminary purchase price allocation. As of March 31, 2015, the Company has allocated approximately $230.2 million to goodwill resulting from the preliminary purchase price allocation summarized as follows (in thousands):

Cash	$	8,816
Contract receivables		36,879
Other current and non-current assets		1,512
Property and equipment		14,462
Customer-related intangibles		60,338
Marketing-related intangibles		3,947
Developed technology intangibles		578
Goodwill		230,202
Total Assets		356,734
Accounts payable		9,792
Accrued expenses and other liabilities		13,001
Accrued salaries and benefits		5,378
Deferred revenue		9,742
Deferred taxes and income tax payable		20,613
Total Liabilities		58,526
Net Assets	$	298,208

The results of operations of the Olson acquisition are included in the Company’s consolidated statements of comprehensive income for the three months ended March 31, 2015. The following unaudited condensed pro forma information presents combined financial information as if the acquisition of Olson had been effective at the beginning of fiscal year 2013. The pro forma information includes adjustments reflecting changes in the amortization of intangibles, stock-based compensation expense,

and interest expense, and records income tax effects as if Olson had been included in the Company’s results of operations. The pro forma information also includes an adjustment to eliminate $1.9 million of operating income related to the reduction of an Olson contingent liability that was settled as a result of the acquisition. The unaudited pro forma financial information is not necessarily indicative of the results that actually would have occurred had the acquisition been completed at the beginning of the 2013 (in thousands except per share amounts):

	Three Months Ended March 31,
	201 4
Revenue	$	279,204
Operating income		17,950
Net income		9,349
Earnings per share:
Basic earnings per share	$	0.47
Diluted earnings per share	$	0.46

Mostra SA

(“Mostra”)

In February 2014, the Company completed its acquisition of Mostra, a strategic communications consulting company based in Brussels, Belgium.

Mostra offers end-to-end, multichannel communications solutions to assist government and commercial clients, in particular the European Commission. The acquisition extends the Company’s strategic communications capabilities

globally to complement its policy work and enhance its strategy of providing a full suite of services that leverage its research and advisory services. During the first quarter of 2015, the Company finalized its valuation of the assets acquired and liabilities assumed as a result of the acquisition. The purchase was immaterial to the Company’s financial statements taken as a whole.

CityTech, Inc.

(“

CityTech

”)

In March 2014, the Company acquired CityTech, a Chicago-based digital interactive consultancy specializing in enterprise applications development, web experience management, mobile application development, cloud enablement, managed services, and customer experience management solutions. The acquisition adds expertise to the Company’s content management capabilities and complements its digital and interactive business.

During the first quarter of 2015, the Company finalized its valuation of the assets acquired and liabilities assumed as a result of the acquisition. The purchase was immaterial to the Company’s financial statements taken as a whole.

Ecommerce Accelerator LLC

(“

ECA

”)

In July 2013, the Company hired the staff of, and purchased certain assets and liabilities from ECA, an e-commerce technology services firm based in New York, New York. In connection with the acquisition, we recorded a contingent consideration payable at the estimated fair value of $2.8 million at December 31, 2013. The fair value of the contingent liability was reduced to zero in the first quarter of 2014 and the change in the fair value measurement of $2.8 million was recorded as a reduction to indirect and selling expenses. We are no longer required to pay contingent consideration to ECA, as the parties mutually agreed to the release of this potential obligation in the third quarter of 2014. The purchase was immaterial to the Company’s financial statements taken as a whole. The addition of ECA enhanced ICF’s multi-channel, end-to-end e-commerce solutions.