Business Combinations |
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations | Business Combinations Acquisition of the Wi-Fi and Broadband assets business
On July 31, 2020, the Company and certain of its designated subsidiaries completed their acquisition of the Home Gateway Platform Division, which the Company refers to as the Wi-Fi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel Corporation, or Intel, dated April 5, 2020 (the “Asset Purchase Agreement”), and related agreements. The Company paid cash consideration of $150.0 million for the purchase of certain assets of the Wi-Fi and Broadband assets business, and assumed certain liabilities related to specified employment matters. The transaction was funded with a portion of the net proceeds from a secured incremental term loan with an aggregate principal amount of $175.0 million (Note 8). The acquired assets and assumed liabilities, together with the employees who joined the Company and its subsidiaries as a result of the transaction, represent a business as defined in ASC 805, Business Combinations. The Company has integrated the acquired assets and rehired employees into the Company’s existing business and has completed its purchase price allocation accounting associated with this acquisition.
Acquisition of NanoSemi, Inc.
On September 9, 2020, the Company completed its acquisition of NanoSemi, Inc. or NanoSemi, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with NanoSemi, dated September 9, 2020. The initial closing transaction consideration consisted of $10.0 million in cash and 804,163 shares of MaxLinear’s common stock. In addition, in the year ended December 31, 2021, the NanoSemi stockholders received $35.0 million in cash payments that were deferred as of the acquisition date, and certain NanoSemi stockholders may also receive up to an additional $35.0 million in potential contingent consideration, subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022. The stock consideration was issued in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. In connection with the acquisition, MaxLinear agreed to provide the NanoSemi stockholders with certain registration rights with respect to the shares of MaxLinear common stock they received in the acquisition. The Company has integrated NanoSemi into the Company's existing business and has completed its purchase price allocation accounting associated with this acquisition.
Acquisition of Company X
On December 8, 2021, the Company completed its acquisition of a business, or Company X, pursuant to a Purchase and Sale Agreement (the “Purchase Agreement”). The initial closing transaction consideration consisted of $5.0 million in cash. In addition, their stockholders may receive up to an additional $3.0 million in potential contingent consideration, subject to the acquired business satisfying certain financial and personnel objectives by March 31, 2023.
Company X is headquartered in Chennai, India and operates as a WiFi solutions and service provider.
Acquisition Consideration
The following table summarizes the fair value of purchase price consideration to acquire Company X (in thousands):
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(1) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $3.0 million in payments subject to the acquired business’s satisfying certain financial and personnel objectives by March 31, 2023 under the Purchase Agreement. Key inputs in the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration.
Preliminary Purchase Price Allocation
A preliminary allocation of purchase price as of the December 8, 2021 acquisition closing date based upon an estimate of
the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition primarily includes $4.4 million in identifiable intangible assets, and $0.5 million in net operating liabilities, with $3.8 million in goodwill:
The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
Assumptions in the Allocations of Purchase Price
Management prepared the purchase price allocations for the Wi-Fi and Broadband assets business, NanoSemi, and Company X, and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets, inventory, and property and equipment for the Wi-Fi and Broadband assets business and NanoSemi, and identifiable intangible assets for Company X, the portions of the purchase consideration for NanoSemi that were initially deferred and were subsequently paid to NanoSemi stockholders in the year ended December 31, 2021, as described above, and contingent consideration for NanoSemi and Company X. Certain stockholders that are employees of NanoSemi and Company X were not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration were accounted for as a portion of the purchase consideration.
Estimates of fair value require management to make significant estimates and assumptions. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that MaxLinear believes will result from integrating the operations of the Wi-Fi and Broadband assets business, NanoSemi, and Company X with the operations of MaxLinear. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. There have been no adjustments between the preliminary purchase price allocations reflected as of December 31, 2020 for the Wi-Fi and Broadband assets business and NanoSemi, and the final purchase price allocations reflected as of December 31, 2021.
The fair value of the identified intangible assets acquired from the Wi-Fi and Broadband assets business, NanoSemi and Company X was estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. More specifically, the fair value of the developed and licensed technology, IPR&D and backlog assets was determined using the multi-period excess earnings method, or MPEEM. MPEEM is an income approach to fair value measurement attributable to a specific intangible asset being valued from the asset grouping’s overall cash-flow stream. MPEEM isolates the expected future discounted cash-flow stream to its net present value. Significant factors considered in the calculation of the developed technology and IPR&D intangible assets were the risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. Each project was analyzed to determine the unique technological innovations, the existence and reliance on core technology, the existence of any alternative future use or current technological feasibility and the complexity, cost, and time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Developed technology began amortization immediately upon the closing of the transaction and IPR&D will begin amortization upon the completion of each project. If any of the projects are abandoned, the Company will be required to impair the related IPR&D asset.
In connection with the acquisition of the Wi-Fi and Broadband assets business, the Company has assumed liabilities which primarily consist of accrued employee compensation and benefits in jurisdictions where such transfer is required either by law or by work council agreement. In connection with the acquisition of NanoSemi and Company X, the Company assumed certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above.
Goodwill recorded in connection with the Wi-Fi and Broadband assets business, NanoSemi and Company X was $23.4 million, $41.1 million, and $3.8 million respectively. The Company does not expect to deduct any of the acquired goodwill for tax purposes.
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