Business Acquisition

6 Months Ended

Jun. 30, 2020

Business Acquisitions

We include the results of operations of acquired businesses beginning on the respective acquisition dates. The purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values, with the excess recorded as goodwill. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed on the acquisition date. Acquisition-related costs are expensed as incurred.

Collateral Analytics Acquisition

On March 3, 2020, we completed the acquisition of Collateral Analytics, LLC ("Collateral Analytics"), a provider of real estate products and tools to support appraisers, appraisal management companies, lenders, investors and government agencies. Collateral Analytics is reported within our Data and Analytics segment because it enhances our real estate solutions and automated valuation model offerings. This acquisition does not meet the definition of "significant" pursuant to Article 3 of Regulation S-X (§210.3-05). The results of operations of Collateral Analytics are not material to our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

Allocation of purchase price

The purchase price of the Collateral Analytics acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The fair value of the acquired Computer software and Other intangible assets was primarily determined using a third-party valuation based on significant estimates and assumptions, including Level 3 inputs, which are judgmental in nature. These estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting the risk inherent in the future cash flows and future market prices. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Computer software, Other intangible assets, Goodwill and contingent consideration.

Total consideration, net of cash received, was $51.0 million for 100% of the equity interests in Collateral Analytics. The total consideration was as follows (in millions):



Cash paid	$	54.1
Contingent consideration	0.6
Less: cash acquired	(3.7		)
Total consideration, net	$	51.0

The following table summarizes the total purchase price consideration and the fair value amounts recognized for the assets acquired and liabilities assumed, and includes measurement period adjustments recorded during the three months ended June 30, 2020 (in millions):



Total purchase price consideration	$	51.0

Computer software	$	6.4
Other intangible assets	17.9
Goodwill	25.3
Other current and non-current assets	4.1
Total assets acquired	53.7
Total liabilities assumed	2.7
Net assets acquired	$	51.0

The purchase agreement requires us to pay additional cash consideration based on EBITDA over a three-year period beginning April 1, 2020. In accordance with ASC Topic 805, Business Combinations, we will recognize the majority of this consideration as compensation cost over the three-year period due to an ongoing employment requirement.

Estimated Useful Lives of Computer Software and Other Intangible Assets Acquired

As of the acquisition date, the gross carrying value and weighted average estimated useful lives of Computer software and Other intangible assets acquired consisted of the following (dollars in millions):



	Gross carrying value		Weighted average estimated life (in years)
Computer software	$	6.4	5
Other intangible assets:
Client relationships	16.7		10
Trade names	0.3		3
Non-compete agreements	0.9		3
Other intangible assets	17.9
Total gross carrying value	$	24.3

Optimal Blue Pending Acquisition

On July 26, 2020, we entered into a definitive equity purchase agreement with affiliates of private equity firm GTCR, LLC, to purchase Optimal Blue, LLC ("Optimal Blue"), a leading provider of secondary market solutions and actionable data services, for an enterprise value of $1.8 billion, subject to customary purchase price adjustments.

In connection with this acquisition, we will combine our Compass Analytics business with Optimal Blue in a newly formed entity with minority co-investors Cannae Holdings, Inc. (“Cannae”) and affiliates of Thomas H. Lee Partners, L.P. (“THL”). On July 26, 2020, we also entered into forward purchase agreements with an affiliate of Cannae and affiliates of THL (collectively, the "FPAs") pursuant to which each of Cannae and THL committed to purchase approximately 20% of the equity interests (approximately 40% in the aggregate) in the to-be-formed new subsidiary of Black Knight for a purchase price of $290 million ($580 million in the aggregate). We expect to fund the acquisition with cash on hand, including the proceeds from the FPAs, and debt financing. The acquisition is expected to close in the third quarter of 2020. We will own approximately 60% of the new entity.

Three years after the closing of this pending acquisition, we will have call rights on THL's and Cannae’s interests in the newly formed entity. In addition, THL and Cannae will have the right to put their respective interests in the newly formed entity to (i) the newly formed entity if there is a change of control of Black Knight or (ii) the newly formed entity or Black Knight three years after the closing of this pending acquisition. We will have the option to satisfy the purchase price in connection with the exercise of any put or call right either in cash or Black Knight common stock other than a put in connection with a change of control of Black Knight, in which case the purchase price is payable only in cash.