Quarterly report pursuant to Section 13 or 15(d)

Business Acquisitions

v3.22.1
Business Acquisitions
3 Months Ended
Apr. 30, 2022
Business Acquisitions  
Business Acquisitions

(15)  Business Acquisitions

1-2-3.tv Group

On November 5, 2021, the Company and its wholly-owned subsidiary iMedia&1-2-3.tv Holding GmbH (the “Subsidiary”) completed the acquisition (the “Acquisition”) of all of the issued and outstanding equity interests of 1-2-3.tv Invest GmbH and 1-2-3.tv Holding GmbH (collectively with their direct and indirect subsidiaries, the “1-2-3.tv Group”) from Emotion Invest GmbH & Co. KG, BE Beteiligungen Fonds GmbH & Co. geschlossene Investmentkommanditgesellschaft and Iris Capital Fund II (collectively, the “Sellers”) pursuant to the Sale and Purchase Agreement, dated September 22, 2021, among the Company, the Subsidiary, and the Sellers (the “Purchase Agreement”).

At the closing of the Acquisition (the “Closing”), the Company acquired 1-2-3.tv Group from the Sellers for an aggregate purchase price of EUR 89,680 ($103,621 based on the November 5, 2021 exchange rate) (the “Enterprise Value”). The Company paid to the Sellers EUR 1,832 ($2,117 based on the November 5, 2021 exchange rate) for the 1-2-3.tv Group’s cash on-hand as of July 31, 2021 and EUR 966 ($1,116 based on the November 5, 2021 exchange rate) for the 1-2-3.tv Group’s excess working capital above the 1-2-3.tv Group’s trailing twelve-month average as of July 31, 2021. The Enterprise Value consideration consisted of the payment to the Sellers of EUR 68,200 in cash at the Closing ($78,802 based on the November 5, 2021 exchange rate) and the Company entering into a seller note agreement in the principal amount of EUR 18,000 ($20,800 based on the November 5, 2021 exchange rate) (the “seller notes”) and fair value of EUR 18,800 ($21,723 based on the November 5, 2021 exchange rate). The seller notes are payable in two EUR 9,000 ($10,400 based on the November 5, 2021 exchange rate) installments due on the first and second anniversaries of the issuance date. The seller notes bear interest at a rate equal to 8.50% per annum, payable semi-annually commencing on the six-month anniversary of the Closing.

The acquisition of 1-2-3.tv was accounted for in accordance with ASC 805-10 “Business Combinations”. The allocation of the purchase price was based upon a valuation, and the Company’s estimates and assumptions of the assets acquired, and liabilities assumed. The allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired, and liabilities assumed are subject to change within the measurement period pending the finalization of a valuation.

Based on the preliminary valuation, the total consideration of $103,621 has been allocated to assets acquired and liabilities assumed based on their respective fair values as follows:

    

Fair Value

Cash and cash equivalents

$

2,117

Accounts receivable, net

 

7,773

Inventory

18,815

Prepaid expenses

2,002

Fixed assets

5,093

Goodwill

70,634

Identifiable intangible assets acquired:

 

Developed technology

5,200

Customer lists and relationships

2,310

Trademarks and trade names

15,368

Liabilities assumed

 

(25,691)

Total consideration

$

103,621

Goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed. Goodwill amounted to $70,634, including assembled workforce.

During the first quarter ended April 30, 2022, the Company made certain adjustments to the preliminary price allocation made as of January 29, 2022 to better reflect the price allocated to goodwill and the identifiable intangible assets acquired. The Company determined these adjustments after additional analysis and assessment of the valuation methodologies. The current purchase price allocation may still be adjusted, as necessary, up to one year after the acquisition closing date if management obtains additional information regarding asset valuations and liabilities assumed.

The Purchase Agreement provides that the Sellers may receive additional consideration from the Subsidiary, if earned, in the form of earn-out payments in the amount of up to EUR 14,000 ($16,177 based on the November 5, 2021 exchange rate) based on revenues of the 1-2-3.tv Group during 2022, and up to an additional EUR 14,000 per year for 2023 and 2024 based on revenues of the 1-2-3.tv Group during each of 2023 and 2024, with the ability of the Sellers to earn amounts in excess of the EUR 14,000 in 2023 and 2024 in the event the maximum earn-out payments are not earned in either 2022 or 2023, respectively; provided, that in no event shall the total earn-out amount exceed EUR 42,000 ($48,531 based on the November 5, 2021 exchange rate). The Company has agreed to guarantee all obligations of the Subsidiary under the Purchase Agreement and the Vendor Loan. As of November 5, 2021, the fair value of the earn-out payment amounted to EUR 2,680 ($3,097 based on November 5, 2021 exchange rate). As of April 30, 2022, the recorded value of the earn-out payments was EUR 2,680 ($2,987 based on the April 30, 2022 exchange rate).

