Note 4. Business Combination (Successor)

Business Combination

On February 19, 2019, the Company consummated the business combination, pursuant to which it acquired each of Bonfire, CityBase, eCivis, Open Counter, Questica, and Sherpa. In connection with the closing of the business combination (the “Closing”), pursuant to the merger agreement between the Company, GTY Cayman, and GTY Technology Merger Sub, Inc. (“GTY Merger Sub”), merged with and into GTY Cayman, with GTY Cayman surviving the merger as a direct, wholly-owned subsidiary of the Company, and in connection therewith the Company changed its name from GTY Govtech, Inc. to GTY Technology Holdings Inc. This acquisition qualifies as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with any excess recognized as goodwill.

Bonfire Acquisition

Under the Bonfire Agreement, at Closing, the Company acquired Bonfire for aggregate consideration of approximately $48.0 million in cash and 2,156,014 shares of Company common stock (valued at $10.00 per share) and 2,161,741 shares of Bonfire Exchangeco, each of which is exchangeable for shares of Company common stock on a one-for-one basis at any time of the holder’s choosing. Of the shares issued to Bonfire Holders, 2,008,283 shares of Company common stock and 2,093,612 exchangeable shares in the capital stock of Bonfire Exchangeco (the “Bonfire Exchangco Shares”) were subject to transfer restrictions for one year following the business combination. In addition, approximately $3.1 million in cash and 690,000 shares of Company common stock were deposited into escrow for a period of up to one year to cover certain indemnification obligations of the Bonfire Holders.

Additionally, in accordance with the Bonfire Agreement, 1,218,937 unvested options to purchase shares of Bonfire common stock were converted into 408,667 options to purchase shares of Company common stock.

For the year ended December 31, 2019, 193,645 shares of the Bonfire Exchangeco Shares were converted into the Company’s common stock on a one-for-one basis. The Bonfire Exchangeco Shares were subject to the transfer restrictions described above, and the common stock issued for these shares were subject to the same transfer restrictions, discussed above.

For the year ended December 31, 2019, the Company recorded a measurement period adjustment for the decrease in aggregate consideration of $0.1 million relating to the settlement of the working capital adjustment in accordance with the Bonfire Agreement.

CityBase Acquisition

Under the CityBase Agreement, at Closing, the Company acquired CityBase for aggregate consideration of approximately $62.2 million in cash and 3,155,961 shares of Company common stock (valued at $10.00 per share). Each CityBase Holder may elect to have their shares subject to transfer restrictions for up to one year or to have their shares subject to redemption at the Company’s option for a promissory note in an amount equal to $10.00 per share redeemed, which note would bear interest at a rate of 8% per annum in the first year after issuance and 10.0% per annum thereafter (subject to an increase of 1% for each additional 6 months that has elapsed without full payment of such note(s)) (which option was not exercised and expired on the 90th day after the Closing). Prior to the consummation of the business combination, certain of the CityBase Holders agreed to purchase 380,937 Class A Ordinary Shares of GTY Cayman with the proceeds they would have otherwise received from the closing of the CityBase Transaction, which resulted in an approximate $3.8 million reduction to the amount of cash payable to the CityBase Holders. In addition, approximately $2.1 million in cash and 1,000,000 shares of Company common stock were deposited into escrow for a period of up to one year to cover certain indemnification obligations of the CityBase Holders.

For the year ended December 31, 2019, the Company recorded measurement period adjustments for (i) the increase in the aggregate consideration of $0.2 million relating to the settlement of the working capital adjustment in accordance with the CityBase Agreement, and (ii) the conversion of $0.04 million of stock consideration to cash consideration for the correction of an investor’s status to a non-accredited investor.

eCivis Acquisition

Under the eCivis Agreement and the eCivis Letter Agreement, at Closing, the Company acquired eCivis for aggregate consideration of approximately $14.0 million in cash and 2,883,433 shares of Company common stock (valued at $10.00 per share) (including 525,060 shares of Company common stock which are redeemable for cash at any time in the sole discretion of the Company for a price of $10.00 per share). The shares not subject to a redemption right were subject to transfer restrictions for one year. In addition, approximately $3.6 million in cash and 242,200 shares of Company common stock were deposited into escrow for a period of up to one year to cover certain indemnification obligations of the eCivis Holders.

For the year ended December 31, 2019, the Company recorded a measurement period adjustment for the increase in aggregate consideration of $0.5 million relating to the settlement of the working capital adjustment in accordance with the eCivis Agreement and the eCivis Letter Agreement.

