XML 26 R15.htm IDEA: XBRL DOCUMENT
v3.23.3

Business Combinations | 9 Months Ended
--- | ---
Sep. 30, 2023
Business Combinations [Abstract] |
Business Combinations | NOTE 5 Business Combinations During the nine months ended September 30, 2023, Brown & Brown acquired all of the stock of 12 insurance intermediaries, purchased assets and assumed certain liabilities of five insurance intermediaries, and purchased four books of business (customer accounts) for a total of 21 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 in the following table. 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 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, 2023, adjustments were made within the permitted measurement period that included an increase to deferred tax liability of $17.3 million, an increase to purchased customer accounts of $10.9 million, an decrease to other current assets of $3.3 million for a net decrease in goodwill of $9.7 million. These measurement period adjustments have been reflected as current period adjustments in the nine months ended September 30, 2023 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The measurement period adjustments had no effect on earnings or cash in the current period. Cash paid for the 21 acquisitions was $176.8 million during the nine months ended September 30, 2023. 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 adjustments to the 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. The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired through the nine months ended September 30, 2023 as of the date of each acquisition and adjustments made during the measurement period of the prior year acquisitions.
|  | Nine months ended September 30, 2023 |
(in millions) |  | Other (1) |  |  | Total |
Cash paid |  | $ | 176.8 |  |  | $ | 176.8 |
Common stock Issued |  |  | — |  |  |  | — |
Other payable |  |  | 4.9 |  |  |  | 4.9 |
Recorded earn-out payable |  |  | 51.3 |  |  |  | 51.3 |
Total consideration |  |  | 233.0 |  |  |  | 233.0 |
Maximum potential earn-out payable |  |  | 98.9 |  |  |  | 98.9 |
Allocation of purchase price: |  |  |  |  |  |
Cash and equivalents |  |  | 4.5 |  |  |  | 4.5 |
Fiduciary cash |  |  | 9.1 |  |  |  | 9.1 |
Fiduciary receivables |  |  | 19.3 |  |  |  | 19.3 |
Other current assets |  |  | 14.9 |  |  |  | 14.9 |
Fixed assets |  |  | 0.1 |  |  |  | 0.1 |
Goodwill |  |  | 154.2 |  |  |  | 154.2 |
Purchased customer accounts and other |  |  | 55.3 |  |  |  | 55.3 |
Non-compete agreements |  |  | 0.3 |  |  |  | 0.3 |
Operating lease right-of-use assets |  |  | — |  |  |  | — |
Deferred income tax, net (2) |  |  | 13.6 |  |  |  | 13.6 |
Other assets |  |  | 0.1 |  |  |  | 0.1 |
Total assets acquired |  |  | 271.4 |  |  |  | 271.4 |
Fiduciary liabilities |  |  | (28.3 | ) |  |  | (28.3 | )
Other current liabilities |  |  | (6.5 | ) |  |  | (6.5 | )
Deferred income tax, net (2) |  |  |  |  |  |
Operating lease liabilities |  |  | — |  |  |  | — |
Other long-term liabilities |  |  | (3.6 | ) |  |  | (3.6 | )
Total liabilities assumed |  |  | (38.4 | ) |  |  | (38.4 | )
Net assets acquired |  | $ | 233.0 |  |  | $ | 233.0 |
(1) The other column represents a summarization of current year acquisitions with total consideration of less than $50.0 million per acquisition and adjustments from prior year acquisitions that were made within the permitted measurement period. (2) The Company has revised the provisional amounts in the measurement period for items for which the accounting was incomplete. Additional time was needed to obtain the information necessary, present at the date of the acquisition, to recognize all the items exchanged related to the acquisitions of Orchid Underwriters Agency, CrossCover Insurance Services and GRP (Jersey) Holdco Limited and its businesses ("GRP"). The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 14.8 years; and non-compete agreements, 4.4 years. Goodwill of $154.2 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 $154.0 million, ($21.1) million, and $21.2 million, respectively. Of the total goodwill, $107.0 million relates to goodwill that will not be deductible for income tax purposes from acquisitions where we acquired the stock