Note 5 - Business Combinations

12 Months Ended

Jan. 31, 2023

Notes to Financial Statements

Business Combination Disclosure [Text Block]

(5) Business Combinations

(a) Software Luxembourg Holdings S.A. (“Predecessor (SLH)” or “Skillsoft Legacy”)

On June 11, 2021, Software Luxembourg Holding S.A. merged with and into Churchill Capital Corp II (Churchill) which subsequently changed its name to Skillsoft Corp.

The Skillsoft Merger was considered a business combination under ASC 805, Business Combinations and will be accounted for using the acquisition method of accounting, whereby Churchill was determined to be the accounting acquirer based on their rights to nominate six members of the initial Board of Directors, the size of their voting interest and their rights to appoint the Chief Executive Officer of Skillsoft Corp. and other members of management of the combined company prior to closing.

Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.

The following summarizes the purchase consideration (in thousands):

Description	Amount
Class A common stock issued	$	258,000
Class B common stock issued *		48,375
Cash payments		505,000
Second Out Term Loan		20,000
Cash settlement of seller transaction costs		1,308
Total purchase price	$	832,683

* Shares of Class B common stock was converted into Successor Class A common stock at the time of the Merger.

The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):

	Preliminary Purchase						Final Purchase
Description	Price Allocation			Adjustments (1)(2)			Price Allocation
Cash, cash equivalents and restricted cash	$	120,273		$	—		$	120,273
Current assets		118,847			706			119,553
Property and equipment		10,825			1,632			12,457
Intangible assets		769,799			(4,701	)		765,098
Long term assets		18,629			—			18,629
Total assets acquired		1,038,373			(2,363	)		1,036,010
Current liabilities		(49,056	)		(350	)		(49,406	)
Debt, including accounts receivable facility		(552,977	)		—			(552,977	)
Deferred revenue		(123,300	)		(114,047	)		(237,347	)
Deferred and other tax liabilities		(99,699	)		15,920			(83,779	)
Long term liabilities		(18,325	)		1			(18,324	)
Total liabilities assumed		(843,357	)		(98,476	)		(941,833	)
Net assets acquired		195,016			(100,839	)		94,177
Goodwill		637,667			100,839			738,506
Total purchase price	$	832,683		$	—		$	832,683

(1) The increase in deferred revenue (and the corresponding increase to Goodwill by the same amount) is the result of the adoption of ASU 2021‑08 in the quarter ended October 31, 2021.

(2) All other changes represent measurement period adjustments attributable to the Company’s review of inputs and assumptions utilized in valuation models and additional information being obtained on preacquisition liabilities. The measurement period adjustments did not have a significant impact on the Company’s results of operations in prior periods.

The final values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):

Description	Amount		Life (in years)
Trademark/tradename – Skillsoft	$	84,700	indefinite
Trademark/tradename – SumTotal		5,800		9.6
Courseware		186,600		5
Proprietary delivery and development software		114,598		2.5 - 7.6
Publishing Rights		41,100		5
Customer relationships		271,400		12.6
Backlog		60,900		4.6
Total	$	765,098

Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and backlog were valued using the income approach. The trade names were valued using the relief from royalty method. The content and software were valued using the replacement cost approach.

Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of the Predecessor (SLH) resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes.

The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and, in the case of goodwill and indefinite-lived intangible assets, at least annually.

The Company incurred $9.8 million in acquisition-related costs, which primarily consisted of transaction fees and legal, accounting and other professional services. Approximately $4.3 million was reported in the period from February 1, 2021 through June 11, 2021 (Predecessor (SLH)) and $5.5 million was reported in the period from June 12, 2021 through January 31, 2022 (Successor). These costs are included in the "acquisition-related and recapitalization costs" in the accompanying consolidated statement of operations.

(b) Albert DE Holdings, Inc. (“GK”)

On June 11, 2021, GK and its subsidiaries were acquired by Skillsoft, in conjunction with, and just subsequent to, its merger with Churchill Capital Corp II (then becoming merged Company).

The acquisition was accounted for as a business combination under ASC805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.

The following summarized the purchase consideration (in thousands):

Description	Amount
Cash consideration	$	170,199
Warrants issued		14,000
Additional Term Loans issued		70,000
Cash settlement of seller transaction costs		4,251
Total purchase price	$	258,450

The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):

	Preliminary Purchase						Final Purchase
Description	Price Allocation			Adjustments (1)(2)			Price Allocation
Cash, cash equivalents	$	17,524		$	(100	)	$	17,424
Current assets		47,849			(2,442	)		45,407
Property and equipment		5,531			1,625			7,156
Intangible assets		185,800			—			185,800
Long term assets		12,401			(3,325	)		9,076
Total assets acquired		269,105			(4,242	)		264,863
Current liabilities		(74,463	)		10,910			(63,553	)
Deferred revenue		(23,018	)		(8,191	)		(31,209	)
Deferred and other tax liabilities		(16,934	)		(6,162	)		(23,096	)
Long term liabilities		(4,248	)		2,168			(2,080	)
Total liabilities assumed		(118,663	)		(1,275	)		(119,938	)
Net assets acquired		150,442			(5,517	)		144,925
Goodwill		108,008			5,517			113,525
Total purchase price	$	258,450		$	—		$	258,450

(1) The increase in deferred revenue (and the corresponding increase to Goodwill by the same amount) is the result of the adoption of ASU 2021‑08 in the quarter ended October 31, 2021.

