Annual report pursuant to Section 13 and 15(d)

Business Combinations

v3.3.1.900
Business Combinations
 12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
Business Combinations
Business Combinations

Ticketfly

On October 31, 2015, we completed the acquisition of Ticketfly, a leading live events technology company that provides ticketing and marketing software and services for venues and event promoters across North America, for an aggregate purchase price of $335.3 million of common stock and cash, including 11,193,847 shares of the Company’s common stock and approximately $191.5 million in cash paid by the Company. In addition to the purchase price, unvested options and unvested RSUs of Ticketfly held by Ticketfly employees were converted into unvested options to acquire our common stock and our unvested RSUs.

Upon acquisition, Ticketfly became a wholly owned subsidiary of Pandora. The acquisition was accounted for as a business combination, and the financial results of Ticketfly are included in our consolidated financial statements from the date of acquisition.

The following table summarizes the components of the purchase consideration transferred based on the closing price of $12.18 per share of our common stock as of the acquisition date:

 
(in thousands)
Cash paid by Pandora
$
191,479

Cash paid by Ticketfly to option holders
7,238

Common stock (11,193,847 shares at $12.18 per share) issued by Pandora to selling shareholders
136,342

Fair value of stock options and restricted stock units assumed
10,514

Less: purchase price adjustments
(6,995
)
Less: post-combination compensation expense
(3,235
)
Purchase consideration
$
335,343



The $3.2 million of post-combination compensation expense (approximately 0.2 million shares of common stock and $1.9 million in cash) is subject to continuous employment and will be recognized over the required service period of up to three years.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition:
 
(in thousands)
Current assets
$
39,809

Long-term assets
15,982

Current liabilities
(21,853
)
Long-term liabilities
(6,298
)
Deferred tax liability
(1,738
)
Intangible assets
76,800

Goodwill
232,641

Total
$
335,343



The fair value of assets acquired and liabilities assumed from our acquisition of Ticketfly was based on a preliminary valuation and our estimates and assumptions are subject to change. We will recognize any subsequent adjustments to the purchase price prospectively in the period in which the adjustments are determined. A portion of the purchase price is held in escrow and may be recovered from this escrow amount. The primary areas of the purchase accounting that are not yet finalized are estimated liabilities for taxes and other liabilities totaling $7.0 million. We have recorded a receivable in the amount of $7.0 million related to these liabilities, as we expect to recover any amounts required to be paid by us from the escrow amount.

The following unaudited pro forma information presents the combined results of operations as if the acquisition had been completed on January 1, 2014, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include: (i) amortization associated with preliminary estimates for the acquired intangible assets; (ii) recognition of the post-combination compensation expense; and (iii) share-based compensation expense related to the RSUs and options granted to Ticketfly employees.

The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations:

 
Twelve Months Ended 
 December 31,
 
2014
 
2015
 
(in thousands)
Revenue
$
975,712

 
$
1,222,452

Net loss
$
(58,195
)
 
$
(210,111
)


Rdio, Inc. ("Rdio")

On December 23, 2015, we completed the acquisition of technology and intellectual property from Rdio for $77.5 million, which includes $2.5 million in additional purchase consideration transferred prior to the closing of the acquisition. In November 2015, Rdio sought protection in the United States Bankruptcy Court for the Northern District of California and began to wind down its business. Our acquisition of technology and employees from Rdio was subject to the approval of the Court, which was obtained on December 22, 2015. Goodwill generated from the assets acquired is primarily attributable to expected synergies that will allow us to broaden our subscription business and roll out a multi-tier product offering. We have accounted for this acquisition as a business combination, and the financial results of Rdio are included in our consolidated financial statements from the date of acquisition. As a result of the sale of assets, Rdio discontinued its service as of December 22, 2015.

Other acquisitions

During the year ended December 31, 2015, we completed the acquisitions of Next Big Sound ("NBS") and KXMZ-FM ("KXMZ"). These acquisitions were not material to our consolidated financial statements, either individually or in the aggregate.

We have included the financial results of Ticketfly, Rdio, NBS and KXMZ in our consolidated financial statements from their respective dates of acquisition. Pro forma results of operations related to our acquisitions, other than Ticketfly, during the year ended December 31, 2015 have not been presented because they are not material to our consolidated statements of operations, either individually or in the aggregate.

The fair value of assets acquired and liabilities assumed from our acquisitions were based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. Measurement period adjustments that we determine to be material will be applied to the period in which the amounts are determined in our consolidated financial statements.

The following table summarizes the allocation of estimated fair values of the net assets acquired during the year ended December 31, 2015, including the related estimated useful lives, where applicable:

 
 
Ticketfly
 
Rdio
 
Other
 
 
Estimated fair value
 
Estimated useful life in years
 
Estimated fair value
 
Estimated useful life in years
 
Estimated fair value
 
Estimated useful life in years
 
 
(in thousands, except for estimated useful life)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
   Customer relationships - clients
 
$
37,300

 
8
 
$
—

 
 
 
$
—

 
 
   Developed technology
 
28,100

 
5
 
26,400

 
2-5
 
1,550

 
4
   Tradename
 
10,400

 
8
 
1,000

 
3
 
320

 
2
   Customer relationships - users
 
1,000

 
2
 
—

 
 
 
940

 
2
   FCC license - broadcast radio
 
—

 
 
 
—

 
 
 
193

 
 
Tangible assets acquired, net
 
27,640

 
 
 
1,969

 
 
 
(490
)
 
 
Deferred tax liabilities
 
(1,738
)
 
 
 
—

 
 
 
(49
)
 
 
Net assets acquired
 
$
102,702

 
 
 
$
29,369

 
 
 
$
2,464

 
 
Goodwill
 
232,641

 
 
 
48,131

 
 
 
23,103

 
 
Total fair value consideration
 
$
335,343

 
 
 
$
77,500

 

 
$
25,567

 



Goodwill generated from the Ticketfly acquisition is primarily attributable to expected synergies from future growth and strategic advantages in the ticketing industry. Goodwill generated from Rdio is primarily attributable to expected synergies from future growth and strategic advantages in the online streaming music industry. Goodwill generated from all other business acquisitions during the year ended December 31, 2015 is primarily attributed to expected synergies from future growth and, also for NBS, the potential to expand our Artist Marketing Platform ("AMP"). Goodwill generated during the period related to Ticketfly and NBS is not deductible for tax purposes and goodwill generated during the period related to Rdio and KXMZ is deductible for tax purposes.