ACQUISITIONS

In accordance with ASC Topic 805, “Business Combinations," we account for acquisitions by applying the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition. None of our acquisitions presented below were significant individually or in the aggregate. Our 2013 acquisitions, in aggregate, contributed net revenues and net income from continuing operations of $18.6 million and $0.9 million, respectively, which are included in our consolidated statements of operations for the year ended December 31, 2013.

Powwownow

On December 3, 2013, we completed the acquisition of Powwownow, a U.K.-based conferencing and collaboration provider focused on small and midsize businesses, by acquiring all of Powwownow's outstanding stock. The following table summarizes the preliminary consideration paid for Powwownow (in thousands):



Negotiated sales price	$	53,183
Preliminary working capital and other adjustments	(618		)
Preliminary purchase price	$	52,565

In addition, the Powwownow purchase agreement provides for a potential earn-out payment to the sellers based on its annual revenue growth in 2014. We funded the acquisition through borrowings under our credit facility and incurred $0.4 million of direct transaction costs, which are recorded in acquisition-related costs for the year ended December 31, 2013. Powwownow's financial results since its acquisition date are included in our Europe segment.

ACT

On September 4, 2013, we completed the acquisition of ACT, a U.S.-based global provider of integrated conferencing solutions, by acquiring all of ACT's outstanding stock via merger. The following table summarizes the preliminary consideration paid for ACT (in thousands):



Negotiated sales price	$	53,000
Preliminary working capital and other adjustments	(1,515		)
Preliminary purchase price	$	51,485

We funded the acquisition through borrowings under our credit facility and incurred $1.4 million of direct transaction costs, which are recorded in acquisition-related costs for the year ended December 31, 2013. ACT's financial results since its acquisition date are primarily included in our North America segment, with less significant contribution included within our Europe and Asia Pacific segments.

Preliminary Valuation of Assets and Liabilities

The preliminary fair values of the net tangible and intangible assets acquired and liabilities assumed in connection with these acquisitions have been recognized in our consolidated balance sheets based upon their preliminary values at their respective acquisition dates, as set forth below. The excess of the purchase price over the preliminary net tangible and intangible assets was recorded as goodwill. The factors contributing to the recognition of goodwill are based on strategic and synergistic benefits that are expected to be realized from an expanded global customer base, including opportunities for us to sell our SaaS-based collaboration products to those customers, and opportunities to improve performance by leveraging best practices, operational expertise and global scale. The recognized goodwill for Powwownow and ACT are not expected to be deductible for income tax purposes. The preliminary fair values recorded were based upon preliminary valuations, and the estimates and assumptions used in such valuations are subject to change, which could be significant, within the measurement period (up to one year from each acquisition date). The primary areas of the preliminary valuations that are not yet finalized relate to amounts for income taxes including, but not limited to, current tax accounts, deferred tax accounts, amounts for uncertain tax positions and net operating loss carryforwards inclusive of associated limitations and valuation allowances, amounts for state and local excise and sales tax contingencies, the fair values of certain tangible assets and liabilities acquired, certain legal matters, the determination of identifiable intangible assets and the final amount of residual goodwill. We expect to continue to obtain information to assist us in determining the fair values of the assets acquired and liabilities assumed at each acquisition date during the measurement periods.

The preliminary valuation of the assets acquired and liabilities assumed for Powwownow and ACT are as follows (in thousands):



	Powwownow Preliminary Valuation		ACT Preliminary Valuation
Cash and equivalents	$	1,295	$	11,137
Other current assets	3,221		11,447
Property and equipment	889		2,861
Intangible assets	35,568		31,000
Deferred income taxes, net	—		1,708
Other assets	8,163		2,854
Total assets acquired	49,136		61,007

Current liabilities	4,551		13,460
Long-Term Liabilities	12,831		4,059
Deferred income taxes, net	6,136		8,452
Total liabilities assumed	23,518		25,971

Total identifiable net assets	25,618		35,036
Goodwill	26,947		16,449
Total net assets	$	52,565	$	51,485

Preliminary Valuation Adjustments for Powwownow

We performed a preliminary valuation of the assets and liabilities of Powwownow at its acquisition date. Significant adjustments as a result of the preliminary valuation and the bases for their determination are summarized as follows:

Indemnification asset - We recognized an indemnification asset of $8.2 million in connection with our Powwownow acquisition, which is included in "Other assets." The indemnification asset represents reimbursement we reasonably expect to receive primarily from escrow funds currently held by a financial institution pursuant to the Powwownow purchase agreement. We recorded an offsetting contingent tax liability of $8.0 million and related interest payable of $0.2 million in connection with the recognition of the indemnification asset. The tax contingency is included in “Accrued expenses” under “Long-Term Liabilities.”

