Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

v3.21.2
Business Combinations
9 Months Ended
Sep. 30, 2021
Business Combinations  
Business Combinations

10. Business Combinations

During the nine months ended September 30, 2021, the Company completed several transactions which have been accounted for as business combinations. The purpose of each of the acquisitions is to expand the scope and nature of the Company’s product and service offerings, obtain new customer acquisition channels, add additional team members with important skillsets, and realize synergies. Acquisition-related costs of $5.4 million primarily comprised of legal and due-diligence related fees, are included in general and administrative expenses on the condensed consolidated statements of operations. The results of operations for each acquisition are included in the Company’s condensed consolidated financial statements from the date of acquisition onwards.

The following table summarizes the total consideration and the preliminary estimated fair value of the assets acquired and liabilities assumed for business combinations made by the Company during the nine months ended September 30, 2021:

Weighted Average Useful Life (in years)

    

V12 Data

    

HOA

    

Rynoh

    

AHP

    

Other Acquisitions

    

Total

Purchase consideration:

Cash

$

20,346

$

82,355

$

32,302

$

43,750

$

25,321

$

204,074

Issuance of common stock

21,687

3,106

24,793

Payable

3,014

3,500

2,500

9,014

Contingent consideration - equity-classified

6,685

6,685

Contingent consideration - liability-classified

1,410

327

1,737

Total purchase consideration:

$

21,756

$

113,741

$

35,802

$

46,250

$

28,754

$

246,303

Assets:

Cash, cash equivalents and restricted cash

$

1,035

$

17,766

$

408

$

5,078

$

1,106

$

25,393

Current assets

4,939

235,669

932

9,761

1,579

252,880

Property and equipment

996

2,267

334

17

80

3,694

Intangible assets:

Customer relationships

10.0

1,650

16,700

12,700

8,900

39,950

Acquired technology

5.0

3,525

2,900

970

7,395

Trademarks and tradenames

11.0

1,225

12,200

900

700

5,160

20,185

Non-competition agreements

2.0

40

90

55

185

Value of business acquired

1.0

400

400

Renewal rights

8.0

7,692

2,042

9,734

Insurance licenses

Indefinite

4,960

4,960

Goodwill

16,760

47,361

21,952

43,095

13,582

142,750

Other non-current assets

55,165

25

1,000

56,190

Total assets acquired

30,170

400,180

40,216

60,718

32,432

563,716

Current liabilities

(6,388)

(273,759)

(409)

(14,389)

(2,252)

(297,197)

Long term liabilities

(2,026)

(8,913)

(79)

(1,000)

(12,018)

Deferred tax liabilities, net

(3,767)

(4,005)

(426)

(8,198)

Net assets acquired

$

21,756

$

113,741

$

35,802

$

46,250

$

28,754

$

246,303

The estimated fair values assigned to tangible and intangible assets acquired and liabilities assumed are preliminary in nature and may be subject to change as additional information is received. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

January 12, 2021 Acquisition (“V12 Data”)

On January 12, 2021, Porch acquired V12 Data, an omnichannel marketing platform. The purpose of the acquisition is to expand the scope and nature of Porch’s service offerings, add additional team members with important skillsets, and realize synergies. Porch acquired V12 Data for $20.3 million cash with an additional $1.4 million as contingent consideration. The contingent consideration is based on the achievement of certain Revenue and EBITDA milestones over the two succeeding years and is paid in cash or common stock at Porch’s discretion. The consideration was paid to the sellers in exchange for net assets of $21.8 million. Goodwill is expected to be deductible for tax purposes. Acquisition-related costs of $274 thousand are included in general and administrative expenses on the condensed consolidated statements of operations for the nine months ended September 30, 2021.

The following table summarizes the fair value of the intangible assets of V12 Data as of the date of the acquisition:

    

    

Estimated 

Fair 

Useful Life

 

Value

 

(in years)

Intangible assets:

 

  

 

  

Customer relationships

$

1,650

 

10

Acquired technology

 

3,525

 

4

Trademarks and tradenames

1,225

 

15

Non-competition agreements

 

40

2

$

6,440

 

  

The weighted-average amortization period for the acquired intangible assets is 7.6 years.

The estimated fair value of the customer relationships intangible asset was calculated through the income approach using the multi-period excess earnings methodology. The estimated fair value of the trademarks and tradenames as well as acquired technology intangible assets were calculated through the income approach using the relief from royalty methodology. The estimated fair value of the non-competition agreement is derived using the with and without method over the contractual term of the agreement. The estimated fair value of deferred revenue is derived using the cost-plus-profit method, which presumes that an acquirer of deferred revenue would not pay more than the costs and expenses to fulfill the obligation plus a profit for the effort employed.