of the company, $35.0 million relates to goodwill that is currently deductible for income tax purposes, and the remaining $12.2 million relates to recorded earn-out payables which will not be deductible for income tax purposes until it is earned and paid. For the acquisitions completed during 2023, 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, 2023, included in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2023, was $17.6 million. The income before income taxes from the acquisitions completed through September 30, 2023, included in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2023, was $5.3 million. If t he 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 millions, except per share data) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Total revenues |  | $ | 1,068.5 |  |  | $ | 941.0 |  |  | $ | 3,248.5 |  |  | $ | 2,713.4 |
Income before income taxes |  | $ | 242.6 |  |  | $ | 221.5 |  |  | $ | 796.3 |  |  | $ | 693.0 |
Net income |  | $ | 176.1 |  |  | $ | 163.7 |  |  | $ | 605.9 |  |  | $ | 535.2 |
Net income per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.62 |  |  | $ | 0.58 |  |  | $ | 2.14 |  |  | $ | 1.89 |
Diluted |  | $ | 0.62 |  |  | $ | 0.58 |  |  | $ | 2.13 |  |  | $ | 1.89 |
Weighted average number of shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 279.9 |  |  |  | 277.8 |  |  |  | 279.3 |  |  |  | 277.3 |
Diluted |  |  | 281.3 |  |  |  | 278.7 |  |  |  | 280.4 |  |  |  | 278.5 |
As of September 30, 2023 and 2022, 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 three and nine months ended September 30, 2023 and 2022, were as follows:
|  | Three months ended September 30, |  |  | Nine months ended September 30, |
(in millions) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Balance as of the beginning of the period |  | $ | 231.5 |  |  | $ | 232.9 |  |  | $ | 251.7 |  |  | $ | 291.0 |
Additions to estimated acquisition earn-out payables |  |  | 11.1 |  |  |  | 25.2 |  |  |  | 51.3 |  |  |  | 42.1 |
Assumed acquisition earn-out payables |  |  | — |  |  |  | 34.8 |  |  |  | — |  |  |  | 34.8 |
Payments for estimated acquisition earn-out payables |  |  | (11.0 | ) |  |  | (10.6 | ) |  |  | (74.5 | ) |  |  | (77.1 | )
Subtotal |  |  | 231.6 |  |  |  | 282.3 |  |  |  | 228.5 |  |  |  | 290.8 |
Net change in earnings from estimated acquisition earn-out payables: |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value on estimated acquisition earn-out payables |  |  | 27.8 |  |  |  | (28.5 | ) |  |  | 23.5 |  |  |  | (38.1 | )
Interest expense accretion |  |  | 2.1 |  |  |  | 1.9 |  |  |  | 5.9 |  |  |  | 5.0 |
Net change in earnings from estimated acquisition earn-out payables |  |  | 29.9 |  |  |  | (26.6 | ) |  |  | 29.4 |  |  |  | (33.1 | )
Foreign currency translation adjustments during the year |  |  | (3.3 | ) |  |  | (5.8 | ) |  |  | 0.3 |  |  |  | (7.8 | )
Balance as of September 30, |  | $ | 258.2 |  |  | $ | 249.9 |  |  | $ | 258.2 |  |  | $ | 249.9 |
Of the $258.2 million estimated acquisition earn-out payables as of September 30, 2023, $168.7 million was recorded as accounts payable and $89.5 million was recorded as other non-current liabilities. As of September 30, 2023, the maximum future acquisition contingency payments related to all acquisitions was $550.5 million, inclusive of the $258.2 million estimated acquisition earn-out payables. There were three acquisition earn-out payables assumed in connection with the acquisition of GRP that included provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of September 30, 2023 is $2.9 million. The Company deems a significant increase to this amount to be unlikely. 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. Subsequent to September 30, 2023, the Company completed the acquisition of Kentro Capital Limited distributing approximately $404.8 million of cash and issuing 261,614 shares valued at $18.4 million for an initial preliminary amount of $423.2 million of consideration paid. The Company is currently working on the allocation of the purchase price to the assets and liabilities acquired.

X
- 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
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration