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J&J Worldwide Services Acquisition | 3 Months Ended
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Mar. 31, 2024
Business Combination and Asset Acquisition [Abstract] |
J&J Worldwide Services Acquisition | J&J Worldwide Services Acquisition On February 27, 2024, we acquired a 100% ownership interest in J&J Worldwide Services (J&J), a leading provider of engineering services, base support operations and facilities maintenance for the U.S. federal government. J&J primarily serves the U.S. Department of Defense through long-term, fixed-price contracts and is reported as part of our Global Workplace Solutions (GWS) segment. The acquisition is consistent with key elements of our M&A strategy that focus on enhancing our technical services capabilities, increasing revenue resilience and secular growth, and expanding our government client base within our GWS segment. The J&J acquisition was treated as a business combination under ASC 805 and was accounted for using the acquisition method of accounting. We financed the acquisition with a new issuance in February 2024 of $500.0 million in aggregate principal amount of 5.500% senior notes due April 1, 2029; (ii) borrowings under our existing revolving credit facility under our 2023 Credit Agreement; and (iii) cash on hand. See Note 8 for more information on the above mentioned debt instruments. The following summarizes the consideration transferred at closing for the J&J acquisition (dollars in millions):
Cash consideration | $ | 809 |
Deferred and contingent consideration | 11 |
Total consideration | $ | 820 |
The purchase price included $7.4 million of contingent consideration, representing the acquisition date fair value recognized for up to $250.0 million gross of potential future earnout payments based on the achievement of certain performance thresholds during calendar years 2025 and 2026. The following represents the summary of the excess purchase price over the fair value of net assets acquired (dollars in millions):
Purchase price | $ | 820 |
Less: Estimated fair value of net assets acquired (see table below) | 354 |
Excess purchase price over estimated fair value of net assets acquired | $ | 466 |
The preliminary purchase accounting adjustments related to the J&J acquisition have been recorded in the accompanying consolidated financial statements. The excess purchase price over the fair value of net assets acquired and non-controlling interest has been recorded to goodwill. The goodwill arising from the J&J acquisition consists largely of the synergies and opportunities to deliver premier engineering services, base support operations and facilities maintenance services. Of the goodwill generated, approximately $115.0 million is deductible for tax purposes. The acquired assets and assumed liabilities of J&J were recorded at their estimated fair values. The purchase price allocation for the business combination is preliminary, primarily for intangibles, and subject to change within the respective measurement period which will not extend beyond one year from the acquisition date. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined. Any such adjustments may be material. The following table summarizes the preliminary fair values assigned to the identified assets acquired and liabilities assumed at the acquisition date on February 27, 2024 (dollars in millions):
Assets Acquired: |  |
Cash and cash equivalents |  | $ | 26 |
Receivables, net |  | 92 |
Contract Assets |  | 22 |
Prepaid expenses |  | 2 |
Other current assets |  | 2 |
Property and equipment, net |  | 11 |
Other intangible assets, net |  | 297 |
Operating lease assets |  | 6 |
Investments in unconsolidated subsidiaries |  | 25 |
Other assets, net |  | 11 |
Total assets acquired |  | 494 |
Liabilities Assumed: |  |
Accounts payable and accrued expenses |  | 60 |
Compensation and employee benefits |  | 7 |
Contract liabilities |  | 1 |
Income taxes payable |  | 1 |
Other current liabilities |  | 2 |
Non-current operating lease liabilities |  | 3 |
Deferred tax liabilities, net |  | 57 |
Other liabilities |  | 3 |
Total liabilities assumed |  | 134 |
Non-controlling Interest Acquired |  | 6 |
Estimated Fair Value of Net Assets Acquired |  | $ | 354 |
In connection with the J&J acquisition, below is a summary of the preliminary value allocated to the intangible assets acquired (dollars in millions):
|  |  |  |  |  | March 31, 2024
Asset Class |  | Amortization Period |  | Amount Assigned at Acquisition Date |  | Accumulated Amortization |  | Net Carrying Value
Customer relationships |  | 9-12 years |  | $ | 174 |  |  | $ | 1 |  |  | $ | 173 |
Backlog |  | 4-6 years |  | 111 |  |  | 2 |  |  | 109 |
Trademark |  | 3 years |  | 10 |  |  | — |  |  | 10 |
Technology |  | 5 years |  | 2 |  |  | — |  |  | 2 |
The accompanying consolidated statement of operations for the three months ended March 31, 2024 includes revenue, operating loss and net income of $41.4 million, $0.3 million and $0.5 million, respectively, attributable to the J&J acquisition. This does not include the total direct transaction and integration costs of $17.5 million incurred during the first quarter of 2024 in connection with the J&J acquisition, which are included in the unaudited pro forma results. The fair value of customer relationships and backlog was determined using the Multi-Period Excess Earnings Method (MPEEM), a form of the Income Approach. The MPEEM is a specific application of the Discounted Cash Flow Method. The principle behind the MPEEM is that the value of an intangible asset is equal to the present value of the incremental cash flows attributable only to the subject intangible asset. This estimation used certain unobservable key inputs such as timing of projected cash flows, growth rates, expected contract renewal probabilities, discount rates, and the assessment of useful life. The fair value of the trademark and the existing technology was determined by using the Relief-from-Royalty Method, a form of the Income Approach, and relied on key unobservable inputs such as timing of the projected cash flows, growth rates, and royalty rates. The basic tenet of the Relief-from-Royalty Method is that without ownership of the subject intangible asset, the user of that intangible asset would have to make a stream of payments to the owner of the asset in return for the rights to use that asset. By acquiring the intangible asset, the user avoids these payments. Unaudited pro forma results, assuming the J&J acquisition had occurred as of January 1, 2023 for purposes of the pro forma disclosures for the three months ended March 31, 2024 and 2023 are presented below. They include certain adjustments for increased amortization expense related to the intangible assets acquired (approximately $3.2 million and $4.7 million for the three months ended March 31, 2024 and 2023, respectively) as well as increased interest expense related to the long-term financing (approximately $4.2 million and $7.0 million for the three months ended March 31, 2024 and 2023, respectively). Direct transaction and integration costs of $17.5 million incurred during the first quarter of 2024 and $2.1 million incurred during the fourth quarter of 2023 as well as the tax impact of all pro forma adjustments are also included in the unaudited pro forma results. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the J&J acquisition occurred on January 1, 2023 and may not be indicative of future operating results (dollars in millions, except share and per share data):
| Three Months Ended March 31,
| 2024 |  | 2023
Revenue | $ | 8,007 |  |  | $ | 7,525 |
Operating income | 214 |  |  | 14 |
Net income attributable to CBRE Group, Inc. | 131 |  |  | 93 |
Basic income per share: |  |  |
Net income per share attributable to CBRE Group, Inc. | $ | 0.43 |  |  | $ | 0.30 |
Weighted average shares outstanding for basic income per share | 305,808,212 |  |  | 310,464,609 |
Diluted income per share: |  |  |
Net income per share attributable to CBRE Group, Inc. | $ | 0.42 |  |  | $ | 0.29 |
Weighted average shares outstanding for diluted income per share | 308,502,456 |  |  | 315,358,147 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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