Business Combination

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 2. Business Combination

After the close of business on November 23, 2015, the Company and STG Group completed the Business Combination in which the Company acquired STG Group from its current owner. The purchase price consisted of: (a) $68 million paid in cash and $3.4 million of an estimated net working capital adjustment and other purchase price adjustments paid in cash (“Cash Consideration”); (b) 8,578,199 new shares of Company common stock, 445,161 shares that were forfeited by the Sponsor and reissued to the STG Stockholders, and an additional 35,000 shares that were transferred by the Sponsor to the STG Stockholders, valued at a price of approximately $8.50 per share (“Stock Consideration”); and (c) $5.6 million worth of stock at approximately $8.50 per share (658,513 “Conversion Shares”) in a private placement. The Company funded a majority of the purchase price through new debt financing as described further in Note 7. On the date of the Business Combination, the Company also collected $2.5 million from the Predecessor’s stockholder pursuant to a note receivable agreement outstanding. This is netted against the purchase price adjustments that were settled in cash.

Upon consummation of the Business Combination, the Predecessor changed its name to STG Group Holdings, Inc. and the Company changed its name from Global Defense & National Security Systems, Inc. to STG Group, Inc.

The Company has recorded an allocation of the purchase price to the Predecessor’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the Business Combination date. The calculation of purchase price and purchase price allocation is as follows (in thousands):

Cash consideration:
Cash consideration per Stock Purchase Agreement	$	68,000
Net working capital and other cash consideration adjustments		3,400
Total cash consideration		71,400
Stock consideration, including Conversion Shares		82,632
Total purchase price	$	154,032
Current assets	$	42,716
Property and equipment		1,745
Goodwill		113,589
Identifiable intangible assets		39,840
Other assets		166
Total assets acquired		198,056
Current liabilities		26,639
Deferred income taxes		11,903
Other long-term liabilities		5,482
Total liabilities assumed		44,024
Total purchase price		154,032
Less cash acquired		2,184
Total purchase price, net of cash acquired	$	151,848

Separately identifiable intangible assets are considered to be Level 3 fair value measurements and were valued by a third party valuation specialist. Intangible assets comprised of customer relationships for $26.4 million and a trade name for $13.5 million were valued using a discounted cash flow method and a relief from royalty method, respectively. The stock consideration was valued at the estimated fair value per share using other stock based transactions and the actively traded share price around the time prior to and immediately after the Closing Date for the Business Combination, as discounted by approximately 20% for a lack of marketability discount. Goodwill is not deductible for tax purposes.

The following unaudited pro forma financial information for the years ended December 31, 2015 and 2014, assumes the Business Combination occurred on January 1, 2014, after giving effect to certain adjustments for amortization, interest, and transaction-related expenses and income tax effects. There was also an adjustment to reverse the impairment charges taken on goodwill and other intangibles during these periods. The pro forma information is presented for illustrative purposes only and is not indicative of what actual results would have been if the acquisition had taken place on January 1, 2014, or of future results. The table below summarizes pro forma results for the years ended December 31, 2015 and 2014, (in thousands, except for per share information):

	(unaudited)
	2015		2014
Contract revenue	$	193,645	$	209,727
Operating income		3,134		(680)
Net loss		(3,134)		(5,414)
Net loss per share, basic and diluted		(0.19)		(0.34)

The pro forma adjustments increased amortization and interest expense by $5.0 million and $7.2 million, respectively, reversed transaction-related expenses of $1.4 million, reversed goodwill and other intangible asset impairment charges of $3.0 million, and decreased the income tax benefit by $1.1 million for the year ended December 31, 2015.

The pro forma adjustments increased amortization and interest expense by $6.7 million and $8.4 million, respectively, increased transaction-related expenses of $0.6 million for solely the buyer related costs, reversed goodwill and other intangible asset impairment charges of $7.0 million, and increased the income tax benefit by $3.5 million for the year ended December 31, 2014.

There were no adjustments made to purchase price allocation during the year ended December 31, 2016.