Business Combinations

The Company acquired all of the issued and outstanding capital stock of ObjectLabs Corporation (“mLab”) on November 1, 2018 (the “Acquisition Date”) for a purchase price of $68.0 million in cash, subject to working capital, cash, debt, transaction expenses and other closing adjustments. mLab, based in San Francisco, California, offers a fully-managed cloud database service.

The Company used the acquisition method to account for the purchase of mLab, which met the definition of a business. During the three months ended January 31, 2019, the Company finalized the working capital, cash, debt, transaction expenses and other closing adjustments and identified and recorded the fair value of the assets and liabilities acquired, as well as the residual value to goodwill. The allocation of the purchase price was based on available information and assumptions at the time of the initial valuation and may be subject to change within the measurement period.

The total merger consideration, after closing adjustments, was $81.4 million, which included the purchase of the Excess Cash Amount, as defined in the merger agreement, of $13.4 million. Also included in the total merger consideration was $11.4 million for a time-based payment to the two founders of mLab (“Founder Holdback”), which is payable at 66.7% upon the first anniversary of the Acquisition Date and the remaining 33.3% upon the eighteen-month anniversary of the Acquisition Date. As the Founder Holdback arrangement represents compensation for post-combination services, the Company has excluded the entire $11.4 million in the purchase price to be allocated.

The following table represents a summary of the purchase price (in thousands):



	Amounts
Purchase price pursuant to the Merger Agreement	$	68,000
Excess cash amount	13,413
Founder Holdback	(11,440		)
Total purchase price to be allocated	$	69,973

The following table summarizes the purchase price allocation fair values of the assets acquired and liabilities and the value of goodwill assumed at the Acquisition Date (in thousands):



	Estimated Fair Value
Financial and tangible assets, net	$	17,636
Identifiable intangible asset - customer relationships	13,500
Identifiable intangible asset - developed technology	3,100
Deferred revenue	(260		)
Goodwill	35,997
Total purchase price	$	69,973

Financial and tangible assets, net primarily include the cash acquired, accounts receivable and prepaid hosting agreements, net of existing mLab obligations as of the Acquisition Date.

Customer relationships represents the fair value of projected subscription revenue that is expected to be generated from existing customers as of the Acquisition Date. The Company determined the economic useful life to be five years and the fair value of customer relationships was estimated using the discounted cash flow method, an income approach (Level 3), which utilized assumptions for customer turnover rates, cost structure, income taxes and other conventional estimates to derive a present value of expected future cash flows.

Developed technology relates to the existing mLab platform. The Company determined the economic useful life to be one year based on the anticipated time frame to migrate mLab customers to the MongoDB Atlas platform. The fair value of developed technology was estimated using the reproduction cost method (Level 3), which utilized assumptions for the cost to replace, such as the workforce, timing and resources required, as well as a theoretical profit margin, opportunity cost and economic obsolescence factor.

These two intangible assets acquired are being amortized over their estimated useful lives using the straight-line method of amortization, which approximates the distribution of the economic value of the identified intangible assets. See Note 6, Acquired Intangible Assets, Net, for further details

Deferred revenue was estimated at fair value under the cost build-up method (Level 3), which was determined based on estimated direct and indirect costs to support and fulfill the subscription obligation plus an assumed operating margin. Deferred revenue will be recognized based on the revenue criteria set forth in Note 2, Summary of Significant Accounting Policies.

Goodwill related to the acquisition, which represents the difference between the purchase price and fair values of identifiable net assets, is primarily attributable to assembled workforce, as well as expected synergies of the combination. The goodwill is not tax deductible for U.S. income tax purposes. In addition to the goodwill recorded through the purchase price allocation disclosed in the table above, the Company recorded an additional $4.1 million to goodwill resulting from deferred tax liabilities associated with the acquired intangible assets. Refer to Note 13, Income Taxes, for further discussion of the tax impact of the acquisition.

The Company incurred acquisition-related costs for the mLab acquisition of $0.5 million during the year ended January 31, 2019. These acquisition-related costs were included in general and administrative expenses in the Company’s consolidated statements of operations.

The Company included mLab’s estimated fair value of assets acquired and liabilities assumed in its consolidated balance sheet beginning on the Acquisition Date. The results of operations for mLab subsequent to the Acquisition Date have been included in, but are not material to, the Company's consolidated statements of operations for the year ended January 31, 2019. Pro forma results of operations for the mLab acquisition have not been presented because they are not material to the consolidated statements of operations for the year ended January 31, 2019.