Business Combinations

12 Months Ended

Dec. 31, 2019

Note 5—Business Combinations

On August 15, 2019, the Company acquired all of the outstanding capital stock of Reverb, a leading online marketplace dedicated to buying and selling new, used, and vintage musical instruments. The acquisition enables the Company to expand into a new vertical, with a company that has a similar strategy and business model. The total cash consideration paid was $270.4 million, net of cash acquired.

The acquisition was accounted for under the acquisition method of accounting. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill, which consists largely of synergies and acquisition of workforce. The resulting goodwill is not expected to be deductible for tax purposes.

The Company has finalized the valuation of assets acquired and liabilities assumed for the acquisition of Reverb. The Company recognized certain measurement period adjustments as disclosed below during the three months ended December 31, 2019. The measurement period is closed as of December 31, 2019.

Purchase Price Allocation

The following table summarizes the allocation of the purchase price (at fair value) to the assets acquired and liabilities assumed of Reverb as of August 15, 2019 (the date of acquisition) (in thousands):



	Initial Fair Value Estimate (1)			Measurement Period Adjustments (2)			Final Fair Value as Adjusted
Short-term investments	$	1,028		$	—		$	1,028
Other current assets (3)	6,442			(3,540		)	2,902
Funds receivable and seller accounts	5,578			—			5,578
Property and equipment other	1,543			—			1,543
Developed technology	30,300			—			30,300
Trademark	79,400			—			79,400
Customer relationships	93,500			—			93,500
Goodwill	102,039			(336		)	101,703
Other assets (3)	3,225			3,518			6,743
Other net working capital	(208		)	—			(208		)
Funds payable and amounts due to sellers	(5,578		)	—			(5,578		)
Other current liabilities (3)	(8,520		)	4,836			(3,684		)
Other liabilities (3)	(2,497		)	(4,836		)	(7,333		)
Deferred tax liability, net	(34,898		)	(587		)	(35,485		)
Total purchase price	$	271,354		$	(945	)	$	270,409


(1)	As previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. This was the quarter in which the business combination was completed.

(2)

The Company recorded measurement period adjustments in the fourth quarter of fiscal 2019 due to the final working capital adjustment as well as new facts and circumstances related to assets and liabilities which existed at the acquisition date. The adjustments included an increase in deferred tax liability of $0.6 million and a decrease in goodwill of $0.3 million. Other adjustments are related to the classification of certain assets and liabilities within the balance sheet.


(3)	Other current liabilities and other liabilities are primarily related to non-income tax related contingency reserves, which are wholly offset by an indemnification asset and a deferred tax asset.

Revenue and net loss of Reverb from August 15, 2019 (the date of acquisition) through December 31, 2019 were $19.1 million and $9.9 million, respectively. Acquisition-related expenses are expensed as incurred. They were recorded in general and administrative expenses and were $3.9 million for the year ended December 31, 2019. They primarily related to advisory, legal, valuation and other professional fees.

Unaudited Supplemental Pro Forma Information

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2018 (in thousands):



	Year Ended December 31,
	2019		2018
Revenue	$	847,154	$	639,743
Net income	88,595		53,587

The pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. The pro forma adjustments include incremental amortization of intangible and developed technology assets, based on final values of each asset and acquisition-related expenses and are tax-effected. For the year ended December 31, 2019, the pro forma financial information excludes $6.1 million of non-recurring acquisition-related expenses. For the year ended December 31, 2018, the pro forma financial information includes $2.0 million of non-recurring acquisition-related expenses. These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.