The Purchase Agreement contains customary representations, warranties, and covenants by each of the parties. The Purchase Agreement also provides that the parties will indemnify each other for certain liabilities arising under the Purchase Agreement, subject to various limitations, including, among other things, thresholds, caps and time limitations. The Subsidiary has obtained representation and warranty insurance that provides exclusive coverage for certain breaches of, and inaccuracies in, representations and warranties made by Sellers in the Purchase Agreement, subject to exclusions, deductibles and other terms and conditions.

Unaudited Supplemental Pro Forma Information

With significant operations in Europe, 1-2-3.tv had sales of approximately $51,161 for the three months ended April 30, 2021. 1-2-3.tv’s results have been included since the date of the acquisition.

The unaudited proforma information below, as required by GAAP, assumes that 1-2-3.tv had been acquired at the beginning of the 2020 fiscal year and includes the effect of transaction accounting adjustments. These adjustments include the amortization of acquired

intangible assets, depreciation of the fair value step-up of acquired property, plant and equipment, amortization of inventory fair value step-up (assumed to be fully amortized in 2020) in connection with the acquisition.

This unaudited proforma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the 2020 fiscal year. In addition, the unaudited proforma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.

The following table presents proforma net sales and net income per share data assuming 1-2-3.tv was acquired at the beginning of the 2020 fiscal year:

    

Q1 2021 (a)

Net sales

$

164,364

Net loss

 

(11,545)

(a) The above unaudited proforma information is presented for the 1-2-3.tv acquisition as it is considered a material acquisition.

Synacor’s Portal and Advertising Business Acquisition

On July 30, 2021, the Company closed on the acquisition of Synacor’s Portal and Advertising business segment. This acquisition allows the Company to leverage its interactive video expertise and national television promotional power, as well as its merchandising, customer solutions and fulfillment capabilities, to offer advertisers and consumer brands differentiated digital services that the Company believes will accelerate its timeline to become the leading single-source partner to advertisers seeking to use interactive video to drive growth. Synacor Portal and Advertising, which iMedia has combined with its business Float Left, has been renamed to iMedia Digital Services (“iMDS). iMDS is a leading video advertising platform monetizing 200+ million monthly users for its publishers by utilizing its proprietary technologies, first-party customer shopping data and interactive video services to drive engagement, traffic and conversion.  

The acquisition of the Portal and Advertising business was accounted for in accordance with ASC 805-10 “Business Combinations”. The total consideration transferred on the date of the transaction consisted of $20,000 cash, the issuance of a $10,000 seller note and assumed liabilities with a fair value of $7,864. The seller note is payable in $1,000 quarterly installments over the next ten calendar quarters beginning with September 30, 2021. The seller note bears interest at rates between 6% and 11% depending upon the period outstanding. The allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired, and liabilities assumed are subject to change within the measurement period pending the finalization of a valuation.

Based on the preliminary valuation, the total consideration of $30,400 has been allocated to assets acquired and liabilities assumed based on their respective fair values as follows:

    

Fair Value

Accounts receivable and prepaid

$

7,516

Fixed assets

 

737

Right of use asset

205

Goodwill

23,806

Identifiable intangible assets acquired:

 

Developed technology

1,100

Customer lists and relationships

4,900

Liabilities assumed

 

(7,864)

Total consideration

$

30,400

Goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed in the amount of $23,806, which was primarily related to the acquisition of customer relationships, technology platforms, and goodwill.

During the first quarter ended April 30, 2022, the Company made certain adjustments to the preliminary price allocation made as of January 29, 2022 to better reflect the price allocated to goodwill and the identifiable intangible assets acquired. The Company determined these adjustments after additional analysis and assessment of the valuation methodologies. The current purchase price allocation may still be adjusted, as necessary, up to one year after the acquisition closing date if management obtains additional information regarding asset valuations and liabilities assumed.

Christopher & Banks Transaction

Christopher & Banks is a specialty brand of privately branded women's apparel and accessories. The Christopher & Banks brand was previously owned by Christopher & Banks Corporation, which filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in January 2021. On March 1, 2021, the Company entered into a licensing agreement with ReStore Capital, a Hilco Global company, whereby the Company will operate the Christopher & Banks business throughout all sales channels, including digital, television, catalog, and brick and mortar retail, effective March 1, 2021. The Company also purchased certain assets related to the Christopher & Banks eCommerce business, including primarily inventory, furniture, equipment, and certain intangible assets. The Company plans to launch a new weekly Christopher & Banks television program on its ShopHQ network, which will also promote the brand’s website, cristopherandbanks.com, its two retail stores in Coon Rapids, Minnesota, and Branson, Missouri, and its planned launch of Christopher & Banks Stylists, an online interactive video platform that customizes wardrobe that is outfitted for customers by a Christopher & Banks stylist.

