Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.10.0.1
Acquisitions
6 Months Ended
Jun. 30, 2018
Business Combinations [Abstract]  
Acquisitions
Acquisitions
Current Acquisition Activity
ClickPay
In April 2018, we entered into an acquisition agreement by which 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 also entered into an agreement and plan of merger, by which 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 a purchase price of $216.9 million. The purchase price consisted of a cash payment of $138.8 million, net of cash acquired of $7.5 million, the issuance of 682,688 shares of our common stock valued at $35.9 million, a deferred obligation of up to $20.0 million, which had a fair value of $18.9 million on the date of acquisition, and a liability of $23.6 million related to put and call option agreements, which had a fair value of $23.3 million on the date of acquisition. Subject to any indemnification claims made, the deferred obligation will be released on the first and second anniversary dates of the closing date. The acquisition of ClickPay was financed using funds available under our Credit Facility, as defined in Note 7, 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 may be exercised by the holders on or after September 1, 2018, and call rights that may be exercised by us on or after October 1, 2018. The exercise price of the put and call rights is 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 $20.8 million. As of June 30, 2018, approximately 3% of the membership units of NovelPay were held by the remaining noncontrolling interest holders. No earnings have been attributed to the noncontrolling interests in the accompanying Condensed Consolidated Statements of Operations. Such interests, valued at $2.8 million, are recorded as a liability in the accompanying Condensed Consolidated Balance Sheet.
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 $168.0 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 and the acquired identified intangible assets arising from the acquisition of NovelPay are deductible for tax purposes; those arising from the acquisition of ClickPay Services, Inc. are not. Accounts receivable acquired had a gross contractual value of $2.8 million at acquisition, of which $0.1 million was estimated to be uncollectible. Acquisition costs associated with this transaction totaled $1.4 million and were expensed as incurred.
Purchase Price Allocation
The estimated fair values of assets acquired and liabilities assumed are provisional and are based primarily on the information available as of the 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 the acquisition date. The preliminary allocation of the ClickPay purchase price is as follows, in thousands:
Restricted cash
 
 
 
 
 
 
 
 
$
1,313

Accounts receivable
 
 
 
 
 
 
 
 
2,714

Property, equipment, and software
 
 
 
 
 
 
 
 
89

Intangible assets:
 
 
 
 
 
 
 
 
 
Developed product technologies
 
 
 
 
 
 
 
 
29,100

Client relationships
 
 
 
 
 
 
 
 
20,700

Trade names
 
 
 
 
 
 
 
 
2,900

Goodwill
 
 
 
 
 
 
 
 
168,033

Other assets
 
 
 
 
 
 
 
 
489

Accounts payable and accrued liabilities
 
 
 
 
 
 
 
 
(2,698
)
Client deposits held in restricted accounts
 
 
 
 
 
 
 
 
(1,313
)
Deferred tax liability, net
 
 
 
 
 
 
 
 
(4,430
)
Total purchase price

 

 

 