Open Counter Acquisition

Under the Open Counter Agreement and the Open Counter Letter Agreement, at Closing, the Company acquired Open Counter for aggregate consideration of approximately $9.7 million in cash and 1,580,990 shares of Company common stock (valued at $10.00 per share) that were issued to the holders of Open Counter capital stock (the “Open Counter Holders”) (including 100,000 shares of Company common stock which have subsequently been redeemed for a promissory note at the sole discretion of the Company within seven days of the Closing (the “OC Redeemable Shares”). Such promissory note would bear interest at a rate of 8% per annum in the first year after issuance and 10.0% per annum thereafter (subject to an increase of 1% for each additional 6 months that has elapsed without full payment of such note(s))). The shares that were not subject to a redemption right are subject to transfer restrictions for one year. In addition, approximately $1.3 million in cash and 164,554 shares of Company common stock were deposited into escrow for a period of one year to cover certain indemnification obligations of the Open Counter Holders.

Questica Acquisition

Under the Questica Agreement and the Questica Letter Agreement, at Closing, the Company indirectly acquired Questica for aggregate consideration of approximately $44.4 million in cash and an aggregate of 2,600,000 Class A exchangeable shares in the capital stock of Questica Exchangeco, which is exchangeable into shares of the Company’s common stock, and 1,000,000 Class B shares in the capital stock of Questica Exchangeco, which is not exchangeable into shares of Company common stock, that were issued to the holders of Questica capital stock (the “Questica Holders”). In accordance with the Questica Shareholder Agreement, dated as of February 12, 2019, by and among the Company and certain Questica Holders (the “Questica Shareholder Agreement”), 500,000 Class C exchangeable shares in the capital stock of Questica Exchangeco had been redeemable at the sole discretion of the Company at any time for $5.0 million plus all accrued and unpaid dividends, and may be exchanged for shares of Company common stock beginning on the sixty-first day following the Closing for a number of shares of Company common stock equal to $5.0 million plus accrued and unpaid dividends divided by the lesser of (i) $10.00 or (ii) the 5‑day volume weighted average price (“VWAP”) at the time of exchange. In June 2019, these shares were redeemed for 500,000 shares of the Company common stock at the market price of $7.72, or $3.9 million, and transferred to permanent equity, and $1.3 million of cash. The incremental $0.2 million above the stated redemption price was recorded as a deemed dividend in the accompanying condensed consolidated financial statements. The Class A exchangeable shares in the capital stock of Questica Exchangeco were subject to transfer restrictions for one year. In addition, approximately $0.1 million in cash and 800,000 of the exchangeable shares described above were deposited into escrow for a period of one year to cover certain indemnification obligations of the Questica Holders.

Sherpa Acquisition

Under the Sherpa Agreement and the Sherpa Letter Agreement, at Closing, the Company indirectly acquired Sherpa for aggregate consideration of approximately $4.2 million in cash and 100,000 shares of Company common stock (valued at $10.00 per share) all of which are redeemable for a promissory note bearing interest equal to 5.5% per annum in the first year subsequent to issuance and 8.0% per annum thereafter at the sole discretion of the Company within seven days of the Closing. In addition, approximately $0.9 million in cash was deposited into escrow for a period of one year to cover certain indemnification obligations of the Sherpa Holders.

The following is a summary of the initial consideration paid and issued to each Acquired Company (in thousands):


																Deferred
	Cash		Stock			Contingent				Adjusted						Tax
	Consideration		Consideration			Consideration		Total		Net Assets		Goodwill		Intangibles		Liability
Bonfire	$	51,068	$	50,078	(1)	$	325	$	101,471	$	3,639	$	81,964	$	22,668	$	6,800
CityBase		64,261		41,560			48,410		154,231		782		119,741		48,155		14,447
eCivis		17,592		31,256			5,859		54,707		(1,788)		47,397		12,997		3,899
Open Counter		10,958		17,455			—		28,413		(1,441)		22,524		10,471		3,141
Questica		44,494		31,000	(2)		9,311		84,805		3,652		57,479		33,821		10,147
Sherpa		5,105		1,000			1,898		8,003		1,066		3,497		4,914		1,474
Total	$	193,478	$	172,349		$	65,803	$	431,630	$	5,910	$	332,602	$	133,026	$	39,908

(1)

Includes $21.6 million of convertible stock consideration

(2)

Includes $31.0 million of convertible stock consideration

During the year ended December 31, 2019, the Company made the Measurement Period Adjustments that resulted in (i) an increase in the aggregate consideration of the Acquisition of $0.4 million relating to the settlement of the working capital adjustments, (ii) the conversion of $0.04 million of stock consideration to cash consideration for the correction of an investor’s status to a non-accredited investor, and (iii) a decrease in intangible assets $4.4 million, (iv) a decrease in contingent consideration as a result of the Acquisition of $7.5 million and (v) a decrease in the related deferred tax liability of $11.0 million due to updated information regarding facts and circumstances which existed as of the date of the business combination. The Measurement Period Adjustments resulted in a net decrease to goodwill of $13.8 million.