(2) All other changes represent measurement period adjustments attributable to the Company’s review of inputs and assumptions utilized in valuation models and additional information being obtained on preacquisition liabilities. The measurement period adjustments did not have a significant impact on the Company’s results of operations in prior periods.

The final values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):

Description	Amount		Life (in years)
Trademark/tradename	$	25,400		17.6
Courseware		1,500		3
Proprietary delivery and development software		2,500		0.6
Vendor relationships		43,900		2.6
Customer relationships		112,700		10.6
Total	$	186,000

Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and vendor relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach.

Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of GK resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes.

The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.

For the year ended January 31, 2022, the Company incurred $1.0 million in acquisition-related costs, which primarily consisted of transaction fees and legal, accounting and other professional services, substantially all of which were reported in the period from June 12, 2021 through January 31, 2022 (Successor). During the fiscal year ended January 31, 2023 (Successor) the Company incurred an additional $3.0 million in acquisition-related costs in relation to GK integration. These costs are included in the "acquisition-related and recapitalization costs" in the accompanying consolidated statement of operations.

(c) Ryzac, Inc. (“Codecademy”)

On April 4, 2022, the Company acquired Ryzac, Inc (“Codecademy”). Codecademy is a learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity.

The acquisition was accounted for as a business combination under ASC 805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.

The following summarizes the purchase consideration (in thousands):

Description	Amount
Cash payments	$	202,119
Class A common stock issued		182,550
Cash settlement of seller transaction costs and other		1,315
Total purchase price	$	385,984

The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):

	Preliminary Purchase						Final Purchase
Description	Price Allocation			Adjustments			Price Allocation
Cash, cash equivalents and restricted cash	$	4,262		$	(209	)	$	4,053
Current assets		3,671						3,671
Property and equipment		385						385
Intangible assets		112,000			7,000			119,000
Total assets acquired		120,318			6,791			127,109
Current liabilities		(4,290	)		(1,876	)		(6,166	)
Deferred revenue		(18,396	)					(18,396	)
Deferred tax liabilities		(21,615	)		(6	)		(21,621	)
Total liabilities assumed		(44,301	)		(1,882	)		(46,183	)
Net assets acquired		76,017			4,909			80,926
Goodwill		309,967			(4,909	)		305,058
Total purchase price	$	385,984		$	—		$	385,984

The final values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):

Description	Amount		Life (in years)
Tradename	$	44,000		13.8
Developed technology		43,000		5
Content		17,000		5
Customer relationships		15,000		5.8
Total	$	119,000

Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach.

Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of Codecademy resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The goodwill is not deductible for tax purposes.

The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.

In the fiscal year ended January 31, 2023 (Successor) the Company incurred $10.7 million in acquisition-related costs, which primarily consisted of transaction fees and legal, accounting, and other professional services. These costs are included in the "acquisition-related and recapitalization costs" in the accompanying consolidated statement of operations.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information below is presented in accordance with Regulation S-X, Article 11 to enhance comparability for all periods by including operating results for Skillsoft, Global Knowledge and Codecademy as if the mergers had closed on February 1, 2021 (in thousands):

	Unaudited Pro Forma
	Statement of Operations
	Twelve months ended January 31,
	2023			2022
Revenue	$	563,182		$	587,999
Net loss from continuing operations		(153,640	)		(129,774	)

The unaudited pro forma financial information does not assume any impacts from revenue, cost, or other operating synergies that could be generated as a result of the acquisition. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated on February 1, 2021. The pro forma include adjustments to reflect intangible asset amortization based on the economic values derived from definite-lived intangible assets and interest expense on the new debt financing. Other pro forma adjustments include the following:

● The adoption of ASU 2021‑08 is reflected for all Successor and Predecessor periods presented for comparability.

● Impairment of goodwill of $641 million has been excluded from the twelve months ended January 31, 2023.

● The pro forma results of operations exclude acquisition-related and recapitalization costs other than the transaction costs specific to the business combinations occurring in June 2021 and April 2022. These transaction costs are presented as if they occurred in February 2021.

Other Acquisitions

On June 30, 2021, the Company acquired Pluma, Inc., which the products and services subsequent to the acquisition are referred to as "Skillsoft Coaching". The acquisition enhances the Company’s leadership development offerings, adds a new modality to its blended learning model, and allows the Company to now offer a premium individualized coaching experience. Cash paid for Pluma in the Successor period was lower than the agreed upon purchase price of Pluma for $22 million due to a contractual holdback and working capital adjustment. The fair value of the net assets acquired included $17.8 million of goodwill and $8.7 million of identified intangible assets, which had a weighted average life of 7.4 years. The goodwill is not deductible for tax purposes. The business is reported as part of the Company’s Skillsoft reportable segment. Pro forma information and acquisition expenses have not been presented because such information is not material to the financial statements.