April 5, 2021 Acquisition (“HOA”)

On April 5, 2021, Porch acquired HOA. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and gain licenses to operate as an insurance carrier and managing general agent in 31 states. Total consideration related to this transaction included $113.7 million, consisting of $82 million in cash paid at closing, $21.7 million in Porch common stock, and acquisition hold backs and contingent consideration of $9.7 million. An additional $0.3 million related to the final working capital adjustment was paid to the sellers in the third quarter of 2021. Goodwill is not expected to be deductible for tax purposes. Acquisition-related costs of $2.9 million were primarily for legal and due-diligence related fees and are included in general and administrative expenses for the nine months ended September 30, 2021.

The following table summarizes the fair value of the intangible assets of HOA as of the date of the acquisition:

    

    

Estimated 

Fair 

Useful Life

 

Value

 

(in years)

Intangible assets:

 

  

 

  

Customer relationships

$

16,700

 

10

Trademarks and tradenames

12,200

 

10

Business acquired

400

1

Renewal rights

7,692

8

Insurance licenses

4,960

Indefinite

$

41,952

 

  

The weighted-average amortization period for the acquired intangible assets is 9.5 years.

The fair value of customer relationships was estimated through the income approach using the multi-period excess earnings methodology. The fair value of trade name and trademarks was estimated through the income approach using the relief from royalty methodology. The business acquired was valued using the income approach based on estimates of expected future losses and expenses associated with the policies that were in-force as of the closing date of the transaction compared to the future premium remaining to be earned. Renewal rights asset was estimated through the income approach based on premium forecast and cash flows from the renewal policies modeled over the life of the

renewals. The insurance licenses were valued using the market approach based on arms-length transactions in which certificate authority companies with licenses were purchased.

May 20, 2021 Acquisition (“Rynoh”)

On May 20, 2021, Porch acquired Segin Systems, Inc. (“Rynoh”), a software and data analytics company that supports financial management and fraud prevention primarily for the title and real estate industries. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies. Total consideration related to this transaction includes $35.8 million, consisting of $32.3 million in cash paid at closing, and acquisition hold backs of $3.5 million. Goodwill is not expected to be deductible for tax purposes. Acquisition-related costs of $1.6 million were primarily for legal and due-diligence related fees and are included in general and administrative expenses for the nine months ended September 30, 2021.

The following table summarizes the fair value of the intangible assets of Rynoh as of the date of the acquisition:

    

    

Estimated 

Fair 

Useful Life

 

Value

 

(in years)

Intangible assets:

 

  

 

  

Customer relationships

$

12,700

 

10

Acquired technology

 

2,900

 

7

Trademarks and tradenames

900

 

20

Non-competition agreements

 

90

1

$

16,590

 

  

The weighted-average amortization period for the acquired intangible assets is 10.0 years.

The fair value of customer relationships was estimated through the income approach using the multi-period excess earnings methodology. The fair value of trade name and trademarks, as well as acquired technology was estimated through the income approach using the relief from royalty methodology. The fair value of the non-competition agreement is derived using the with and without method over the contractual term of the agreement.

September 9, 2021 Acquisition (“AHP”)

On September 9, 2021, Porch acquired AHP, a company providing home warranty policies. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies. Total consideration related to this transaction includes $46.3 million, consisting of $43.8 million in cash paid at closing, and acquisition hold backs of $2.5 million. Acquisition-related costs of $0.3 million are included in general and administrative expenses on the condensed consolidated statements of operations for the nine months ended September 30, 2021.

The following table summarizes the fair value of the intangible assets of AHP as of the date of the acquisition:

    

    

Estimated 

Fair 

Useful Life

 

Value

 

(in years)

Intangible assets:

 

  

 

  

Renewal rights

$

2,042

 

6

Trademarks and tradenames

700

 

10

$

2,742

 

  

The weighted-average amortization period for the acquired intangible assets is 7.0 years.

Renewal rights asset was estimated through the income approach based on forecast and cash flows from the renewal policies modeled over the life of the renewals. The fair value of trade name and trademarks was estimated through the income approach using the relief from royalty methodology.

Revenue from these four acquisitions included in the Company’s condensed consolidated statements of operations through September 30, 2021 is $55.3 million. Net income included in the Company’s condensed consolidated statements of operations from these acquisitions through September 30, 2021 is $1.2 million.

Unaudited Pro Forma Consolidated Financial Information

The following table summarizes the estimated unaudited pro forma consolidated financial information of the Company as if the V12 Data, HOA and Rynoh acquisitions had occurred on January 1, 2020:

    

Three months ended

    

Nine months ended

September 30, 

September 30, 

 

2021

 

2020

 

2021

 

2020

Revenue

$

62,769

$

40,762

$

160,379

$

109,599

Net loss

$

(5,099)

$

(41,820)

$

(84,516)

$

(69,428)

Other Acquisitions

In the first nine months of 2021, the Company completed other acquisitions which were not individually material to the condensed consolidated financial statements. The purpose of the acquisitions was to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies. The transaction costs associated with these acquisitions were $0.3 million and are included in general and administrative expenses on the condensed consolidated statements of operations for the nine months ended September 30, 2021. Goodwill of $3.6 million is not expected to be deductible for tax purposes, while goodwill of $10.0 million is expected to be deductible for tax purposes.