Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.19.3
Acquisitions
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions
Acquisitions
Fiscal Year 2018
Rentlytics
In October 2018, we entered into an agreement and plan of merger whereby we acquired 100% of the capital stock of Rentlytics, Inc. (“Rentlytics”), a provider of business intelligence and data analytics software and services to the multi-family housing industry. Aggregate purchase consideration was $55.4 million, including deferred cash obligations of up to $8.0 million that will be released on the first and second anniversary dates of the closing date, subject to any indemnification claims. The acquisition was financed using cash on hand.
The acquired identified intangible assets consisted of client relationships, developed technology and trade names and were assigned estimated useful lives of ten, seven and ten years, respectively. Preliminary goodwill recognized of $42.4 million is primarily comprised of anticipated synergies from the expansion of our business intelligence and data analytics platform. Goodwill and acquired intangible assets are not deductible for tax purposes. Accounts receivable acquired have a gross value of $2.0 million, of which $0.4 million is estimated to be uncollectible. Acquisition costs associated with this transaction totaled $1.2 million, which also include certain change of control payments and related severance costs paid to former Rentlytics employees.
LeaseLabs
In September 2018, we acquired substantially all of the assets of LeaseLabs, Inc. (“LeaseLabs”), a full-stack marketing solutions provider to the multifamily housing industry. LeaseLabs provides online, social media and website marketing services to property management companies. Aggregate purchase consideration was $112.9 million, including deferred cash obligations of up to $11.8 million, subject to any indemnification claims, to be released on the first and second anniversary dates of the closing date, and contingent consideration of up to $9.9 million based on the collection of acquisition date accounts receivable balances during the six-month period after the acquisition date. The fair value of the contingent consideration was $7.0 million on the date of acquisition. We also issued 86,745 shares of our common stock at closing, which had a fair value of $5.3 million on the date of acquisition. We will issue shares of our common stock with a fair value of $5.0 million on the first anniversary date of the acquisition. A liability of $4.8 million has been recorded for the obligation to issue these shares. The acquisition was financed using cash on hand.
The acquired identified intangible assets consisted of client relationships, developed technology and trade names and were assigned estimated useful lives of ten, seven and ten years, respectively. Preliminary goodwill recognized of $84.7 million is primarily comprised of anticipated synergies from the expansion of our marketing platform with LeaseLabs’ marketing solutions and the combination of our marketing content, websites and lead management with LeaseLabs’ marketing solutions. Goodwill and acquired intangible assets are deductible for tax purposes. Accounts receivable acquired have a gross value of $3.5 million, of which $0.6 million is estimated to be uncollectible. Acquisition costs associated with this transaction totaled $0.4 million.
BluTrend
In July 2018, we acquired substantially all of the assets of Blu Trend, LLC (“BluTrend”), a provider of utility management services for the multifamily housing industry. The acquired assets will be integrated with our existing resident utility management platform. Aggregate purchase consideration was $8.5 million, including deferred cash obligations of up to $1.0 million, and deferred stock obligations of up to $1.0 million. The $2.0 million of deferred obligations are subject to indemnification claims as well as continued employment of certain BluTrend employees and will be released on the first and second anniversary dates of the closing date. The deferred obligations will be recognized as compensation expense over the two-year period after the acquisition date. The acquisition was financed using cash on hand.
The acquired identifiable intangible assets consisted of client relationships, developed technology and trade names and were assigned estimated useful lives of ten, five and two years, respectively. Preliminary goodwill recognized of $3.9 million is primarily comprised of anticipated synergies from integrating the BluTrend business into our utility management platform. Goodwill and the acquired identified intangible assets are deductible for tax purposes. Acquisition costs associated with this transaction totaled $0.1 million.
ClickPay
In April 2018, we acquired substantially all of the outstanding membership units of NovelPay, LLC (“NovelPay”), other than those owned by ClickPay Services, Inc. On the same day, we acquired all of the outstanding stock of ClickPay Services, Inc. (collectively with NovelPay, “ClickPay”). ClickPay provides an electronic payment platform servicing resident units across multiple segments of real estate, which offers integrated payment services to increase operational efficiencies for property owners and managers. The acquisition of ClickPay broadens our presence in the real estate industry, and solidifies the integration of our leasing platform with third-party property management systems.
We acquired ClickPay for purchase consideration of $221.1 million. The purchase consideration consisted of $139.0 million of cash, net of cash acquired of $7.5 million, the issuance of 870,168 shares of our common stock valued at $48.0 million, a deferred obligation of up to $10.2 million, and a liability of $24.7 million related to put and call option agreements, which had a fair value of $24.4 million on the date of acquisition. Approximately 187,480 shares of common stock issued at closing are subject to a holdback and subject to any indemnification claims made, will be released on the first anniversary date of the closing date. The deferred obligation requires us to issue shares of our common stock with a fair value of $9.8 million on the second anniversary date of the closing date. The acquisition of ClickPay was financed using funds available under our Credit Facility, as defined in Note 8, and cash on hand.
Pursuant to the acquisition agreement, certain holders initially retained units representing approximately 12% of the membership units of NovelPay, subject to put rights that could be exercised by the holders on or after September 1, 2018, and call rights that could be exercised by us on or after October 1, 2018. The exercise price of the put and call rights was the same as the per unit price of the membership units purchased at the closing. We evaluated the put and call options and determined the put and call options were embedded within the noncontrolling interests, and the economic substance represented a financing arrangement of the noncontrolling interests because of the substantially fixed exercise price and stated exercise dates. In June 2018, we and one of the remaining NovelPay noncontrolling interest holders agreed to waive the put and call exercise date, and we completed the purchase of such holder’s membership units for 395,206 shares of common stock valued at $21.8 million. In September 2018, the remaining NovelPay noncontrolling interest holders exercised their put rights, and we completed the purchase of the noncontrolling interest holders’ membership units for $2.9 million in cash. As of December 31, 2018, all outstanding membership units of NovelPay have been acquired. No earnings were attributed to the noncontrolling interests in the accompanying Consolidated Statements of Operations.
The acquired identified intangible assets consisted of developed technology, client relationships, and trade names. These intangible assets were assigned estimated useful lives of seventen and ten years, respectively. Preliminary goodwill recognized of $173.3 million is primarily comprised of anticipated synergies from leveraging ClickPay’s electronic payment platform, which is compatible with multiple third-party property management systems. Goodwill of $102.4 million arising from the acquisition of NovelPay is deductible for tax purposes; goodwill arising from the acquisition of ClickPay Services, Inc. is not. Accounts receivable acquired had a gross contractual value of $2.7 million at acquisition, of which $0.5 million was estimated to be uncollectible. Acquisition costs associated with this transaction totaled $1.6 million.
Purchase Consideration and Purchase Price Allocations
The estimated fair values of assets acquired and liabilities assumed are provisional and are based primarily on the information available as of each respective acquisition date. We believe this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but we are awaiting additional information necessary to finalize those values. Therefore, the provisional measurements of fair value are subject to change, and such changes could be significant. We expect to finalize the valuation of these assets and liabilities as soon as practicable, but no later than one year from each respective acquisition date. The components of the purchase consideration and the preliminary allocation of each purchase price, including the effects of measurement period adjustments recorded as of December 31, 2018, are as follows:
 
