Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.20.2
Acquisitions
6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Acquisitions Acquisitions
2020 Acquisitions
Modern Message
On January 22, 2020, we entered into an Agreement and Plan of Merger, by which we acquired all of the outstanding stock of Modern Message Inc. (“Modern Message”), a provider of resident engagement solutions to the multifamily housing industry. Aggregate purchase consideration was $64.7 million, comprised of $62.7 million paid at closing and deferred cash obligations of up to $2.0 million, subject to working capital adjustments and indemnification claims. A portion of the deferred cash obligations will be released within 180 days of closing, a portion on the first anniversary of the closing, and the remainder
on the second anniversary of closing. In addition, the Agreement and Plan of Merger provided for retention incentives for certain executives in the form of restricted stock grants that are tied to post-acquisition employment service. These shares were granted during the first quarter of 2020, and had an aggregate grant date fair value of $10.7 million which will be recognized as stock-based compensation over the requisite service period. The acquisition was financed with cash on hand.
The acquired identified intangible assets consisted of developed technology, client relationships, and trade names that were assigned estimated useful lives of five, nine and five years, respectively. Preliminary goodwill recognized of $49.3 million is primarily comprised of anticipated synergies from the expansion of our resident engagement platform. Goodwill and the acquired identified intangible assets are not deductible for tax purposes. Acquisition costs associated with this transaction totaled $0.5 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 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 closing date. The components of the purchase consideration and the preliminary allocation of purchase price as of June 30, 2020 are as follows:
Modern Message
(in thousands)
Fair value of purchase consideration:
Cash, net of cash acquired $ 62,749   
Deferred obligations, net 1,998   
Total fair value of purchase consideration $ 64,747   
Fair value of net assets acquired:
Restricted cash $ 3,248   
Accounts receivable 1,222   
Intangible assets:
Developed product technologies 8,700   
Client relationships 9,400   
Trade names 700   
Goodwill 49,337   
Other assets 426   
Accounts payable and accrued liabilities (886)  
Client deposits held in restricted accounts (3,450)  
Deferred revenue (198)  
Deferred tax liability, net (3,752)  
Total fair value of net assets acquired $ 64,747   

2019 Acquisitions
We completed five acquisitions during fiscal year 2019. For certain acquisitions in the table below, the estimated fair values of assets acquired and liabilities assumed are provisional. We expect to finalize the valuation of these assets and liabilities as soon as practicable, but no later than one year from the acquisition dates. The allocation of each purchase price, including effects of measurement period adjustments recorded as of June 30, 2020, is as follows:
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)
LeaseTerm Solutions (Final) Apr 2019 $ 26,512    $ 23,417    $ 587    $ 7,300    $ 18,625   
Hipercept (Provisional) Jul 2019 $ 28,353    $ 17,804    $ 149    $ 4,800    $ 23,404   
Simple Bills (Provisional) Jul 2019 $ 18,149    $ 14,875    $ (724)   $ 9,300    $ 9,573   
IMS (Provisional) Dec 2019 $ 55,738    $ 50,177    $ 30    $ 16,100    $ 39,608   
Buildium (Provisional) Dec 2019 $ 569,645    $ 566,241    $ (14,466)   $ 113,000    $ 471,111   

Deferred Obligations and Contingent Consideration Activity
The following table presents changes in the Company’s deferred cash and stock obligations and contingent consideration for the six months ended June 30, 2020 and the year ended December 31, 2019:
Deferred Cash and Stock Obligations Contingent Consideration Total
(in thousands)
Balance at January 1, 2019 $ 52,142    $ 6,000    $ 58,142   
Additions, net of fair value discount 18,183    6,700    24,883   
Cash payments (25,215)   (5,963)   (31,178)  
Settlements through common stock issued (14,846)   —    (14,846)  
Accretion expense 1,540    58    1,598   
Change in fair value —    (259)   (259)  
Indemnification claims and other adjustments (57)   —    (57)  
Balance at December 31, 2019 31,747    6,536    38,283   
Additions, net of fair value discount 1,998    —    1,998   
Cash payments (2,172)   —    (2,172)  
Accretion expense 512    83    595   
Change in fair value —    (1,035)   (1,035)  
Indemnification claims and other adjustments 478    —    478   
Balance at June 30, 2020 $ 32,563    $ 5,584    $ 38,147   

In May 2019, in connection with our April 2018 acquisitions of NovelPay, LLC (“NovelPay”) and ClickPay Services, Inc. (collectively with NovelPay, “ClickPay”), we issued an aggregate of 154,281 shares of our common stock to the equity holders of ClickPay. These shares were subject to a holdback with respect to indemnification adjustments pursuant to the acquisition agreements. In May 2020, these holdback claims were finalized, resulting in the retirement of 9,994 previously issued shares of our common stock.
In September 2019, we settled a deferred equity obligation with regard to our September 2018 acquisition of LeaseLabs, Inc. through the issuance of 80,012 shares of our common stock.
Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for the three and six months ended June 30, 2020 and 2019, as if the aforementioned 2020 and 2019 acquisitions had occurred as of January 1, 2019 and 2018, respectively. The pro forma information includes the business combination accounting effects resulting from these acquisitions, including interest expense, tax expense or benefit, issuance of shares of our common stock, 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, 2020 Six Months Ended June 30, 2020
2020 Pro Forma 2019 Pro Forma 2020 Pro Forma 2019 Pro Forma
(unaudited)
(in thousands, except per share amounts)
Total revenue $ 285,607    $ 265,074    $ 562,762    $ 520,602   
Net income $ 11,750    $ 3,643    $ 17,801    $ 3,375   
Net income per share:
Basic $ 0.12    $ 0.04    $ 0.19    $ 0.04   
Diluted $ 0.12    $ 0.04    $ 0.18    $ 0.03