On March 1, 2021, the Company acquired all of the assets of Christopher & Banks, LLC (“C&B”). The acquisition of C&B was accounted for in accordance with ASC 805-10 “Business Combinations”. The total consideration transferred on the date of the transaction consisted of $3,500 cash and assumed liabilities with a fair value of $4,197. In addition, the Company is obligated to issue common shares to Hilco with a value of $1,500 as additional consideration. The Company expects to issue these shares in the fourth quarter of 2021. The Company finalized the allocation of purchase price in the first quarter of 2022 based on a final valuation performed.

The final total consideration of $5,000 has been allocated to assets acquired and liabilities assumed based on their respective fair values as follows:

    

Fair Value

Inventory

$

4,100

Fixed assets

 

500

Goodwill

3,307

Identifiable intangible assets acquired:

 

Developed technology

890

Customer lists and relationships

400

Liabilities assumed

 

(4,197)

Total consideration

$

5,000

Goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed in the amount of $3,307, which was primarily related to the acquisition of the product designs, brand and customer list.

The Closeout.com Acquisition

On February 5, 2021, the Company became a controlling member under the limited liability company agreement for TCO, LLC (“TCO”), a Delaware limited liability company entered into between the Company and LAKR Ecomm Group LLC (“LAKR”) to operate TheCloseout.com, an online marketplace that was previously owned in part by Invicta Media Investments. LAKR is a newly formed company indirectly owned by Invicta Media Investments, LLC and The Closeout.com LLC. The initial Board of Directors of TCO includes Tim Peterman, the Chief Executive Officer and a director of the Company, Landel Hobbs, the Chairman of the Board of the Company, and Eyal Lalo, a director of the Company. See Note 13 – “Related Party Transactions” for additional information regarding the Company’s relationships with Invicta Media Investments, LLC, Retailing Enterprises and Mr. Lalo.

Under the limited liability company agreement, the Company will act as the controlling member of TCO. Mr. Peterman and Mr. Hobbs, as the designees of the Company, will lead TCO, with certain significant corporate actions requiring the consent of both members. Mr. Peterman will be the Chairperson of TCO. Distributions of available cash may be made to the members at the discretion of TCO’s board of managers. In addition, beginning on February 5, 2026 and recurring every 12 months thereafter, the Company will have the right, but not the obligation, to acquire LAKR’s interest in TCO at a value determined based on financial benchmarks set forth in the TCO limited liability company agreement.

The acquisition of TCO was accounted for in accordance with ASC 805-10 “Business Combinations”. The allocation of the purchase price was based upon a valuation, and the Company’s estimates and assumptions of the assets acquired, and liabilities assumed.

The final total consideration of $7,000 has been allocated to assets acquired and liabilities assumed based on their respective fair values as follows:

    

Fair Value

Inventory

$

4,770

Fixed assets

 

600

Goodwill

1,740

Identifiable intangible assets acquired:

 

Developed technology

110

Trademarks and trade names

180

Liabilities assumed

 

(400)

Total consideration

$

7,000

In connection with the establishment of TCO, the Company contributed assets in the form of inventory valued at $3,570 in exchange for a 51% interest in the TCO, and LAKR contributed assets in the form of inventory and intellectual property valued at $3,430 in exchange for a 49% interest in TCO. The Company also entered into a loan and security agreement with TCO, pursuant to which TCO may borrow up to $1,000 from the Company on a revolving basis pursuant to a promissory note bearing interest at LIBOR plus 4.00%, provided that the floor of this interest rate is 4.25%. The promissory note is payable on demand by the Company, may be voluntarily prepaid at any time, and must be repaid prior to TCO making any distributions, other than advances for tax withholdings, to its members.

Non-controlling Interests

Non-controlling interests (“NCI”) represent equity interests owned by outside parties. NCI may be initially measured at fair value or at the NCI’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement is made on a transaction by transaction basis. iMedia elected to measure each NCI at its proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The share of net assets attributable to NCI are presented as a component of equity. Their share of net income or loss and comprehensive income or loss is recognized directly in equity. Total comprehensive income or loss of subsidiaries is attributed to the shareholders of the Company and to the NCI, even if this results in the NCI having a deficit balance.