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Business Combinations | 9 Months Ended
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Sep. 30, 2021
Business Combinations [Abstract] |
Business Combinations | NOTE 5 Business Combinations During the nine months ended September 30, 2021, Brown & Brown acquired all of the share capital of one insurance intermediary, assets and assumed certain liabilities of eight insurance intermediaries, and two books of business (customer accounts) for a total of eleven acquisitions. Additionally, adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 months as permitted by Accounting Standards Codification Topic 805 — Business Combinations (“ASC 805”). Such adjustments are presented in the “Other” category within the following two tables. The recorded purchase price for all acquisitions includes an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out obligations will be recorded in the Condensed Consolidated Statements of Income when incurred. The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made. Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Condensed Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the nine months ended September 30, 2021, adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $1.5 million. These measurement period adjustments have been reflected as current period adjustments in the nine months ended September 30, 2021 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The measurement period adjustments primarily impacted goodwill, with no effect on earnings or cash in the current period. The following table summarizes the purchase price allocations made as of the date of each acquisition for current year acquisitions and adjustments made during the measurement period for prior year acquisitions. Cash paid for eleven acquisitions was $224.1 million during the nine months ended September 30, 2021. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. These adjustments are made in the period in which the amounts are determined, and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Name |  | Business segment |  | Effective date of acquisition |  | Cash paid |  |  | Common stock issued |  |  | Other payable |  |  | Recorded earn-out payable |  |  | Net assets acquired |  |  | Maximum potential earn-out payable |
O'Leary Insurances (O'Leary) |  | Retail |  | January 1, 2021 |  | $ | 117,408 |  |  | $ | 4,892 |  |  | $ | — |  |  | $ | 15,348 |  |  | $ | 137,648 |  |  | $ | 30,575 |
Piper Jordan LLC (Piper) |  | Retail |  | May 1, 2021 |  |  | 43,428 |  |  |  | — |  |  |  | 1,397 |  |  |  | 9,854 |  |  |  | 54,679 |  |  |  | 15,000 |
Berkshire Insurance Group, Inc. (Berkshire) |  | Retail |  | September 1, 2021 |  |  | 41,500 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 41,500 |  |  |  | — |
AGIS Network Inc. (AGIS) (1) |  | Retail |  | September 1, 2021 |  |  | 11,203 |  |  |  | — |  |  |  | 24,114 |  |  |  | 739 |  |  |  | 36,056 |  |  |  | 12,289 |
Other |  | Various |  | Various |  |  | 10,602 |  |  |  | — |  |  |  | 2,098 |  |  |  | (778 | ) |  |  | 11,922 |  |  |  | 3,388 |
Total |  |  |  |  |  | $ | 224,141 |  |  | $ | 4,892 |  |  | $ | 27,609 |  |  | $ | 25,163 |  |  | $ | 281,805 |  |  | $ | 61,252 |
(1) Amount in the "other payable" column relates to additional contingent consideration expected to be paid within 12 months. The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition and adjustments made during the measurement period of the prior year acquisitions.
(in thousands) |  | O'Leary |  |  | Piper |  |  | Berkshire |  |  | AGIS |  |  | Other |  |  | Total |
Cash |  | $ | 45,441 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 693 |  |  | $ | 46,134 |
Other current assets |  |  | 43,354 |  |  |  | 2,397 |  |  |  | 1,621 |  |  |  | 520 |  |  |  | 5,060 |  |  |  | 52,952 |
Fixed assets |  |  | 544 |  |  |  | 9 |  |  |  | 9 |  |  |  | 20 |  |  |  | 4 |  |  |  | 586 |
Goodwill |  |  | 84,649 |  |  |  | 40,019 |  |  |  | 27,563 |  |  |  | 21,888 |  |  |  | 2,539 |  |  |  | 176,658 |
Purchased customer accounts |  |  | 40,459 |  |  |  | 12,233 |  |  |  | 12,313 |  |  |  | 13,577 |  |  |  | 7,271 |  |  |  | 85,853 |
Non-compete agreements |  |  | 819 |  |  |  | 21 |  |  |  | 11 |  |  |  | 51 |  |  |  | 109 |  |  |  | 1,011 |
Other assets |  |  | 135 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 259 |  |  |  | 394 |
Total assets acquired |  |  | 215,401 |  |  |  | 54,679 |  |  |  | 41,517 |  |  |  | 36,056 |  |  |  | 15,935 |  |  |  | 363,588 |
Other current liabilities |  |  | (72,683 | ) |  |  | — |  |  |  | (17 | ) |  |  | — |  |  |  | (4,013 | ) |  |  | (76,713 | )
Deferred income tax, net |  |  | (5,057 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5,057 | )
Other liabilities |  |  | (13 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (13 | )
Total liabilities assumed |  |  | (77,753 | ) |  |  | — |  |  |  | (17 | ) |  |  | — |  |  |  | (4,013 | ) |  |  | (81,783 | )
Net assets acquired |  | $ | 137,648 |  |  | $ | 54,679 |  |  | $ | 41,500 |  |  | $ | 36,056 |  |  | $ | 11,922 |  |  | $ | 281,805 |
The other column represents current year acquisitions with total net assets acquired of less than $20.0 million and adjustments from prior year acquisitions that were made within the permitted measurement period. The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15 years; and non-compete agreements, 5 years. Goodwill of $176.7 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, and Wholesale Brokerage Segments in the amounts of $174.5 million, ($1.3) million, and $3.5 million, respectively. Of the total goodwill of $176.7 million, the amount currently deductible for income tax purposes is $151.5 million and the remaining $25.2 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. For the acquisitions completed during 2021, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through September 30, 2021, included in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2021, was $28.9 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through September 30, 2021, included in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2021, was $0.5 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s estimated results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.