 
ClickPay
 
BluTrend
 
LeaseLabs
 
Rentlytics
 
 
(in thousands)
Fair value of purchase consideration:
 
 
 
 
 
 
 
 
Cash, net of cash acquired
 
$
138,983

 
$
8,500

 
$
84,498

 
$
47,895

Common stock issued at closing
 
48,034

 

 
5,300

 

Deferred obligations, net
 
9,677

 

 
16,094

 
7,517

Noncontrolling interest financing
 
24,369

 

 

 

Contingent consideration
 

 

 
7,000

 

Total fair value of purchase consideration
 
$
221,063

 
$
8,500

 
$
112,892


$
55,412

 
 
 
 
 
 
 
 
 
Fair value of net assets acquired:
 
 
 
 
 
 
 
 
Restricted cash
 
$
1,313

 
$

 
$

 
$

Accounts receivable
 
2,226

 
226

 
2,853

 
1,585

Property, equipment, and software
 
89

 

 
865

 

Deferred tax asset, net
 

 

 

 
988

Intangible assets:
 
 
 
 
 
 
 
 
Developed product technologies
 
29,100

 
730

 
8,300

 
3,300

Client relationships
 
20,700

 
3,510

 
17,800

 
8,500

Trade names
 
2,900

 
30

 
1,100

 
400

Goodwill
 
173,250

 
3,887

 
84,674

 
42,351

Other assets
 
362

 
122

 
321

 
401

Accounts payable and accrued liabilities
 
(2,698
)
 
(5
)
 
