Acquisition

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

Acquisition

2. Acquisition

On October 1, 2019, the Company's subsidiary, Inspired Gaming (UK) Limited, completed the acquisition of the Gaming Technology Group of Novomatic UK Ltd. pursuant to the Share Purchase Agreement, dated as of June 11, 2019 (the "SPA"), comprising: (i) all of the outstanding equity interests of each of (a) Astra Games Ltd, (b) Bell-Fruit Group Limited, (c) Gamestec Leisure Limited, (d) Harlequin Gaming Limited, and (e) Playnation Limited, and (ii) 60% of the outstanding equity interests of Innov8 Gaming Limited ("Innov8", and together with the entities described in clause (i) and certain of their subsidiaries, the "Acquired Businesses" and the transactions contemplated by the SPA, the "NTG Acquisition"). The consideration for the NTG Acquisition totaled approximately €107.0 million ($116.6 million) in cash, which was financed by the Senior Facilities Agreement discussed in Note 13.

Simultaneous with the closing of the NTG Acquisition, Inspired transferred a portion of the equity interests it had acquired in Innov8 to the then-minority equity holders of Innov8 in exchange for the renegotiation of certain funding commitments. As a result, Inspired currently holds approximately 40% of the outstanding equity interests of Innov8.

The NTG Acquisition is expected to add increased scale to our business, while supplementing key technologies and content within our existing portfolio.

The allocation of the purchase price is summarized as follows (in millions):

Purchase Price	£	94.7
Foreign exchange rate at October 1, 2019		1.23
Adjusted purchase price in US dollars	$	116.6
Allocated to:
Cash	$	8.4
Receivables		20.5
Inventories		14.6
Prepaid expenses and other		1.4
Property and equipment		49.3
Software development costs		7.1
Other assets		1.4
Accounts payable, accrued expenses and other current liabilities		(22.7	)
Income taxes payable		(1.9	)
Long-term debt		(0.1	)
Other long-term liabilities		(1.6	)
Net assets acquired		76.4
Excess of purchase price over net assets acquired before allocation to identifiable intangible assets and goodwill	$	40.2

The fair value of property and equipment was determined using the indirect cost approach which utilizes fixed asset record information including historical costs, acquisition dates, and asset descriptions and applying asset category specific nationally recognized indices to the historical cost of each asset to derive replacement cost new less depreciation. Management has also made the initial determination that all other assets and liabilities acquired are primarily estimated to be stated at their fair values, which approximates their recorded cost. Management has made an initial determination that approximately $8.1 million of the excess of the purchase price over the net assets acquired should be allocated to identifiable intangible assets. The unidentified excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill.

	Amount		Estimated Useful Life (Years)
Corporate trade names and domains	$	3.7	10
Customer contracts and relationships		4.4	10
Intangible Assets		8.1
Goodwill		32.1
	$	40.2

In accordance with ASC 805, identifiable intangible assets are required to be measured at fair value. The intangible assets identified were valued using the income approach, either through the discounted cash flow method, the relief from royalty method or the excess earnings method. Determining fair value requires significant judgment concerning the assumptions used in the valuation model, including discount rates, the amount and timing of expected future cash flows and growth rates, as well as expected royalty rates, which are based on the estimated rates at which similar assets are being licensed in the marketplace. The estimated weighted average useful life of the new intangible assets identified is 10 years.

Goodwill arising from the NTG Acquisition mainly consists of the synergies of an ongoing business. Goodwill and intangible assets are tested for impairment on an annual basis or sooner, if an event occurs or circumstances change that indicate that the carrying amount of the goodwill or intangible asset may not be recoverable. The Company incurred advisor fees, legal and other costs related to the NTG Acquisition of $6.7 million, which excludes the costs of refinance that have been deducted from the senior debt as debt issuance costs and which have been recognized in operating expenses in the accompanying consolidated statement of operations during the year ended December 31, 2019.

Asset valuations included in previous SEC filings were based on a preliminary assessment, which has since been updated to an actual assessment. As a result, certain asset valuations are now revised as follows; Software development costs $6.0 million to $7.1 million, Other assets $1.5 million to $1.4 million, Corporate trade names and domains $3.2 million to $3.7 million, Customer contracts and relationships $9.2 million to $4.4 million, Goodwill $28.8 million to $32.1 million.

Total revenues and loss from operations from October 1, 2019 (the acquisition date) through December 31, 2019 amounted to $31.0 million and $(0.4) million, respectively, and is included in the consolidated statements of operations and comprehensive income.

Pro Forma Information (Unaudited)

The following unaudited consolidated pro forma information gives effect to the transaction contemplated by the NTG Acquisition as if such transaction had occurred on January 1, 2018. The following pro forma information is presented for illustration purposes only and is not necessarily indicative of the results that would have been attained had the acquisition been completed on January 1, 2018, nor is it indicative of results that may occur in any future periods.

	Year Ended December 31, 2019			Year Ended December 31, 2018
	(in millions)
Revenues	$	265.2		$	274.3
Net operating loss	$	(5.8	)	$	(21.6	)
Net loss	$	(33.8	)	$	(39.9	)
Loss per share:
Basic and diluted	$	(1.54	)	$	(1.91	)
Weighted average shares outstanding:
Basic and diluted		21,892,964			20,859,407