The following table is a summary of the measurement period adjustments to consideration paid and issued to each Acquired Company (in thousands):


															Deferred
	Cash		Stock		Contingent				Adjusted						Tax
	Consideration		Consideration		Consideration		Total		Net Assets		Goodwill		Intangibles		Liability
Bonfire	$	(97)	$	—	$	—	$	(97)	$	—	$	(299)	$	202	$	—
CityBase		246		(42)		(7,535)		(7,331)		—		(13,384)		(2,241)		(8,294)
eCivis		481		—		—		481		—		990		(1,071)		(562)
Open Counter		—		—		—		—		—		(568)		(139)		(707)
Questica		—		—		—		—		—		492		(492)		—
Sherpa		(214)		—		—		(214)		—		(1,000)		(688)		(1,474)
Total	$	416	$	(42)	$	(7,535)	$	(7,161)	$	—	$	(13,769)	$	(4,429)	$	(11,037)

The following table is a summary of the final consideration paid and issued to each Acquired Company including the Measurement Period Adjustments (in thousands):


																Deferred
	Cash		Stock			Contingent				Adjusted						Tax
	Consideration		Consideration			Consideration		Total		Net Assets		Goodwill		Intangibles		Liability
Bonfire	$	50,971	$	50,078	(1)	$	325	$	101,374	$	3,639	$	81,665	$	22,870	$	6,800
CityBase		64,507		41,518			40,875		146,900		782		106,357		45,914		6,153
eCivis		18,073		31,256			5,859		55,188		(1,788)		48,387		11,926		3,337
Open Counter		10,958		17,455			—		28,413		(1,441)		21,956		10,332		2,434
Questica		44,494		31,000	(2)		9,311		84,805		3,652		57,971		33,329		10,147
Sherpa		4,891		1,000			1,898		7,789		1,066		2,497		4,226		—
Total	$	193,894	$	172,307		$	58,268	$	424,469	$	5,910	$	318,833	$	128,597	$	28,871

(1)

Includes $21.6 million of convertible stock consideration

(2)

Includes $31.0 million of convertible stock consideration

The following table represents the final allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values, including the Measurement Period Adjustments discussed above (in thousands):


	Bonfire		CityBase		eCivis		Open Counter		Questica		Sherpa		Total
Cash	$	4,641	$	2,191	$	136	$	107	$	6,762	$	632	$	14,469
Accounts receivable, net		323		1,018		720		46		1,257		587		3,951
Prepaid expense and other current assets		607		170		340		—		77		33		1,227
Fixed assets		118		500		56		29		182		2		887
Loan receivable - related party		—		175		—		—		—		—		175
Right of use assets		1,315		—		901		—		296		—		2,512
Other assets		369		783		30		—		1,061		—		2,243
Intangible assets		22,870		45,914		11,926		10,332		33,329		4,226		128,597
Goodwill		81,665		106,357		48,387		21,956		57,971		2,497		318,833
Accounts payable and accrued expenses		(1,085)		(1,192)		(586)		(124)		(909)		(188)		(4,084)
Contract liabilities		(1,221)		(816)		(1,635)		(483)		(2,774)		—		(6,929)
Lease liability - short term		(366)		—		—		—		(296)		—		(662)
Deferred tax liability		(6,800)		(6,153)		(3,337)		(2,434)		(10,147)		—		(28,871)
Other current liabilities		—		—		(3)		(491)		(767)		—		(1,261)
Capital lease obligations - current portion		—		(139)		—		—		—		—		(139)
Contract and other long-term liabilities		(60)		(1,646)		(56)		—		—		—		(1,762)
Capital lease obligation, less current portion		—		(262)		—		—		—		—		(262)
Long term debt		—		—		—		(525)		—		—		(525)
Lease liability - long term		(1,002)		—		(901)		—		—		—		(1,903)
Contingent consideration - pre-existing		—		—		(790)		—		(1,237)		—		(2,027)
Total consideration	$	101,374	$	146,900	$	55,188	$	28,413	$	84,805	$	7,789	$	424,469

Transaction Costs

Transaction costs incurred by the Company associated with the Acquisition were $37.0 million from February 19, 2019 through December 31, 2019.