Business Combinations

12 Months Ended

Dec. 31, 2020

On February 5, 2020, the Company completed its acquisition of Big Switch Networks, Inc. (“Big Switch”), a network monitoring and software-defined networking pioneer headquartered in Santa Clara, California. With the acquisition of Big Switch, we expect to expand our data center networking solutions and further strengthen our network monitoring and observability suite delivered through Arista’s software platform CloudVision and DANZ (DataANalyZer) capabilities.

We paid an aggregate of $73.3 million in cash for the acquisition of Big Switch, of which $5.3 million was severance and other costs accounted for as a post-combination expense and excluded from the purchase

consideration. We also incurred certain acquisition-related expenses and restructuring costs of $6.6 million, which primarily consisted of retention bonuses to continuing employees, professional and consulting fees, and facilities restructuring costs.

On October 7, 2020, the Company completed its acquisition of Awake Security, Inc. (“Awake Security”), a network detection and response (“NDR”) platform provider headquartered in Santa Clara, California. With the acquisition of Awake Security, we added an NDR platform to our product portfolio that combines artificial intelligence (AI) with human expertise to autonomously hunt for and respond to insider and external threats.

The Company acquired all outstanding shares of Awake Security for a total purchase consideration of $180.5 million with cash. The acquisition-related costs were immaterial.

Certain unvested stock options held by Awake Security employees were assumed by the Company in connection with the acquisition. The portion of the fair value of the assumed stock options associated with pre-acquisition service of Awake employees was immaterial. The fair value of $21.3 million of the unvested replacement options was excluded from the purchase price. These awards, which are subject to the recipients’ continued service with the Company, will be recognized ratably as stock-based compensation expense over the requisite service period.

Both acquisitions were accounted for as a business combination with the aggregate purchase price allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The Company prepared an initial assessment of the fair value of the assets acquired and liabilities assumed as of the acquisition date using preliminary information. Accordingly, the preliminary values reflected in the table below are subject to potential measurement period adjustments. The fair value is as follows (in thousands):


	Preliminary Purchase Price Allocation
Cash and cash equivalents	$	21,051
Other tangible assets	19,580
Liabilities	(28,598)
Intangible assets	101,640
Goodwill	134,841
Net assets acquired	$	248,514

The acquired intangible assets are amortized on a straight-line basis over their estimated useful lives, as we believe this method most closely reflects the pattern in which the economic benefits of the assets will be consumed. The following table shows the valuation of the intangible assets acquired (in thousands) along with their weighted average estimated useful lives:

Acquisition Date Fair Value

Weighted Average Estimated Useful Life

Developed technology

72,220

7 years

Customer relationships

18,840

7 years

Trade name

6,520

5 years

Others

4,060

2 years

Total intangible assets acquired

101,640

The goodwill of $134.8 million is primarily attributable to the expected synergies created by incorporating the solutions of the acquired businesses into our technology platform, and the value of the

assembled workforce. The goodwill is not deductible for income taxes purposes. The Company’s consolidated financial statements include the accounts of Big Switch and Awake Security starting as of the acquisition date. Pro forma and historical post-acquisition results of operations for these acquisitions were not material to the Company’s consolidated financial statements.