(UNAUDITED) |  | Three months ended September 30, |  |  | Nine months ended September 30, |
(in thousands, except per share data) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Total revenues |  | $ | 773,593 |  |  | $ | 690,002 |  |  | $ | 2,329,567 |  |  | $ | 2,019,218 |
Income before income taxes |  | $ | 197,444 |  |  | $ | 162,392 |  |  | $ | 627,088 |  |  | $ | 504,731 |
Net income |  | $ | 147,065 |  |  | $ | 137,245 |  |  | $ | 489,355 |  |  | $ | 392,135 |
Net income per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.52 |  |  | $ | 0.48 |  |  | $ | 1.73 |  |  | $ | 1.38 |
Diluted |  | $ | 0.52 |  |  | $ | 0.48 |  |  | $ | 1.73 |  |  | $ | 1.38 |
Weighted average number of shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 276,215 |  |  |  | 275,515 |  |  |  | 275,840 |  |  |  | 273,803 |
Diluted |  |  | 277,553 |  |  |  | 276,933 |  |  |  | 277,146 |  |  |  | 275,338 |
As of September 30, 2021 and 2020, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820- Fair Value Measurement. The resulting additions, payments, and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the nine months ended September 30, 2021 and 2020, were as follows:
|  | Three months ended September 30, |  |  | Nine months ended September 30, |
(in thousands) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Balance as of the beginning of the period |  | $ | 242,016 |  |  | $ | 218,467 |  |  | $ | 258,943 |  |  | $ | 161,513 |
Additions to estimated acquisition earn-out payables |  |  | 79 |  |  |  | 22,091 |  |  |  | 25,163 |  |  |  | 96,845 |
Payments for estimated acquisition earn-out payables |  |  | (1,913 | ) |  |  | (3,580 | ) |  |  | (41,862 | ) |  |  | (11,058 | )
Subtotal |  |  | 240,182 |  |  |  | 236,978 |  |  |  | 242,244 |  |  |  | 247,300 |
Net change in earnings from estimated acquisition earn-out payables: |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value on estimated acquisition earn-out payables |  |  | 21,855 |  |  |  | 13,433 |  |  |  | 15,814 |  |  |  | (516 | )
Interest expense accretion |  |  | 1,283 |  |  |  | 1,885 |  |  |  | 4,829 |  |  |  | 5,512 |
Net change in earnings from estimated acquisition earn-out payables |  |  | 23,138 |  |  |  | 15,318 |  |  |  | 20,643 |  |  |  | 4,996 |
Foreign currency translation adjustments during the year |  |  | (406 | ) |  |  | — |  |  |  | 27 |  |  |  | — |
Balance as of September 30, |  | $ | 262,914 |  |  | $ | 252,296 |  |  | $ | 262,914 |  |  | $ | 252,296 |
Of the $262.9 million estimated acquisition earn-out payables as of September 30, 2021, $94.2 million was recorded as accounts payable and $168.7 million was recorded as other non-current liabilities. As of September 30, 2021, the maximum future acquisition contingency payments related to all acquisitions was $512.9 million, inclusive of the $262.9 million estimated acquisition earn-out payables as of September 30, 2021. Included within the additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items within the allowable measurement period, which may therefore differ from previously reported amounts.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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