Acquisitions (Tables)

9 Months Ended

Sep. 30, 2017

Schedule of aggregate purchase price for acquisitions

The following table summarizes the aggregate consideration paid or payable for these acquisitions (in thousands):



Aggregate consideration (1):	CEB		L2		Total
Cash paid at close (2), (3)	$	2,687,704	$	134,199	$	2,821,903
Additional cash paid (2)	12,465		—		12,465
Fair value of Gartner equity awards (4)	818,660		—		818,660
Total (5)	$	3,518,829	$	134,199	$	3,653,028


(1)	Includes the total consideration transferred for 100% of the outstanding capital stock of the acquired businesses.


(2)	The cash paid at close represents the gross contractual amount paid. The Company paid the additional $12.5 million in cash in third quarter 2017. Net of cash acquired from these businesses and for cash flow reporting purposes, the Company paid $2.63 billion in cash.


(3)	The Company borrowed a total of approximately $2.78 billion in conjunction with the CEB acquisition (see Note 7 — Debt for additional information).


(4)	Consists of the fair value of (i) Gartner common stock issued (see Note 8 — Equity for additional information) and (ii) stock-based compensation replacement awards.


(5)	The Company may also be required to pay up to an additional $20.8 million in cash for L2 which is contingent on the achievement of certain employment conditions by several key employees. This amount is being recognized as compensation expense over approximately three years.

Summary of the allocation of the purchase price to the fair value of the assets and liabilities assumed

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the acquisitions of L2 and CEB (in thousands):



	CEB (3)		L2 (4)		Total
Assets:
Cash	$	194,706	$	4,852	$	199,558
Fees receivable	175,440		8,277		183,717
Prepaid expenses and other current assets	52,032		1,167		53,199
Property, equipment and leasehold improvements	51,751		663		52,414
Goodwill (1)	2,267,087		109,779		2,376,866
Finite-lived intangible assets (2)	1,574,100		15,890		1,589,990
Other assets	182,720		12,321		195,041
Total assets	$	4,497,836	$	152,949	$	4,650,785
Liabilities:
Accounts payable and accrued liabilities	$	130,544	$	3,050	$	133,594
Deferred revenues (current)	246,472		13,200		259,672
Other liabilities	601,991		2,500		604,491
Total liabilities	$	979,007	$	18,750	$	997,757
Net assets acquired	$	3,518,829	$	134,199	$	3,653,028

(1)

The Company believes the goodwill resulting from the acquisitions is supportable based on anticipated synergies. For CEB, among the factors contributing to the anticipated synergies are a broader market presence, expanded product offerings and market opportunities, and an acceleration of CEB's growth by leveraging Gartner's global infrastructure and best practices in sales productivity and other areas. None of the recorded goodwill is expected to be deductible for tax purposes. See Note 6 — Goodwill and Intangible Assets for additional information.

(2)

All of the acquired intangible assets are finite-lived. The determination of the fair value of the finite-lived intangible assets required management judgment and the consideration of a number of factors. In determining the fair values, management primarily relied on income valuation methodologies, in particular discounted cash flow models. The use of discounted cash flow models required the use of estimates, significant among them projected cash flows related to the particular asset; the useful lives of the particular assets; the selection of royalty and discount rates used in the models; and certain published industry benchmark data. In establishing the estimated useful lives of the finite-lived intangible assets, the Company relied on both internally-generated data for similar assets as well as certain published industry benchmark data. We believe the values we have assigned to the finite-lived intangible assets are both reasonable and supportable. See Note 6 — Goodwill and Intangible Assets for additional information regarding the finite-lived intangible assets.

(3)

The Company's financial statements include the operating results of CEB beginning on April 5, 2017, the date of acquisition. CEB's operating results and the related goodwill are being reported as part of the Company's Research, Events, and Talent Assessment & Other segments. The Company recorded certain measurement period adjustments for the CEB preliminary purchase price allocation during the third quarter of 2017, primarily related to certain tenant improvement incentives, which increased Prepaid expenses and Other assets, with a reduction to goodwill.

Had the Company acquired CEB in prior periods, the impact to the Company's operating results would have been material, and as a result the following pro forma consolidated financial information (unaudited) is presented as if CEB had been acquired by the Company on January 1, 2016 (in thousands, except per share amounts):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Pro forma total revenue	$	891,003		$	756,083		$	2,664,450		$	2,233,942
Pro forma net (loss)	(7,283		)	(40,825		)	(71,122		)	(133,379		)
Pro forma basic and diluted (loss) per share	(0.08		)	(0.45		)	(0.79		)	(1.48		)

The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments:

(a) An increase in interest expense and amortization of debt issuance costs related to the financing of the CEB acquisition. Note 7 — Debt provides further information regarding the Company's borrowings related to the CEB acquisition;

(b) A decrease in revenue as a result of the required fair value adjustment to deferred revenue; and

(c) An adjustment for additional depreciation and amortization expense as a result of the preliminary purchase price allocation for finite-lived intangible assets and property, equipment, and leasehold improvements.

(4)

The Company's financial statements include the operating results of L2 beginning on March 9, 2017, the acquisition date. L2's operating results were not material to the Company's consolidated operating results and segment results for either the three or nine months ended September 30, 2017. Had the Company acquired L2 in prior periods, the impact to the Company's operating results would not have been material, and as a result pro forma financial information for L2 for prior periods has not been presented. L2's operating results and the related goodwill are being reported as part of the Company's Research segment.

Schedule of pro forma financial information



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Pro forma total revenue	$	891,003		$	756,083		$	2,664,450		$	2,233,942
Pro forma net (loss)	(7,283		)	(40,825		)	(71,122		)	(133,379		)
Pro forma basic and diluted (loss) per share	(0.08		)	(0.45		)	(0.79		)	(1.48		)

Summary of Amounts Related to Exited Space

The following table presents a summary of the amounts related to this space for the period ended September 30, 2017 (in thousands):



	For the period ended September 30, 2017
Liability balance at December 31, 2016	$	—
Charges during the six months ended June 30, 2017	20,149
Liability balance at June 30, 2017	20,149
Charges and adjustments during the three months ended September 30, 2017	974
Liability balance at September 30, 2017	$	21,123