Business Combination

12 Months Ended

Dec. 31, 2015

Business Combination

Business Combination

5. Business Combinations

Healthcare Performance Improvement, LLC

On September 1, 2015, the Company acquired all of the membership interests of Healthcare Performance Improvement, LLC (“HPI”). HPI provides patient safety and high reliability consulting and coaching services. The acquisition brings the critical dimension of safety to the Company’s ability to help its clients reduce patient suffering. The purchase price for HPI’s membership interests was $13.0 million before post-closing adjustments for working capital. Based on estimated working capital, the amount paid at closing on September 1, 2015 was $11.7 million, net of cash acquired. Closing adjustments for working capital were agreed upon, resulting in additional cash payment of $426,000 in the fourth quarter of 2015, bringing the final purchase price to $12.1 million, net of cash acquired.

The acquisition was accounted for under the purchase method of accounting and the total purchase price was allocated to the net tangible and identifiable intangible assets based on their estimated fair values (based on Level 3 measurements) as of September 1, 2015. The excess purchase price over the net tangible and intangible assets was recorded to goodwill. The goodwill balance is primarily attributed to assembled workforce and is expected to be deductible for tax purposes.

The following table summarizes the allocation of the fair value of the acquisition which was finalized during the year ended December 31, 2015:

Current assets	$	2,213
Property and equipment		23
Goodwill		8,269
Intangible assets:
Trade name		280
Customer relationships		2,320
Other		1,090
Total assets acquired		14,195
Liabilities assumed:
Deferred revenue		1,753
Other current liabilities		296
Net assets acquired	$	12,146

Transaction expenses of $346,000 relating to the purchase are included in general and administrative expenses for the year ended December 31, 2015.

National Database of Nursing Quality Indicators

On June 10, 2014, the Company acquired all of the assets of The National Database of Nursing Quality Indicators (NDNQI) from the American Nurses Association, Inc. in exchange for cash of $24.9 million. NDNQI is the leading quality improvement and nurse engagement tool developed by the American Nurses Association and managed by The University of Kansas School of Nursing. The acquisition strengthens the Company’s ability to empower nurses and nursing leaders in their mission to reduce patient suffering and improve the patient experience.

The acquisition was accounted for under the purchase method of accounting and the total purchase price was allocated to the net tangible and identifiable intangible assets based on their fair values (based on Level 3 measurements) as of June 10, 2014. The excess purchase price over the net tangible and identifiable intangible assets was recorded to goodwill. The goodwill balance is primarily attributed to expanded market opportunities and is expected to be deductible for tax purposes. The assumed liabilities include deferred revenue, which was adjusted down from a book value at the acquisition date of $6.5 million to an estimated fair value of $6.2 million. The $300,000 write‑down of deferred revenue resulted in lower revenues than would have otherwise been recognized for such services.

The following table summarizes the allocation of the fair value of the acquisition:

Current assets	$	478
Software		1,186
Goodwill		14,647
Intangibles:
Trade name		300
Customer relationships		2,800
Proprietary technology		11,800
Total assets acquired		31,211
Liabilities assumed:
Deferred revenue		6,180
Other current liabilities		181
Net assets acquired	$	24,850

Transaction expenses of $246,000 relating to the purchase are included in general and administrative expenses in 2014.

Dynamic Clinical Systems, Inc.

On April 24, 2014, the Company acquired all of Dynamic Clinical Systems, Inc.’s capital stock in exchange for cash of $3.3 million. Dynamic Clinical Systems, Inc. provides patient‑reported outcomes services and solutions. The acquisition provides the Company with an expanded portfolio for healthcare organizations with the ability to collect, measure and analyze patient‑reported data.

The acquisition was accounted for under the purchase method of accounting and the total purchase price was allocated to the net tangible and identifiable intangible assets based on their estimated fair values (based on Level 3 measurements) as of April 24, 2014. The excess purchase price over the net tangible and identifiable intangible assets was recorded to goodwill. The goodwill balance is primarily attributed to assembled workforce and is expected to be deductible for tax purposes. This acquisition has an earnout feature for which no value has been recorded due to the remote probability of the performance targets being achieved.

The following table summarizes the allocation of the fair value of the acquisition:

Current assets	$	186
Goodwill		2,162
Intangibles:
Trade name		100
Customer relationships		1,200
Proprietary technology		380
Other		160
Total assets acquired		4,188
Liabilities assumed:
Deferred revenue		210
Other current liabilities		302
Deferred income tax liability		358
Net assets acquired	$	3,318

Transaction expenses of $118,000 relating to the purchase are included in general and administrative expenses in 2014.

On The Spot Systems, Inc.

On December 30, 2013, the Company acquired all of On The Spot Systems, Inc. (OTSS)’s capital stock in exchange for cash of $2.8 million. OTSS is a point‑of‑care survey technology firm that enables organizations to capture real‑time patient feedback. The acquisition expands the Company’s portfolio of products by adding point‑of‑care surveying to existing modes of mail, phones, and eSurvey.

The acquisition was accounted for under the purchase method of accounting and the total purchase price was allocated to the net tangible and identifiable intangible assets based on their fair values (based on Level 3 measurements) as of December 30, 2013. The excess purchase price over the net tangible and identifiable intangible assets was recorded to goodwill. The goodwill balance is primarily attributed to assembled workforce and expanded market opportunities. Goodwill is not expected to be deductible for tax purposes.

The following table summarizes the allocation of the fair value of the acquisition:

Current assets	$	39
Deferred income tax asset		34
Goodwill		1,763
Proprietary technology intangible asset		1,000
Total assets acquired		2,836
Liabilities assumed:
Deferred revenue		13
Other current liabilities		10
Net assets acquired	$	2,813

Transaction expenses of $37,000 and $55,000 relating to the purchase are included in general and administrative expenses in 2014 and 2013, respectively.

For the acquisitions noted above, the Company used the purchase method of accounting and the results of operations of these entities have been included in the consolidated financial statements since their respective acquisition dates. Additionally, none of these acquisitions are considered material to the Company and, therefore, pro‑forma information has not been presented.