Business Combinations

12 Months Ended

Jan. 31, 2017

Business Combinations [Abstract]

Business Combinations

Note 3. Business Combinations

Acquisition in fiscal year ended January 31, 2017

On December 30, 2016, the Company acquired substantially all the assets of Spend360 International Limited (“Spend360”), a United Kingdom based company which helps transform outdated data classification processes that rely on humans for accuracy with a modern, digitized system that uses innovative technologies to classify data more quickly and accurately.

The total purchase consideration of $10.1 million was paid in 94,241 shares of the Company’s common stock having a total fair value of $2.3 million and $7.8 million in cash of which $1.0 million is due twelve months after the acquisition date.

The acquisition of Spend360 was accounted for in accordance with the acquisition method of accounting for business combinations with Coupa as the accounting acquirer. Under the acquisition method of accounting, the total purchase consideration is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, using information currently available to us.

The Company expensed the related acquisition costs of $366,000 in general and administrative expenses in the accompanying consolidated statement of operations. Allocation of the purchase price of $10.1 million is as follows (in thousands):

	Amount
Intangible assets	$	5,431
Deferred revenue		(26	)
Goodwill		4,701
Total purchase price allocation	$	10,106

Intangible assets consist of developed technology. The estimated useful life and fair values of the developed technology is five years. The value of developed technology was estimated using the replacement cost method. The purchase price exceeded the fair value of identifiable intangible asset acquired, resulting in the recognition of goodwill. Goodwill is primarily attributable to expected synergies in our subscription offerings and cross-selling opportunities and is deductible for tax purposes.

Additionally, in connection with the acquisition, the Company issued 56,304 shares of the Company’s restricted common stock with a total fair value of $1.4 million. The shares have service-based vesting requirements and the value has therefore been excluded from the purchase consideration. The related value will be recognized on a straight-line basis as compensation expense over the requisite service period over three years from the acquisition date. In addition, the Company will pay up to $1.0 million dependent on the cumulative revenue earned through December 2018 by the acquired business. The Company determined that there is an in-substance service period for an employee related to the potential future payment and therefore will record this amount as compensation expense if it becomes payable.

Pro forma results of operations have not been presented because the acquisition was not material to our results of operations.

Acquisitions in fiscal year ended January 31, 2016

During the year ended January 31, 2016, the Company completed acquisitions which were accounted for as business combinations. The total purchase consideration of $2.9 million (paid in 213,050 shares of the Company’s common stock having a total fair value of $1.3 million, cash of $1.4 million, net of cash acquired, and $150,000 due between twelve and eighteen months after each respective acquisition date) for the acquisitions was preliminarily allocated as follows: $1.6 million to developed technologies and $74,000 to customer relationships based on their estimated fair values on the acquisition date. The excess $1.4 million of the purchase consideration over the fair value of net assets acquired was recorded as goodwill. One of the acquisitions had a net liabilities assumed amount of $242,000 at its acquisition date and the others had no acquired net tangible assets on the acquisition dates. Tax deductible goodwill resulting from one of these acquisitions was $91,000, with the remaining amounts not tax deductible for U.S. income tax purposes. Developed technologies and customer relationships will be amortized on a straight-line basis over their estimated useful lives of two years. These acquisitions generally enhance the breadth and depth of the Company’s offerings, as well as expanding the Company’s expertise in engineering and other functional areas.

In connection with the acquisitions completed during the year ended January 31, 2016, the Company issued 101,336 shares of the Company’s restricted common stock with a total fair value of $572,000, which have service-based vesting requirements and are therefore excluded from the purchase consideration. The related values will be recognized on a straight-line basis as compensation expense over the requisite service period of two years from the acquisition dates. As of January 31, 2017 and January 31, 2016, 76,489 and 26,444 of the 101,336 restricted shares of common stock have vested, respectively. As part of one of the acquisitions, the Company agreed to pay up to $400,000 dependent on the revenue earned through September 2016 by the acquired business. In November 2016, the Company amended the agreement and agreed to extend the period for achieving results to September 2018. The Company determined that there is an in-substance service period for an employee related to the potential future payment and therefore will record this amount as compensation expense if it becomes payable.

The results of operations for each of the acquisitions have been included in the Company’s consolidated statements of operations since the respective dates of acquisition. Actual and pro forma revenue and results of operations for the acquisitions have not been presented because they do not have a material impact to the consolidated revenue and results of operations, either individually or in aggregate.