On July 20, 2021, the Company completed the acquisition of Lion Semiconductor, Inc. ("Lion") (the "Acquisition"). Lion's switched-capacitor architectures deliver higher efficiency and better heat dissipation for the rapidly developing fast-charging market and are used today in numerous flagship and mid-tier smartphones. The Acquisition is expected to bring unique intellectual property and products for power applications in smartphones, laptops and other devices and accelerate growth of the Company’s high-performance mixed-signal product line.
As a result of acquiring 100% of the outstanding share capital of Lion, Lion became a wholly-owned subsidiary of the Company. This transaction is being accounted for as a business combination using the acquisition method of accounting. All
of the acquired assets and liabilities of Lion have been recorded at their respective fair values as of the acquisition date. Transaction costs have been expensed as incurred.
At the acquisition date, total consideration transferred was approximately $280.5 million, inclusive of $4.9 million in cash acquired. Additional merger consideration of $32.2 million is subject to indemnity and adjustment provisions as outlined in the merger agreement and is recorded as a liability as of September 25, 2021.
In addition, $25.4 million of the merger consideration relates to retention agreements with certain key employees that are subject to continued employment with the Company. The merger consideration subject to retention agreements is treated as compensation expense and is recognized over the retention period in "Research and development" expense in the consolidated condensed statements of income.
The excess of the purchase price over the net assets acquired is recorded as goodwill and is attributable primarily to expected growth in the scope of and market opportunities of the products and customer base of Lion. None of the goodwill is deductible for income tax purposes.
The following table presents the preliminary allocation of the purchase price at the date of acquisition (in thousands):
|July 20, 2021|
|Account receivable||6,725 |
|Manufacturing advances||8,502 |
|Other current assets||321 |
|Other non-current assets||453 |
|Deferred tax liabilities||(26,123)|
|Total purchase price||$||312,775 |
Preliminary estimates of the fair value of the assets acquired and the liabilities assumed are based on the information currently available. The Company is continuing to evaluate the underlying inputs and assumptions used in the valuations and related income tax impacts of the transaction. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of acquisition.
The components of the acquired intangible assets and related weighted average amortization periods are detailed below (in thousands):
|Amount||Weighted Average Amortization Period (years)|
|Developed Technology||$||144,390 ||7|
|Customer Relationships||18,570 ||5|
Developed technology represents the fair value of the intellectual property portfolio related to Lion's fast-charging products that are expected to contribute meaningful growth. Developed technology was valued using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the technology less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the technology cycle, as well as the cash flows over the forecast period.
Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers. Customer relationships were valued using the with-and-without-method under the income approach. In
the with-and-without method, the fair value was measured by the difference between the present values of the cash flows with and without the existing customers in place over the period of time necessary to reacquire the customers. The economic useful life was determined by evaluating many factors, including the useful life of comparable intangible assets, the length of time
remaining on the acquired contracts and the historical customer turnover rates.Revenues attributable to the Lion business from the date of acquisition to September 25, 2021 were $16.8 million and are included in the consolidated condensed statements of income for the current period. Transaction costs in connection with the Acquisition were immaterial for the six months ended September 25, 2021, and are included in "Selling, general and administrative" expense in the consolidated condensed statements of income. Pro forma information related to the Acquisition has not been presented because it would not be materially different from amounts reported.