Acquisitions

3 Months Ended

Mar. 31, 2020

2. Acquisitions

The Company performs quantitative and qualitative analyses to determine the significance of each acquisition to the financial statements the Company. Based on these analyses the below acquisitions were deemed to be insignificant on an individual and cumulative basis.

2020 Acquisitions

Acquisitions completed during the three months ended March 31, 2020 include the following:

•Localytics - On February 6, 2020, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Char Software, Inc (dba Localytics), a Delaware corporation (“Localytics”), a provider of mobile app personalization and analytics solutions. Revenues recorded since the acquisition date through March 31, 2020 were approximately $2.5 million.

2019 Acquisitions

Acquisitions completed during the year ended December 31, 2019 include the following:

•Postup - On April 18, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of Postup Holdings, LLC, a Texas limited liability company (“Postup”), and Postup Digital, LLC, a Texas limited liability company, an Austin-based company providing email and audience development solutions for publishing & media brands.

•Kapost - On May 24, 2019, the Company completed of its purchase of the shares comprising the entire issued share capital of Daily Inches, Inc., d/b/a Kapost, a Delaware corporation (“Kapost”), a leading content operations platform provider for sales and marketing.

•Cimpl - On August 21, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of Cimpl, Inc., a Canadian corporation (“Cimpl”), a leading cloud-based telecom expense management platform.

•InGenius - On October 1, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of InGenius Software Inc., a Canadian corporation (“InGenius”), a Computer Telephony Integration (CTI) solution for enterprise contact centers.

•Altify - On October 4, 2019, the Company’s wholly owned subsidiary, Upland Software UK, a limited company incorporated under the laws of England and Wales, entered into an agreement to purchase the shares comprising the entire issued share capital of Altify Ireland Limited, a private company limited by shares organized and existing under the laws of Ireland (“Altify”), a customer revenue optimization (CRO) cloud solution for sales and the extended revenue teams.

Consideration

The following table summarizes the consideration transferred for the acquisitions described above (in thousands):


	Localytics		Altify		InGenius		Cimpl		Kapost		Postup
Cash	$	67,655	$	84,000	$	26,428	$	23,071	$	45,000	$	34,825
Holdback ⁽¹⁾	345		—		3,000		2,600		5,000		175
Contingent consideration ⁽²⁾	1,000		—		4,865		—		—		—



Working capital adjustment	—		—		—		—		(601)		—
Total consideration	$	69,000	$	84,000	$	34,293	$	25,671	$	49,399	$	35,000

(1)Represents cash holdbacks subject to indemnification claims that are payable 12 months following closing for Localytics, InGenius, Cimpl, Kapost and Postup.

(2)Represents the acquisition date fair value of anticipated earn-out payments, which are based on the estimated probability of attainment of the underlying future performance-based conditions at the time of acquisition. The maximum potential payout for the InGenius and Localytics earn-outs are $15.0 million and $1.0 million, respectively. Refer to Note 3 for further discussion regarding the calculation of fair value of acquisition related earn-outs.

Fair Value of Assets Acquired and Liabilities Assumed

The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting and, accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The purchase accounting for the 2019 acquisition of Altify and the 2020 acquisition of Localytics are preliminary as the Company has not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts in all respects, specifically the tax impact not being finalized as of March 31, 2020. In addition, the valuation of intangible assets for Localytics was not finalized as of March 31, 2020. Management has recorded the purchase price allocations based upon acquired company information that is currently available. Management expects to complete its purchase price allocations for these acquisitions in the second half of 2020.

The following condensed table presents the preliminary and finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions in during the year ended December 31, 2019 and through the three months ended March 31, 2020, as well as assets and liabilities (in thousands):


	Preliminary						Final
	Localytics		Altify		InGenius		Cimpl		Kapost		Postup
Year Acquired	2020		2019		2019		2019		2019		2019

Cash	$	—	$	730	$	11	$	142	$	—	$	19
Accounts receivable	3,648		6,629		1,456		1,041		3,901		1,054
Other current assets	6,325		889		317		278		1,066		1,373
Tax credits receivable	—		916		1,489		1,383		—		—
Operating lease right-of-use asset	7,605		1,085		1,099		230		2,136		—
Property and equipment	409		139		364		233		686		743
Customer relationships	30,500		50,954		11,208		12,430		23,735		10,667
Trade name	300		1,112		424		216		787		468
Technology	6,600		7,648		4,576		3,240		5,756		2,943

Goodwill	39,646		34,426		24,141		12,928		20,953		21,973
Other assets	6		378		—		6		—		—
Total assets acquired	95,039		104,906		45,085		32,127		59,020		39,240
Accounts payable	(2,382)		(1,499)		(128)		(305)		(50)		(447)
Accrued expense and other	(6,752)		(3,901)		(2,807)		(1,206)		(3,724)		(530)
Deferred tax liabilities	(4,258)		(7,083)		(4,897)		(4,595)		(1,954)		(3,248)
Deferred revenue	(4,812)		(7,907)		(2,960)		(350)		(3,893)		(15)
Operating lease liabilities	(7,835)		(516)		—		—		—		—

Total liabilities assumed	(26,039)		(20,906)		(10,792)		(6,456)		(9,621)		(4,240)
Total consideration	$	69,000	$	84,000	$	34,293	$	25,671	$	49,399	$	35,000

The Company uses third party valuation consultants to determine the fair values of assets acquired and liabilities assumed. Tangible assets are valued at their respective carrying amounts, which approximates their estimated fair value. The valuation of identifiable intangible assets reflects management’s estimates based on, among other factors, use of established valuation methods. Customer relationships are valued using the multi-period excess earnings method. Developed technology and trade names are valued using the relief-from-royalty method.

The following table summarizes the weighted-average useful lives, by major finite-lived intangible asset class, for intangibles acquired during the three months ended March 31, 2020 and the year ended December 31, 2019 (in years):


	Useful Life
	March 31, 2020	December 31, 2019
Customer relationships	8.0	9.8
Trade name	2.0	9.2
Developed technology	5.0	7.9

Total weighted-average useful life	7.4	9.5

During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to management's estimates and assumptions. The change in the preliminary acquisition-date fair value of assets and liabilities for Altify during the three months ended March 31, 2020 was related primarily to a $1.0 million decrease in deferred tax liabilities.

The goodwill of $154.1 million for the above acquisitions is primarily attributable to the synergies expected to arise after the acquisition. Goodwill deductible for tax purposes at the time of acquisition was $6.2 million.

Total transaction related expenses incurred with respect to acquisition activity during the three months ended March 31, 2020 and March 31, 2019 were $3.3 million and $0.4 million, respectively. Transaction related expenses, excluding transformation costs, include expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses.

Other Acquisitions and Divestitures

From time to time we may purchase or sell customer relationships that meet certain criteria. During the three months ended March 31, 2020 and year ended December 31, 2019 we completed customer relationship acquisitions totaling $0.2 million and $1.6 million, respectively.

In the fourth quarter of 2019, Upland divested of certain minor non-strategic customer contracts and related website management and analytics assets. As a result, during the year ended December 31, 2019 the Company recognized a $2.0 million non-cash expense on divestiture which is included in the Other income (expense), net line item in the Company’s condensed consolidated statement of operations, for the year ended December 31, 2019. The assets divested consisted primarily of $2.2 million in deferred commission costs, $1.1 million in intangible assets (customer relationship and related technology), $0.2 million in allocated goodwill, and $1.0 million of liabilities primarily consisting of deferred revenue.