Quarterly report pursuant to Section 13 or 15(d)

Business Acquisition

v3.21.1
Business Acquisition
3 Months Ended
Mar. 31, 2021
Business Combinations [Abstract]  
Business Acquisition

Note 4. Business Acquisition

LEEDS

On November 24, 2020, the Company completed the acquisition of 100% of the membership interests in LEEDS, LLC ("LEEDS") for a purchase consideration of $21.6 million in cash, subject to working capital adjustments, and $2.0 million in 63,901 units of ShotSpotter common stock. The purchase consideration also included a contingent earnout agreement. Up to $2.5 million in contingent earnout will be payable based on LEEDS' revenues generated during 2021. An additional amount up to $2.5 million contingent earnout will be payable based on LEEDS' revenues during 2022. The amounts will be determined and paid within approximately 90 days after the end of 2021 and 2022, respectively. The preliminary fair value of the contingent earnout is $0.2 million, resulting in a total estimated purchase consideration of $23.8 million. The acquisition will enable the Company to broaden its suite of precision policing solutions to offer its customers.

The following table summarizes the final purchase price allocation (in thousands):

 

Cash and cash equivalents

 

$

7,044

 

Accounts receivable and contract asset, net

 

 

1,060

 

Property and equipment, net

 

 

161

 

Operating lease right-of-use asset

 

 

225

 

Goodwill

 

 

1,437

 

Customer relationship

 

 

14,410

 

Other asset

 

 

45

 

Accrued expenses and other current liabilities

 

 

(458

)

Other liabilities

 

 

(98

)

Total purchase consideration

 

$

23,826

 

 

Goodwill primarily represents the value of the employee workforce as well as cash flows from future customers. The Company expects to deduct the amortization of goodwill and intangible assets for tax purposes. A portion of the amortization deduction will commence upon settlement of contingent consideration and contingent liabilities.

The Company valued the customer relationship asset using the income approach. Significant assumptions include forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense and estimated customer attrition rates. The Company discounted the cash flows at 7%, reflecting the risk profile of the asset. The customer relationship asset will be amortized over an estimated useful life of 15 years.

Acquisition-related expenses totaled $0.8 million, $0.2 million of which were included in general and administrative expense for the three months ended March 31, 2021. The remaining $0.6 million was expensed in 2020.