 
$
216,897


At June 30, 2018, the deferred obligation related to this acquisition totaled $20.0 million and was carried net of a discount of $0.9 million, in the Condensed Consolidated Balance Sheet.
2017 Acquisitions
Lease Rent Options
In February 2017, we entered into an agreement with The Rainmaker Ventures, LLC (“Rainmaker”) to acquire substantially all of the assets and liabilities that comprised Rainmaker’s multifamily revenue optimization business (“LRO”). We completed the acquisition when the transaction closed in December 2017. LRO is a revenue management solution that empowers optimized pricing for multifamily housing communities. This acquisition extended our revenue management footprint, augmented our repository of real-time lease transaction data, and increased our data science talent and capabilities. We also expect the acquisition of LRO to increase the market penetration of our YieldStar Revenue Management solution and drive revenue growth in our other asset optimization solutions.
We acquired LRO for a purchase price of $299.9 million. The purchase price consisted of a cash payment of $298.0 million, a deferred cash obligation of up to $1.6 million, which had a fair value of $1.5 million on the date of acquisition, and the assumption of certain liabilities totaling $0.4 million. Subject to any indemnification claims made, the deferred cash obligation will be released on the first anniversary of the closing date. The acquisition of LRO was financed using funds available under our Credit Facility, as defined in Note 7, and cash on hand.
The acquired identified intangible assets consisted of developed technology, client relationships, and trade names. These intangible assets were assigned estimated useful lives of seven, ten, and two years, respectively. Preliminary goodwill recognized of $202.9 million is primarily comprised of anticipated synergies from leveraging LRO’s repository of lease transaction data and data science talent with our existing platform of pricing, demand, and credit optimization tools. Goodwill and the acquired identified intangible assets are deductible for tax purposes. Accounts receivable acquired had a gross contractual value of $4.7 million at acquisition, of which $0.2 million was estimated to be uncollectible. Acquisition costs associated with this transaction totaled $13.8 million, including $10.7 million incurred related to the Hart-Scott-Rodino Antitrust Improvements Act review process, and were expensed as incurred.
PEX Software
In October 2017, we acquired all of the issued and outstanding shares of PEX Software Limited (“PEX”). PEX is a rental housing solution provider based in the United Kingdom that helps companies transform work practices and service delivery models, create and leverage competitive advantage, reduce costs, and scale businesses. PEX’s platform serves market-leading clients in the United Kingdom, European Union, and Australia. The acquisition of PEX will help us to secure a leading market position in the private rental segment of the United Kingdom’s housing market and facilitate our expansion into the European Union and other international markets.
We acquired PEX for a purchase price of $6.0 million. The purchase price consisted of a cash payment of $5.1 million at closing, net of cash acquired of $0.1 million, and a deferred cash obligation of up to $1.0 million. The deferred cash obligation is payable over a period of 24 months, and its fair value was $0.9 million at the date of acquisition. This acquisition was financed using cash on hand, which included a portion of the net offering proceeds from the issuance of the Convertible Notes.
The acquired identified intangible assets consisted of developed technology, client relationships, and trade names. These intangible assets were assigned estimated useful lives of seven, nine, and six years, respectively. Preliminary goodwill recognized of $3.3 million is chiefly attributable to the presence we gained in international markets and anticipated synergies from combining PEX’s consumer facing solutions with our platform of property management, accounting, and asset optimization solutions. Goodwill and the acquired identified intangible assets are not deductible for tax purposes. Acquisition costs associated with this transaction totaled $0.4 million and were expensed as incurred.
On-Site
In September 2017, we acquired certain discrete assets of On-Site Manager, Inc., including its ownership interest in its majority-owned subsidiary, DepositIQ & RentersIQ Insurance Agency, LLC (“DIQ”) (collectively, “On-Site”). We also acquired the remaining minority interest in DIQ. On-Site is a leasing platform for property managers and renters that assimilates leads from any source and converts them into signed leases for both the multifamily and single family housing industries. The acquisition of On-Site increased the footprint of our screening services and added incremental consumer-oriented data that benefits our data analytics solutions. Additionally, we anticipate On-Site will improve the integration of our leasing solutions into other major property management systems.
We acquired On-Site, including the minority interest in DIQ, for an aggregate purchase price of $253.4 million. The purchase price consisted of a cash payment of $225.3 million at closing, net of cash acquired of $1.7 million, and a deferred cash obligation of up to $29.6 million. The fair value of the deferred cash obligation was $28.1 million at the date of acquisition. Subject to any indemnification claims made, the deferred cash obligation will be paid over a period of 36 months, with the majority due approximately twelve months following the acquisition date. This acquisition was financed using cash on hand, which included a portion of the net offering proceeds from the issuance of the Convertible Notes.
The acquired identifiable intangible assets consisted of trade names, developed technologies, and client relationships, which will be amortized over estimated useful lives of two, five, and ten years, respectively. Preliminary goodwill recognized of $184.5 million primarily arises from anticipated synergies from leveraging our existing cost structure and integrated sales force. Goodwill and the acquired identified intangible assets arising from the acquisition of On-Site Manager are deductible for tax purposes; those arising from the acquisition of DIQ are not. Accounts receivable acquired had a gross contractual value of $5.6 million at acquisition, of which $0.9 million was estimated to be uncollectible. Acquisition costs associated with this transaction, including those related to the Hart-Scott-Rodino Antitrust Improvements Act review process, totaled $1.8 million and were expensed as incurred.
American Utility Management
In June 2017, RealPage acquired substantially all of the assets of American Utility Management (“AUM”), a provider of utility and energy management services for the multifamily housing industry. AUM helps maximize cost recovery, reduces energy usage and expense, and provides the tools operators of rental real estate need to manage their utilities more effectively. Additionally, AUM’s platform includes tools that enable operators to benchmark energy cost and consumption against their peers. The acquired assets will be integrated with our existing resident utility management platform and our data analytics tools.
We acquired AUM for a purchase price of $69.4 million. The purchase price consisted of a cash payment of $64.8 million at closing, net of cash acquired of $0.1 million, and a deferred cash obligation of up to $5.1 million. The fair value of the deferred cash obligation was $4.6 million at the date of acquisition and is payable over a period of four years following the date of acquisition. This acquisition was financed using cash on hand, which included a portion of the net offering proceeds from the issuance of the Convertible Notes.
The acquired identifiable intangible assets consisted of trade names, developed technology, non-compete agreements, and client relationships, which will be amortized over estimated useful lives of two, three, five, and ten years, respectively. Preliminary goodwill recognized of $45.9 million primarily arises from anticipated synergies from integrating the acquired assets with our existing resident utility management system and leveraging the energy cost and consumption benchmarking capabilities and data acquired. Goodwill and the acquired identified intangible assets are deductible for tax purposes. Accounts receivable acquired had a gross contractual value of $2.7 million at acquisition, of which $0.3 million was estimated to be uncollectible. Acquisition costs associated with this transaction totaled $0.3 million and were expensed as incurred.
Axiometrics LLC
In January 2017, we acquired substantially all of the assets of Axiometrics LLC (“Axiometrics”). Axiometrics provides its customers with timely market intelligence on apartment markets accumulated from survey and research data. Axiometrics also provides tools to analyze the data at an asset level by multiple variables such as asset class, age, and specific competitive floor plans. The acquisition of Axiometrics expanded our multifamily data analytics platform and was integrated with MPF Research, our market research database, to form Data Analytics.
We acquired Axiometrics for a purchase price of $73.8 million. The purchase price consisted of a cash payment of $66.1 million at closing; deferred cash obligations of up to $7.5 million, payable over a period of two years following the date of acquisition; and contingent cash obligations of up to $5.0 million if certain revenue targets are achieved during the twelve-month period ending December 31, 2018. The fair value of the deferred and contingent cash obligations was $6.9 million and $0.8 million, respectively, at the date of acquisition. This acquisition was financed using cash on hand.
The acquired identified intangible assets consisted of developed technology, client relationships, and trade names. These intangible assets were assigned estimated useful lives of five, ten, and three years, respectively. We recognized goodwill in the amount of $54.2 million related to this acquisition, which is primarily comprised of anticipated synergies with our existing multifamily data analytics platform. Goodwill and the acquired identified intangible assets are deductible for tax purposes. Acquisition costs associated with this transaction totaled $0.3 million and were expensed as incurred.
Purchase Price Allocation
For certain of the acquisitions in the table below, the estimated fair values of assets acquired and liabilities assumed are provisional and are based primarily on the information available as of the acquisition dates. The allocation of each purchase price, including the effects of measurement period adjustments recorded as of June 30, 2018, was as follows:
 
