Business Combinations

12 Months Ended

Jan. 31, 2020

The Company acquired all of the issued and outstanding capital stock of Tightdb, Inc. (“Realm”) on May 7, 2019 (the “Acquisition Date”) for a purchase price of $39.0 million in cash, subject to working capital, cash, debt, transaction expenses and other closing adjustments. Realm, based in San Francisco, California, offers a mobile database, as well as a platform with real-time data synchronization between mobile applications and cloud databases.

The Company used the acquisition method to account for the purchase of Realm, which met the definition of a business. As of January 31, 2020, the Company had 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 $38.8 million, which included adjustments for cash and working capital. The following table represents a summary of the purchase price (in thousands):



	Amounts
Purchase price pursuant to the merger agreement	$	39,000
Estimated cash amount	115
Downward closing working capital adjustment	(352		)
Total purchase price to be allocated	$	38,763

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	$	43
Identifiable intangible asset - developed technology	27,300
Identifiable intangible asset - customer relationships	1,700
Deferred revenue	(350		)
Goodwill (excluding deferred tax liability impact)	10,070
Total purchase price	$	38,763

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

Developed technology includes both the Realm mobile database and the Realm Object Server, which together automatically synchronize data between mobile applications and cloud databases, including MongoDB Atlas. The Company determined the economic useful life to be five years based on the expected time period that the asset would contribute to the Company’s future cash flows without significant upgrades. 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 and opportunity cost.

Customer relationships represent the fair value of projected subscription revenue that is expected to be generated from existing customers of Realm 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 replacement cost approach (Level 3), which utilized assumptions for sales and marketing expenses to determine the estimated cost to acquire a Realm customer. Other assumptions include a theoretical profit margin and opportunity costs.

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, Goodwill and 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 $3.5 million to goodwill during the three months ended July 31, 2019, resulting from deferred tax liabilities associated with the acquired intangible assets. During the three months ended January 31, 2020, the Company completed its net operating losses limitation analysis under Section 382 of the U.S. Internal Revenue Code of 1986 with respect to the acquisition of Realm and made a final determination that $3.9 million should be recorded to goodwill associated with the acquired deferred tax liabilities from Realm. Accordingly, the Company recorded a measurement period adjustment of $0.4 million for the period ended January 31, 2020 as an additional income tax benefit and an increase to goodwill.

The Company incurred acquisition-related costs for the Realm acquisition of $0.6 million during the year ended January 31, 2020. These acquisition-related costs were included in general and administrative expenses in the Company’s consolidated statements of operations.

The Company included Realm’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 Realm 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, 2020. The pro forma results of operations for the Realm acquisition have not been presented because they were not material to the Company’s consolidated statements of operations for the years ended January 31, 2020, 2019 and 2018.