Acquisition (Notes)

9 Months Ended

Sep. 30, 2019

18. Acquisitions

Northwest Logic, Inc.

On July 26, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Northwest Logic, a leading supplier of memory, PCIe, and MIPI digital controllers. On August 23, 2019 (the “Closing Date”), the Company completed its acquisition of Northwest Logic by acquiring all issued and outstanding shares of Northwest Logic through the merger of a wholly-owned Rambus subsidiary with Northwest Logic. Under the terms of the Merger Agreement, the Company paid approximately $21.9 million in cash, including certain bonus payments and adjustments for working capital. Of the purchase price, $3.0 million of the consideration was deposited into an escrow account to fund indemnification obligations and other contractual provisions, to be released 15 months after the Closing Date. This acquisition allows the Company to further scale, bringing together high-speed design expertise with the physical and digital IP families from renowned market leaders to offer comprehensive memory and SerDes IP solutions for chip designers. The Company anticipates integrating Northwest Logic’s offerings and design team into its IP cores technology solutions.

As part of the acquisition, the Company agreed to pay $9.0 million to certain Northwest Logic employees in cash over three years following August 23, 2019 (the “Retention Bonus”). The Retention Bonus will be paid in three installments of $3.0 million on each of the dates that are 12 months, 24 months and 36 months following the Closing Date. The Retention Bonus payouts are subject to the condition of continued employment, and therefore, treated as compensation and expensed as incurred.

As of September 30, 2019, the Company had incurred approximately $0.7 million in external acquisition costs in connection with the transaction, which were expensed as incurred.

The purchase price allocation and related accounting for this acquisition is preliminary. The preliminary fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations and the Company’s estimates and assumptions for the acquisition are subject to change if the Company obtains additional information during the measurement period.

The fair value of the assets acquired has been determined primarily by using valuation methods that discount the expected future cash flows to present value using estimates and assumptions determined by management. The Company performed a valuation of the net assets acquired as of the Closing Date. The total consideration from the business combination was allocated as follows:



	Total
	(in thousands)
Cash and cash equivalents	$	159
Accounts receivable	1,679
Prepaid expenses and other current assets	65
Identified intangible assets	8,800
Goodwill	11,344
Operating lease right-of-use asset	178
Other asset	9
Accounts payable	(9		)
Operating lease liability	(178		)
Other current liabilities	(108		)
Total	$	21,939

The goodwill arising from the acquisition is primarily attributed to synergies related to the combination of new and complementary technologies of the Company and the assembled workforce of Northwest Logic. This goodwill is not expected to be deductible for tax purposes.

The identified intangible assets assumed in the acquisition of Northwest Logic were recognized as follows based upon their estimated fair values as of the acquisition date:



	Total		Estimated Weighted Average Useful Life
	(in thousands)		(in years)
Existing technology	$	8,100	5
Customer contracts and contractual relationships	400		2
Customer backlog	300		0.5
Total	$	8,800

The following unaudited pro forma financial information presents the combined results of operations for the Company and Northwest Logic as if the acquisition had occurred on January 1, 2018. The unaudited pro forma financial information has been prepared for comparative purposes only and does not purport to be indicative of the actual operating results that would have been recorded had the acquisition actually taken place on January 1, 2018, and should not be taken as indicative of future consolidated operating results. Additionally, the unaudited pro forma financial results do not include any anticipated synergies or other expected benefits from the acquisition (unaudited, in thousands, except per share amounts):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	59,571		$	62,837		$	171,545		$	170,128
Net loss	$	(17,304	)	$	(105,225	)	$	(81,306	)	$	(157,113	)
Net loss per share - diluted	$	(0.16	)	$	(0.98	)	$	(0.73	)	$	(1.45	)

Pro forma losses for 2019 were adjusted to exclude $0.7 million of acquisition-related costs incurred in 2019. Consequently, pro forma losses for 2018 were adjusted to include these costs.

Silicon IP and Secure Protocols businesses from Verimatrix

On September 11, 2019, the Company announced it had signed an asset purchase agreement to acquire the Silicon IP and Secure Protocols businesses of Verimatrix, formerly Inside Secure, for $65 million in cash. With the proposed acquisition, the embedded security teams, products and expertise from Verimatrix and Rambus will combine to create a comprehensive portfolio of silicon-proven security IP and chip provisioning solutions. This acquisition is expected to close this year and is subject to customary closing conditions, including certain regulatory approvals.