NetSpend 2012 Annual Report Download - page 65

NOTE 24 Acquisitions
2012
On December 26, 2012, TSYS completed its
acquisition of ProPay for $123.7 million. ProPay
previously operated as a privately-held company, and
offers simple, secure and affordable payment
solutions for organizations ranging from small, home
based entrepreneurs to multi-billion dollar
enterprises. The results of operations for ProPay are
immaterial and therefore not included in the
Company’s results for the year ended December 31,
2012. The goodwill of $93.5 million recorded arises
largely from synergies and economies of scale
expected to be realized from combining the
operations of TSYS and ProPay. None of the goodwill
is tax deductible. Propay will be included as part of
the Merchant Services segment.
On August 8, 2012, TSYS completed its acquisition of
60% of CPAY, a privately held direct merchant acquirer,
for $66 million in cash. CPAY provides merchant
services to small- to medium-sized merchants through
an Independent Sales Agent (ISA) model, with a focus
on merchants in the restaurant, personal services and
retail sectors. The acquisition of CPAY expands the
Company’s presence in the merchant acquiring industry
and enhances our distribution model with their strong
sales agent channel. The results of operations for CPAY
have been included in the Company’s results beginning
August 8, 2012, and are included in the Merchant
Services segment. The goodwill of $68.6 million
recorded arises largely from synergies and economies
of scale expected to be realized from combining the
operations of TSYS and CPAY. All of the goodwill is tax
deductible.
The following table summarizes the consideration
paid for acquisitions and the preliminary recognized
amounts of identifiable assets acquired and liabilities
assumed during the year ended December 31, 2012.
These amounts will remain preliminary until the
valuation analysis has been finalized.
(in thousands)
Cash and restricted cash .............. $ 3,003
Accounts receivable, net .............. 4,092
Other assets ........................ 12,522
Identifiable intangible assets ........... 76,600
Other liabilities ...................... (30,558)
Noncontrolling interest in acquired
entity ............................ (38,000)
Goodwill ........................... 162,090
Total consideration ................. $189,749
The fair value of accounts receivable, accounts
payable, accrued compensation, and other liabilities
approximates the carrying amount of those assets
and liabilities at the acquisition date. The fair value of
accounts receivable due under agreements with
customers is $4.1 million. The gross amount due
under the agreements is $4.8 million, of which
approximately $688,000 is expected to be
uncollectible.
Of the $123.7 million in consideration paid for
ProPay, $12.5 million has been placed in escrow for a
period of 18 months to secure certain claims that may
be brought against the escrowed consideration by
TSYS pursuant to the merger agreement.
Consideration is contingent and may be returned to
the Company pursuant to indemnification
commitments made by the shareholders which
formerly owned ProPay related to a breach of the
representations and warrantees made in the merger
agreement. Such indemnification commitments are
recognized as a possible receivable and measured at
fair value. Based upon the probability of various
possible outcomes related to the indemnification
commitments, TSYS has determined that the fair
value of any receivable asset would be immaterial.
The maximum amount of contingent consideration
returnable to the Company related to certain
indemnification commitments made by the Seller is
$12.5 million. The maximum amount of contingent
consideration returnable to the Company related to
fundamental representations and warranties made by
the Seller is unlimited.
Of the $66 million in consideration paid for CPAY,
$3.3 million has been placed in escrow for a period of
21 months to secure certain claims that may be
brought against the escrowed consideration by TSYS
pursuant to the Investment Agreement.
Consideration is contingent and may be returned to
the Company pursuant to indemnification
commitments made by the company which formerly
owned 100% of Central Payment (Seller) related to,
among other things, a breach of the representations
and warrantees made in the Investment Agreement,
and losses arising out of any of the Excluded
Liabilities as defined in the Investment Agreement.
Such indemnification commitments are recognized as
a possible asset receivable and measured at fair
value. Based upon the probability of various possible
outcomes related to the indemnification
commitments, TSYS has determined that the fair
value of any receivable asset would be immaterial.
The maximum amount of contingent consideration
returnable to the Company related to certain
indemnification commitments made by the Seller is
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