15. Acquisitions and Dispositions

Acquisitions

We account for acquisitions of businesses using the purchase method of accounting where the cost is allocated to the underlying net tangible and intangible assets acquired, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of advertiser and publisher turnover rates and estimates of terminal values.

During the years ended December 31, 2014 and 2013, we acquired businesses consistent with our strategic plan of acquiring, consolidating and developing Internet media properties and marketplace businesses. In addition to identifiable assets acquired in these business combinations, our goodwill primarily derives from the ability to generate synergies across our businesses. As of December 31, 2015, our goodwill primarily results from our acquisition of marketplace businesses.

On August 8, 2014, we acquired Saatchi Online, Inc., a Delaware corporation (“Saatchi Online”), pursuant to an Agreement and Plan of Merger whereby Saatchi Online became a wholly owned subsidiary of Demand Media (the “Merger”). After giving effect to working capital adjustments as of the closing date, the purchase price consisted of approximately $4.8 million in cash after giving effect to working capital adjustments and 1,049,959 shares of our common stock, valued at approximately $10.3 million based on Demand Media’s stock price on the closing date of the Merger. Of the $1.7 million from the cash portion of the purchase price that was placed into escrow to be applied by us towards satisfaction of post-closing indemnification obligations of the former stockholders of Saatchi Online and/or post-closing adjustments to the purchase price, approximately $0.9 million was paid to us to cover post-closing indemnification claims and approximately $0.2 million was released to the selling stockholders in connection with a multi-party settlement agreement and the expiration of the post-closing indemnification period in August 2015. Approximately $0.6 million remains in the escrow account as of December 31, 2015 to cover estimated claims related to pre-closing VAT amounts, and any remaining portion of the escrow amount that is not required to cover the estimated pre-closing VAT amounts will be paid to the former stockholders of Saatchi Online, Inc. upon final determination of the pre-closing VAT amounts.

The Saatchi acquisition is included in our consolidated financial statements as of the date of the acquisition. The allocation of the purchase consideration, for business acquisitions made by us during the year ended December 31, 2014 is as follows (in thousands):


Goodwill	$	10,358
Technology		2,327
Artist relationships		1,852
License agreement		419
Customer relationships		962
Other assets and liabilities assumed		(866)
Total	$	15,052

Customer relationships have a useful life of 3 years, developed technology, and the license agreement have useful lives of 5 years, and the artist relationship has a useful life of 10 years. Goodwill, which is comprised of the excess of the purchase consideration over the fair value of the identifiable net assets acquired, is primarily derived from assembled workforce and our ability to generate synergies with its services. The goodwill of $10.4 million is not expected to be deductible for tax purposes.

On June 20, 2013, we completed the acquisition of Society6, an online marketplace and e-commerce platform. The purchase price consideration of $94.3 million was comprised of cash of $76.1 million and 464,576 shares of common stock valued at $18.2 million, based on our stock price on the date of acquisition. We held back $7.9 million in cash and 122,638 shares of common stock (as adjusted for the Separation and the 1-for-5 reverse stock split) to secure post-closing indemnification obligations of the sellers and/or post-closing adjustments to the purchase price, and in July 2015, we paid $7.4 million in cash and issued 122,638 shares of our common stock to the sellers of Society6 following the expiration of the indemnification holdback period. Artist relationships and non-compete have a useful life of 3 years, developed technology has a useful life of four years, and trade name have an ten year useful life. Goodwill, which is comprised of the excess of the purchase consideration over the fair value of the identifiable net assets acquired, is primarily derived from assembled workforce and our ability to generate synergies with its services.

In March 2013, we acquired Creativebug, an online destination for arts and crafts instruction based in San Francisco, California, for an $8.0 million cash purchase price consideration. $0.8 million cash was held back by us to secure post-closing indemnification obligations of the sellers and/or post-closing adjustments to the purchase price. Of the holdback, $0.4 million that is not subject to then-pending claims was paid 9 months after the closing date, and the remainder of the holdback that is not subject to then-pending claims was paid 18 months after the closing date. During July 2014, we completed the sale of our Creativebug business.

The Society6 and Creativebug acquisitions are included in our consolidated financial statements as of the date of the acquisition. The allocation of the purchase consideration, for business acquisitions made by us during the year ended December 31, 2013 is as follows (in thousands):


	Creativebug		Society6		Total
Goodwill	$	4,459	$	76,676	$	81,135
Media content		3,390		-		3,390
Technology		-		2,587		2,587
Artist relationships		-		9,867		9,867
Non-compete agreements		699		192		891
Trade names		132		3,419		3,551
Customer relationships		43		-		43
Other assets and liabilities assumed		(723)		1,581		858
Total	$	8,000	$	94,322	$	102,322

Supplemental Pro forma Information (unaudited)

Supplemental information on an unaudited pro forma basis, as if the 2014 and 2013 acquisitions had been consummated as of January 1, 2013, is as follows (in thousands):


	Year ended December 31,
	2014		2013
Revenue	$	174,691	$	222,790
Net loss	$	(272,988)	$	(24,484)

The unaudited pro forma supplemental information is based on estimates and assumptions which we believe are reasonable and reflect amortization of intangible assets as a result of the acquisitions. The pro forma results are not necessarily indicative of the results that have been realized had the acquisitions been consolidated in the tables above as of January 1, 2013.

Dispositions

We sold our Creativebug business in July 2014 and received $10.0 million in cash, inclusive of $1.0 million held in escrow for one year from the closing date as a holdback amount to cover indemnity claims, resulting in a gain on sale of $0.2 million, recorded in other income, net. The holdback amount was received in 2015. We also sold our CoveritLive business in July 2014 and received $4.5 million of cash and promissory note with a principal amount of $5.6 million, resulting in a gain on sale of $0.6 million, recorded in other income, net. During the year ended December 31, 2015, we agreed to an early repayment of the promissory note and received $5.1 million in cash, plus accrued and unpaid interest, which satisfied all amounts owed to us under the promissory note.

In February 2015, we sold our Pluck social media business for $3.8 million in cash after working capital adjustments, resulting in a gain of $2.1 million. During the year ended December 31, 2015, we also sold certain non-core online properties for a total consideration of $1.2 million, resulting in a gain of $1.0 million, recorded in other income, net.