Axiometrics
 
AUM
 
On-Site
 
PEX
 
LRO
 
(Final)
 
(Final)
 
(Provisional)
 
(Provisional)
 
(Provisional)
 
(in thousands)
Restricted cash
$

 
$
5,954

 
$
3,458

 
$

 
$

Accounts receivable
1,620

 
2,409

 
4,718

 
107

 
4,498

Property, equipment, and software
400

 
319

 
789

 
8

 
1,507

Intangible assets:
 
 
 
 
 
 
 
 
 
Developed product technologies
15,500

 
10,800

 
16,960

 
2,350

 
42,000

Client relationships
6,830

 
7,470

 
41,360

 
590

 
49,000

Trade names
3,200

 
208

 
7,000

 
160

 
666

Non-compete agreements

 
3,920

 

 

 

Goodwill
54,190

 
45,907

 
184,520

 
3,309

 
202,852

Other assets
273

 
850

 
826

 
78

 
475

Accounts payable and accrued liabilities
(367
)
 
(2,150
)
 
(938
)
 
(242
)
 
(214
)
Client deposits held in restricted accounts

 
(5,954
)
 
(3,458
)
 

 

Deferred revenue
(7,115
)
 
(321
)
 
(565
)
 
(221
)
 
(861
)
Other long-term liabilities
(774
)
 

 

 

 

Deferred tax liability

 

 
(1,240
)
 
(108
)
 

Total purchase price
$
73,757

 
$
69,412

 
$
253,430

 
$
6,031

 
$
299,923


At June 30, 2018 and December 31, 2017, deferred cash obligations related to acquisitions completed in 2017 totaled $38.2 million and $44.8 million, and were carried net of a discount and indemnified obligations of $0.8 million and $2.3 million, respectively, in the Condensed Consolidated Balance Sheets. The aggregate fair value of contingent cash obligations related to these acquisitions was $0.1 million and $0.2 million at June 30, 2018 and December 31, 2017, respectively. During the three and six months ended June 30, 2018 and 2017, we recognized a gain of $0.1 million and $0.2 million, respectively, due to changes in the fair value of contingent cash obligations related to acquisitions completed in 2017. We made deferred cash payments of $6.0 million during the six months ended June 30, 2018 related to these acquisitions.
Acquisition Activity Prior to 2017
At June 30, 2018 and December 31, 2017, the aggregate carrying value of deferred cash obligations related to acquisitions completed prior to 2017 totaled $2.7 million and $4.4 million, respectively. We paid deferred cash obligations related to these acquisitions in the amount of $1.8 million and $7.0 million during the six months ended June 30, 2018 and 2017, respectively.
No contingent cash obligations remained outstanding at June 30, 2018 related to acquisitions completed prior to 2017. The aggregate carrying value of contingent cash obligations related to these acquisitions was estimated to be $0.2 million at December 31, 2017. During the six months ended June 30, 2018 and 2017, we paid contingent cash obligations in the amount of $0.2 million and $0.5 million, respectively, related to acquisitions completed prior to 2017. We recognized an expense of $0.1 million and $0.2 million during the three and six months ended June 30, 2017, respectively, due to changes in the fair value of contingent cash obligations related to these acquisitions.
Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for the three and six months ended June 30, 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, 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.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
Pro Forma
 
2017
Pro Forma
 
2018
Pro Forma
 
2017
Pro Forma
 
(unaudited)
 
(in thousands, except per share amounts)
Total revenue
$
218,259

 
$
197,492

 
$
427,145

 
$
386,592

Net income
8,966

 
4,867

 
18,757

 
8,001

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.11

 
$
0.06

 
$
0.23

 
$
0.10

Diluted
$
0.10

 
$
0.06

 
$
0.21

 
$
0.10