Customer relationships - Customer relationships were the primary asset acquired in the Powwownow acquisition. We valued customer relationships using the income approach, specifically the multi-period excess earnings method. The customer relationships were preliminarily valued at $29.0 million for the acquisition under this approach and will be amortized over ten years.

Non-compete agreements - We valued non-compete agreements using the income approach, specifically based on the negative impact on the business that the individuals could have on revenue. The non-compete agreements were valued at $2.1 million for the Powwownow acquisition under this approach and will be amortized over three years.

Trade names - We valued trade names using the income approach, specifically the multi-period excess earnings method. In determining the fair value of the trade names, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the trade names after applying a royalty rate to the overall revenues. The trade names were valued at $4.4 million for the Powwownow acquisition under this approach and will be amortized over ten years.

Earn-out - We recorded a contingent consideration liability of approximately $3.8 million as of the acquisition date related to the Powwownow earn-out, included in “Accrued expenses” under “Long-Term Liabilities” in our consolidated balance sheets. The fair value of the liability was estimated using internal forecasts with inputs that are not observable in the market, and thus represents a Level 3 fair value measurement, as defined in Note 11. The inputs in the Level 3 measurement are not supported by market activity, as they are probability assessments of expected future sales related to our acquisition of Powwownow during the earn-out period. The earn-out will be re-measured quarterly, with the change being reflected as acquisition-related costs in our consolidated statements of operations. See Note 11 for additional information.

Deferred tax liabilities, net - $6.1 million was recorded to adjust deferred taxes for the preliminary fair value adjustments made in accounting for our Powwownow acquisition.

Preliminary Valuation Adjustments for ACT

We performed a preliminary valuation of the assets and liabilities of ACT at its acquisition date. Significant adjustments as a result of the preliminary valuation and the bases for their determination are summarized as follows:

Indemnification asset - We recognized an indemnification asset of $4.1 million in connection with our ACT acquisition. Of this amount, $1.1 million is included in "Other current assets" and $3.0 million is included in "Other assets." The indemnification asset represents reimbursement we reasonably expect to receive from escrow funds currently held by a financial institution pursuant to the ACT merger agreement. We recorded an offsetting uncertain tax position of $3.8 million and related interest payable of $0.3 million in connection with the recognition of the indemnification asset. The income tax contingency is included above in “Long-Term Liabilities.”

Customer relationships - Customer relationships were the primary asset acquired in the ACT acquisition. We valued customer relationships using the income approach, specifically the multi-period excess earnings method. In determining the fair value of the customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting the contributory asset charges. The customer relationships were preliminarily valued at $30.2 million for the acquisition under this approach and will be amortized over ten years. This total includes an adjustment from the initial preliminary valuation date of $1.3 million for updates in assumptions including discount rate.

Non-compete agreements - We valued non-compete agreements using the income approach, specifically based on the negative impact on the business that the individuals could have on revenue. The non-compete agreements were valued at $0.8 million for the ACT acquisition under this approach and will be amortized over five years.

Deferred tax liabilities, net - $10.7 million was recorded to adjust deferred taxes for the preliminary fair value adjustments made in accounting for our ACT acquisition. This includes an adjustment from the initial preliminary valuation date of $5.3 million.

Powwownow and ACT Preliminary Pre-Acquisition Contingencies Assumed

We have evaluated and continue to evaluate pre-acquisition contingencies relating to Powwownow and ACT that existed as of each acquisition date. Based on our evaluation to date, we have preliminarily determined that certain pre-acquisition contingencies are probable in nature and estimable as of each acquisition date. Accordingly, we have recorded our best estimates for these contingencies as part of the preliminary valuation of the assets and liabilities acquired. We continue to gather information relating to all pre-acquisition contingencies that we have assumed. Any changes to the pre-acquisition contingency amounts recorded during the measurement period will be included in the final valuation and related amounts recognized. Subsequent to the end of the measurement period, any adjustments to pre-acquisition contingency amounts will be reflected in our results of operations.

Copper

On August 1, 2013, we acquired substantially all of the assets and assumed certain liabilities of the conferencing services business of Copper, a U.S.-based audio and web conferencing services provider, for $10.3 million, including a $0.2 million working capital adjustment finalized in December 2013. We funded the acquisition through borrowings under our credit facility and incurred $0.4 million of direct transaction costs, which are recorded in acquisition-related costs for the year ended December 31, 2013.

Copper's financial results since its acquisition date are included in our North America segment. The primary assets acquired as part of the Copper acquisition were customer relationships totaling $6.4 million and goodwill of $3.3 million. The recognized goodwill for Copper is expected to be deductible for income tax purposes.