Business Combinations, Strategic Partnerships, and Asset Acquisitions

9 Months Ended

Sep. 30, 2020

Business Combinations, Strategic Partnerships, and Asset Acquisitions

Connect First Acquisition

On January 14, 2019, the Company acquired the equity interests of Connect First, Inc. (“Connect First”), a cloud-based outbound/blended customer engagement platform for midsize and enterprise companies. The acquisition complements the Company’s current Customer Engagement portfolio to provide differentiated customer experiences.

The total purchase price of approximately $36.4 million consisted of cash of $29.3 million and $7.1 million held to cover indemnity claims made by the Company after the closing date. In connection with the acquisition, the Company granted $4.0 million in restricted stock units, which vests over four years.

The allocation of the purchase price of the assets acquired and liabilities assumed based on their estimated fair values was as follows (in thousands):


Cash and cash equivalents	$	1,427
Other tangible assets acquired	2,266
Acquired intangible assets	13,300
Goodwill	24,465
Total assets acquired	41,458
Liabilities assumed	(5,013)
Total consideration	$	36,445

The amortizable intangible assets have a weighted average useful life of three years. The purchase price exceeded the estimated fair value of the tangible and identifiable intangible assets and liabilities acquired and, as a result of the allocation, the Company recorded goodwill of $24.5 million, which is not deductible for tax purposes. The goodwill recognized is attributable primarily to contributions of the entity's technology to the overall corporate strategy, enhancements to the Company's contact center product offerings, and assembled workforce of the acquired business.

Strategic Partnerships and Asset Purchases

In October 2019, the Company entered into certain agreements for a strategic partnership with Avaya Holdings Corp. (“Avaya”) and its subsidiaries, including Avaya Inc. In connection with the strategic partnership, the Company purchased $125.0 million aggregate principal amount of 3% convertible and redeemable preferred stock, with a conversion price of $16.00 per share, representing an approximately 6% position in Avaya on an as-converted basis. The Company also paid Avaya $345.0 million in the Company's Class A Common Stock, predominantly for future fees, which was capitalized and will be amortized over the expected benefit period. The transaction closed on October 31, 2019. The investment in preferred securities in which the Company does not have a controlling interest or significant influence are measured at fair value with changes recorded through other income (expense) in the Condensed Consolidated Statement of Operations. The advance payment represents prepayment for cost to obtain contracts with customers. The Company also purchased intellectual property rights, which have been capitalized as an intangible asset and will be amortized over the useful life of three years.

In the fourth quarter of 2019, the Company also entered into a strategic partnership with Atos SE ("Atos") and its subsidiary, Unify Software and Solutions GmbH & CO. KG ("Unify"), which, among other things, provided for a one-time upfront consideration towards the acquisition of certain intellectual property rights and a commercial arrangement. Under the commercial agreement Unify is engaged in the marketing and sale of the Company's product, which represents advance payment for cost to obtain contracts with customers.

In addition to the above transactions, the Company also separately entered into arrangements with unrelated third parties to acquire intellectual property rights during the fourth quarter of 2019.

In connection with the above transactions, the Company recorded in aggregate $105.5 million in acquired intangible assets relating to developed technology on the Condensed Consolidated Balance Sheet, which will be amortized over their respective useful life of three to five years. The Company also recorded $371.1 million as deferred and prepaid sales commission costs representing cost to obtain contracts with customers. The prepaid assets will be amortized over their useful life based on the pattern of benefit since they are considered to be incremental customer acquisition costs.

In July 2020, the Company entered into a strategic partnership with Alcatel-Lucent Enterprise, a provider of communications, networking, and cloud solutions in Europe. The parties intend to introduce a new co-branded solution, which will be the exclusive Unified Communications as a Service ("UCaaS") solution marketed and sold by the strategic partner. Under the agreement, the Company paid an upfront consideration of $100.0 million in cash, which was included in deferred and prepaid sales commission costs on the Company's Condensed Consolidated Balance Sheets.