Acquisition of Tacit Knowledge Inc.

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

On May 29, 2021, the Company acquired 100% of the equity interest of the global consultancy company Tacit Knowledge Inc. (“Tacit”). Founded in 2002, Tacit is a global provider of digital commerce solutions, serving customers across the UK, North America, Continental Europe, and Asia. The acquisition of Tacit added approximately 180 employees to the Company's headcount. The acquisition will augment the Company's service offerings and will strengthen its competitive position within the market. Additionally, the acquisition will also enable the Company to leverage near-shore capabilities with Tacit’s presence in Mexico.

The total purchase consideration is $37.0 million and consists of cash consideration of $33.6 million paid at closing and fair value of the contingent consideration at the date of the acquisition of $3.4 million. The maximum amount of potential contingent cash consideration is $5.0 million. The contingent consideration is payable based on revenue and EBITDA metrics to be achieved by Tacit within 12 months. The Company recorded a liability for the contingent consideration amount based on the Company’s best estimate of the fair value of the expected payout.

The primary areas of the preliminary purchase price allocations that have not been finalized relate to the finalization of working capital, the valuation and useful lives of intangible assets, the valuation of the contingent consideration ("earn-out"), and the deferred tax liabilities. Upon completion of the fair value assessment, the Company anticipates that the ultimate intangible assets may differ from the preliminary assessment outlined above. Any change in the finalization of working capital will reduce or increase the cash consideration. Any changes to the preliminary estimates of the fair value of the and intangible assets or contingent consideration ("earn-out") will be adjusted to goodwill during the measurement period, with subsequent changes in estimates recorded in the Company’s Consolidated Statements of Loss and Comprehensive Loss.

The purchase price of Tacit has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of May 29, 2021 with the excess purchase price allocated to goodwill. The Company’s preliminary allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows (in thousands):


Fair market values
Current assets (including $2,967 of cash)	$	9,145
Property, plant and equipment	466
Customer relationships	11,737
Tradename	1,176
Goodwill	20,603
Total assets acquired	$	43,127

Accounts payable and accrued expenses	$	(3,675)
Deferred taxes	(2,500)
Total liabilities assumed	$	(6,175)
Purchase price allocation	$	36,952

The preliminary fair value of identifiable intangible assets as of the date of acquisition is as follows:

(In thousands)

Fair Value

Useful Life

Amortization
method

Customer relationships

11,737

12 years

Straight-line

Tacit tradename

1,176

4 years

Accelerated

Total identified intangible assets

12,913

As a result of the acquisition, the Company recognized a total of $20.6 million of goodwill. The purchase price was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above. Goodwill represents the value the Company expects to achieve through the implementation of operational synergies and growth opportunities as the Company expands its global reach. The goodwill is not deductible for income tax purposes.

The Company used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis, relief-from-royalty, and multi-period excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, the Company is required to make estimates and assumptions about sales, operating margins, growth and attrition rates, royalty rates and discount rates based on budgets, business projections, anticipated future cash flows, and marketplace data.

The acquisition of Tacit was accounted for using the acquisition method of accounting, and consequently, the results of operations for Tacit are reported in the consolidated financial statements from the date of acquisition. Tacit revenue was approximately $9.5 million and net income was approximately $1.7 million from the date of acquisition to September 30, 2021.

The following unaudited pro forma information presents the combined results of operations as if the acquisition of Tacit had occurred at the beginning of 2020. Tacit pre-acquisition results have been added to the Company’s historical results. The pro forma results contained in the table below include adjustment for amortization of acquired intangibles. Any potential cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results.

The 2021 pro forma results include transaction related expenses incurred by the Company prior to the acquisition of $0.6 million including items such as consultant fees and other deal costs.

These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor are they necessarily an indication of future operating results.


	Nine Months Ended September 30,
(Unaudited)	2021		2020
Revenue	$	152,775	$	92,462
Net loss	$	(2,304)	$	(8,156)
Diluted loss per share	$	(0.04)	$	(0.19)