Acquisitions

Fiscal Year 2016 Acquisition

On December 10, 2015, we acquired all of the outstanding shares of Career Partner GmbH (“Career Partner”), a provider of education and training programs in Germany. This acquisition supports our strategy to diversify and expand our global operations. We made an initial cash payment of €96 million (equivalent to approximately $105 million on the acquisition date), and the acquisition includes a potential contingent consideration payment in the future of up to €11 million (equivalent to $12.3 million as of May 31, 2016). The contingent payment is calculated principally based on Career Partner’s operating results for calendar year 2016, and its estimated fair value on the acquisition date was $10.7 million, which we determined using a discounted cash flow valuation method encompassing significant unobservable inputs. The inputs include estimated operating results for the performance period and the discount rate applied. During the third quarter of fiscal year 2016, we finalized the amount of working capital acquired at closing, which resulted in a $3.5 million reduction in the purchase price.

We incurred approximately $2.0 million of transaction costs in connection with this acquisition and these costs are included in Merger, acquisition and other related costs (credit), net on our Condensed Consolidated Statements of Operations in the nine months ended May 31, 2016.

We accounted for the acquisition as a business combination and allocated the purchase price, which includes the initial cash payment, the fair value of the contingent consideration and the working capital adjustment, to the assets acquired and liabilities assumed at fair value as summarized below:



($ in thousands)
Cash and cash equivalents	$	4,580
Property and equipment	13,682
Intangibles:
Trademarks (indefinite useful life)	30,469
Accreditations (indefinite useful life)	27,948
Student and customer relationships (5 year useful life)	9,097
Curriculum (5 year useful life)	3,726
Goodwill	92,840
Other assets	2,092
Deferred revenue	(28,380		)
Capital lease obligations	(22,734		)
Other liabilities	(20,340		)
Total assets acquired and liabilities assumed	$	112,980

We determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the respective items. We used the following assumptions, the majority of which include significant unobservable inputs, and valuation methodologies to determine fair value:

•

Intangibles - We used income approaches to value the substantial majority of the acquired intangibles. The trademarks were valued using the relief-from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use. The accreditations were valued using the with and with-out method, and the remaining intangibles were valued using the cost savings method or the excess earnings method.


•	Deferred revenue - We estimated the fair value of deferred revenue using the cost build-up method, which represents the cost to deliver the services, plus a normal profit margin.


•	Capital leases - Substantially all of the property and equipment in the above table represents capital lease assets. The fair value of the capital lease assets represents our right to use the respective assets over the remaining lease term, and the fair value of the corresponding obligations represents the future minimum lease payments discounted at a current borrowing rate.


•	Other assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

We recorded $92.8 million of goodwill as a result of the Career Partner acquisition, which is not expected to be deductible for tax purposes. The goodwill is principally attributable to the future earnings potential associated with enrollment growth and other intangibles that do not qualify for separate recognition such as the assembled workforce. The goodwill is included in our Apollo Global reportable segment and we have selected a July 1 annual goodwill impairment test date.

We assigned an indefinite useful life to the acquired trademarks and accreditations intangibles as we believe they have the ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the intangibles’ useful life and we intend to renew the intangibles, as applicable, and renewal can be accomplished at little cost. We determined all other acquired intangibles are finite-lived and we are amortizing them on either a straight-line basis or using an accelerated method to reflect the pattern in which we expect the economic benefits of the assets to be consumed. The weighted average original useful life of the acquired finite-lived intangibles was 5 years. Refer to Note 7, Goodwill and Intangibles, for the estimated future amortization of our finite-lived intangibles.

Career Partner’s operating results are included in our condensed consolidated financial statements from the acquisition date. We have not provided pro forma information or the revenue and operating results of Career Partner because its results of operations are not material to our consolidated results of operations.

Fiscal Year 2015 Acquisitions

During fiscal year 2015, we completed the following acquisitions to support our strategy to diversify and expand our professional development offerings and global operations:


•	The Iron Yard - On June 11, 2015, we acquired a 62% interest in TIY Academy, LLC (“The Iron Yard”), a provider of nondegree information technology bootcamp programs in the United States, for $15.9 million.

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FAEL - On December 4, 2014, we acquired a 75% interest in Sociedade Técnica Educacional da Lapa S.A., a provider of postsecondary educational programs in Brazil under the name Faculdade da Educacional da Lapa (“FAEL”). We made an initial cash payment of R$73.8 million (equivalent to $28.9 million on the acquisition date), and the acquisition includes a potential contingent consideration payment in the future that is principally based on FAEL’s calendar year 2018 net revenue. The contingent payment has a maximum of approximately R$34 million (equivalent to $9.5 million as of May 31, 2016), and its fair value on the acquisition date was insignificant based on our estimate of FAEL’s future revenue in relation to the contingent payment threshold as defined in the acquisition agreement.

We accounted for these acquisitions as business combinations, and the operating results of The Iron Yard and FAEL are included in our consolidated financial statements from the respective acquisition dates. We have not provided pro forma information or the revenue and operating results of the acquired entities because their results of operations are not material, either individually or in the aggregate, to our consolidated results of operations in the respective periods of acquisition. The purchase price allocations are summarized below:



($ in thousands)	The Iron Yard			FAEL
Tangible assets (net of acquired liabilities)	$	5,262		$	(2,807	)
Indefinite-lived intangibles	—			15,163
Finite-lived intangibles	4,690			5,394
Goodwill	15,888			14,538
Total assets acquired and liabilities assumed, net	25,840			32,288
Less: Fair value of redeemable noncontrolling interests	(9,900		)	(3,437		)
Total fair value of consideration transferred	15,940			28,851
Less: Cash acquired	(5,401		)	(7,685		)
Cash paid for acquisition, net of cash acquired	$	10,539		$	21,166