(696
)
 
(763
)
Client deposits held in restricted accounts
 
(1,313
)
 

 

 

Deferred revenue
 

 

 
(2,325
)
 
(1,350
)
Deferred tax liability, net
 
(4,866
)
 

 

 

Total fair value of net assets acquired
 
$
221,063

 
$
8,500

 
$
112,892


$
55,412


Acquisitions Prior to 2018
We completed eight acquisitions during fiscal years 2017 and 2016. A summary of each acquisition can be found in the table below:
 
 
Date of Acquisition
 
Aggregate Purchase Price
 
Closing Cash Payment, Net of Cash Acquired
 
Net Tangible Assets Acquired (Liabilities Assumed)
 
Identified Intangible Assets
 
Goodwill Recognized
 
 
 
 
(in thousands)
NWP Services Corporation
 
March 2016
 
$
68,183

 
$
62,190

 
$
18,314

 
$
16,349

 
$
33,520

AssetEye, Inc.
 
May 2016
 
$
4,911

 
$
3,749

 
$
(928
)
 
$
2,685

 
$
3,154

eSupply Systems, LLC
 
June 2016
 
$
7,046

 
$
5,461

 
$
267

 
$
3,585

 
$
3,194

Axiometrics LLC
 
January 2017
 
$
73,757

 
$
66,050

 
$
(5,963
)
 
$
25,530

 
$
54,190

American Utility Management
 
June 2017
 
$
69,412

 
$
64,775

 
$
1,107

 
$
22,398

 
$
45,907

On-Site Manager, Inc.
 
September 2017
 
$
251,109

 
$
225,300

 
$
3,197

 
$
65,320

 
$
182,592

PEX Software Limited
 
October 2017
 
$
6,031

 
$
5,103

 
$
(369
)
 
$
3,100

 
$
3,300

Lease Rent Options
 
December 2017
 
$
299,923

 
$
298,040

 
$
5,263

 
$
91,666

 
$
202,994


Purchase consideration for Axiometrics included contingent consideration of up to $5.0 million payable if certain revenue targets were achieved during the twelve-month period ending December 31, 2018. Based on information that was available at December 31, 2018, management has determined the fair value of the contingent consideration to be zero. Refer to Note 13 for additional information regarding our contingent consideration liabilities.
Deferred Obligations and Contingent Consideration Activity
The following table presents changes in our deferred cash and stock obligations and contingent consideration for the fiscal years ended December 31, 2018 and 2017:
 
Deferred Cash and Stock Obligations
 
Contingent Consideration
 
Total
 
(in thousands)
Balance at January 1, 2017
$
14,150

 
$
541

 
$
14,691

Additions, net of fair value discount
42,104

 
812

 
42,916

Cash payments
(8,215
)
 
(700
)
 
(8,915
)
Accretion expense
1,049

 

 
1,049

Change in fair value

 
(239
)
 
(239
)
Indemnification claims and other adjustments
(2,072
)
 

 
(2,072
)
Balance at December 31, 2017
47,016


414

 
47,430

Additions, net of fair value discount
36,313

 
7,000

 
43,313

Cash payments
(29,600
)
 
(247
)
 
(29,847
)
Accretion expense
1,970

 

 
1,970

Change in fair value

 
(1,167
)
 
(1,167
)
Indemnification claims and other adjustments
(3,557
)
 

 
(3,557
)
Balance at December 31, 2018
$
52,142


$
6,000

 
$
58,142


Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for the years ended December 31, 2018 and 2017, as if the aforementioned 2018 and 2017 acquisitions had occurred as of January 1, 2017 and January 1, 2016, respectively. The pro forma information includes the business combination accounting effects resulting from these acquisitions, including interest expense, tax expense or benefit, issuance of our common shares, and additional amortization resulting from the valuation of amortizable intangible assets. We prepared the pro forma financial information for the combined entities for comparative purposes only, and it is not indicative of what actual results would have been if the acquisitions had occurred at the beginning of the periods presented, or of future results.
 
 
Year Ended December 31,
 
 
2018
Pro Forma
 
2017
Pro Forma
 
 
(unaudited)
 
 
(in thousands, except per share amounts)
Total revenue
 
$
899,966

 
$
809,987

Net income (loss)
 
$
27,969

 
$
(14,210
)
Net income (loss) per share:
 
 
 
 
Basic
 
$
0.32

 
$
(0.18
)
Diluted
 
$
0.30

 
$
(0.18
)