Business Combination

12 Months Ended

Jan. 31, 2020

On January 3, 2019, we acquired all outstanding stock of Hortonworks, a provider of enterprise-grade, global data management platforms, services and solutions for approximately $1.2 billion in consideration consisting of common stock and equity awards assumed. We have included the financial results of Hortonworks in our consolidated financial statements from the date of merger. The transaction costs associated with the merger were approximately $22.8 million, which were included in general and administrative expense in our consolidated statement of operations for the year ended January 31, 2019. The merger-date fair value of the consideration transferred for Hortonworks was approximately $1.2 billion, which consisted of the following (in thousands except for share data):


	Fair Value
Common stock (111,304,700 shares)	$	1,154,230
Fair value of share-based compensation awards assumed	48,197
Total	$	1,202,427

The $1.2 billion fair value consideration transferred was determined based on $10.37 per share, the closing price of our stock on the closing date of the merger with Hortonworks (the Closing Date), for all shares of Hortonworks common stock outstanding immediately prior to the Closing Date. The fair value of the post share conversion of 4.1 million stock options, 0.9 million of performance restricted stock units and 9.0 million restricted stock units assumed

was determined using the Black-Scholes option pricing model for stock option awards and observable market price of our common stock for valuation of performance and restricted share units. The share conversion ratio of 1.305 was applied to convert Hortonworks’ outstanding equity awards for Hortonworks’ common stock into equity awards for shares of our common stock. Further, we assumed stock-based awards with a total fair value of $63.5 million, which will be recognized as stock-based compensation expense over a weighted-average period of 1.5 years from the Closing Date. Additionally, we recognized $13.1 million of additional stock-based compensation expense during the year ended January 31, 2019 due to the acceleration and modification of certain stock awards assumed as part of our merger with Hortonworks.

The following table summarizes the fair values of assets acquired and liabilities assumed as of the Closing Date (in thousands):


	Fair Value
Cash and cash equivalents	$	40,886
Marketable securities, current	8,103
Accounts receivable, net	165,958
Prepaid expenses and other assets	23,512
Property and equipment, net	8,091
Intangible assets	682,600
Accounts payable	(2,888)
Accrued compensation	(31,007)
Other accrued liabilities and long-term liabilities	(12,163)
Deferred revenue	(233,500)
Total net assets acquired and liabilities assumed	$	649,592

The $552.8 million excess of purchase consideration over the fair value of total net assets acquired and liabilities assumed was recorded as goodwill. Goodwill of $525.2 million and $27.6 million was allocated to our subscription and services segments, respectively, based on the forecasted post-merger financial results of the subscription and services segments.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the Closing Date:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Unbilled contracts	$	18,300	2
Customer relationships	661,600		10
Trade names	2,700		1
Total identified intangible assets	$	682,600

Unbilled contracts represent the fair value of Hortonworks’ customer contracts that had yet to be billed as of the Closing Date. Customer relationships represent the fair value of the underlying relationships with Hortonworks’ customers. Trade names represent Hortonworks’ trademarks, which consumers associate with the source and quality of Hortonworks’ products and services. The estimated fair values of the intangible assets acquired were determined based on a combination of the income and market approaches to measure the fair value of unbilled contracts, customer relationships, and trade names. The fair value of unbilled contracts and customer relationships was measured based on the income approach, specifically the multi-period excess earnings method. The fair value of the trade names was determined using the relief-from-royalty method. The estimated remaining useful life of the customer relationships intangible is approximately 10 years, which approximates the mean and median of a benchmarking dataset from similar mergers or acquisitions over the last 7 years, focusing on transactions where customer relationships is the primary asset of the transaction. The estimated remaining useful life of unbilled contracts is based on the period over which the support and services are expected to be rendered and the estimated remaining useful life of trade names is based on our expected time frame to phase out the Hortonworks trade names.

The goodwill balance of $552.8 million is attributable to the expansion of our product offerings and expected synergies of the combined workforce, products and technologies with Hortonworks. The goodwill balance is not deductible for U.S. income tax purposes.

The amounts of revenue and net loss of Hortonworks included in our results from the transaction date of January 3, 2019 through January 31, 2019 are as follows (in thousands):


	29 Days Ended January 31, 2019
Revenue	$	19,597
Net loss	(9,226)