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Business Combinations | 12 Months Ended
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Dec. 31, 2023
Business Combinations [Abstract] |
Business Combinations | NOTE 3 Busines s Combinations During the year ended December 31, 2023, the Company acquired the assets and assumed certain liabilities of seven insurance intermediaries, all of the stock of 22 insurance intermediaries, and purchased four books of businesses (customer accounts) for a total of 33 acquisitions. Additionally, adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 months as permitted by ASC 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 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 Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. Management often uses independent third-party valuation specialists to assist in finalizing the fair value of assets acquired and liabilities assumed. Fair value adjustments, if any, are most common to the values established for amortizable intangible assets and earnout liabilities, with the offset to goodwill, net of any income tax effect. Provisional estimates were used to initially record the acquisition of Kentro Capital Limited as of the October 1, 2023 acquisition date, including for intangible assets, goodwill, customer contract related balances, tax related balances and all other asset and liability accounts. For the year ended December 31, 2023, adjustments were made within the permitted measurement period that included a decrease to deferred tax liability o f $17.3 million, a decrease to purchased customer accounts of $10.9 million and an increase to other current assets of $5.6 million for a net decrease in goodwill of $12.0 million. These measurement period adjustments have been reflected as current period adjustments in the year ended December 31, 2023. The measurement period adjustments had no material effect on earnings or cash in the current period. Gross cash paid for acquisitions was $695.1 million and $2,544.4 million in the years ended December 31, 2023 and 2022, respectively. We completed 33 acquisitions (including book of business purchases) during the year ended December 31, 2023 and 30 acquisitions (including book of business purchases) during the year ended December 31, 2022. The following table summarizes the purchase price allocations and estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition for current year acquisitions and adjustments made during the measurement period for prior year acquisitions. 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 millions) |  | Kentro Capital Limited |  |  | Berkeley Insurance Group Limited |  |  | Other (1) |  |  | Total |
Business Segment |  | Retail National Programs |  |  | Retail |  |  | Various |  |  |  |
Effective date of acquisition |  | October 1, 2023 |  |  | October 3, 2023 |  |  | Various |  |  |  |
Cash paid |  | $ | 402.5 |  |  | $ | 48.0 |  |  | $ | 244.6 |  |  | $ | 695.1 |
Common stock Issued |  |  | 18.3 |  |  |  | — |  |  |  | — |  |  |  | 18.3 |
Other payable |  |  | 2.2 |  |  |  | 1.3 |  |  |  | 8.7 |  |  |  | 12.2 |
Recorded earn-out payable |  |  | — |  |  |  | 15.4 |  |  |  | 51.8 |  |  |  | 67.2 |
Total consideration |  |  | 423.0 |  |  |  | 64.7 |  |  |  | 305.1 |  |  |  | 792.8 |
Maximum potential earn-out payable |  |  | — |  |  |  | 21.0 |  |  |  | 121.5 |  |  |  | 142.5 |
Allocation of purchase price: |  |  |  |  |  |  |  |  |  |  |  |
Cash and equivalents |  |  | 8.5 |  |  |  | 0.4 |  |  |  | 12.9 |  |  |  | 21.8 |
Fiduciary cash |  |  | 27.3 |  |  |  | 2.8 |  |  |  | 12.5 |  |  |  | 42.6 |
Fiduciary receivables |  |  | 38.8 |  |  |  | 2.2 |  |  |  | 26.6 |  |  |  | 67.6 |
Other current assets |  |  | 37.8 |  |  |  | 10.9 |  |  |  | 23.1 |  |  |  | 71.8 |
Goodwill |  |  | 358.7 |  |  |  | 43.3 |  |  |  | 206.7 |  |  |  | 608.7 |
Purchased customer accounts and other (2) |  |  | 66.0 |  |  |  | 22.0 |  |  |  | 79.4 |  |  |  | 167.4 |
Deferred income tax, net (3) |  |  | — |  |  |  | — |  |  |  | 4.9 |  |  |  | 4.9 |
Other assets |  |  | 6.1 |  |  |  | 0.5 |  |  |  | 5.6 |  |  |  | 12.2 |
Total assets acquired |  |  | 543.2 |  |  |  | 82.1 |  |  |  | 371.7 |  |  |  | 997.0 |
Fiduciary liabilities |  |  | (66.1 | ) |  |  | (5.0 | ) |  |  | (39.2 | ) |  |  | (110.3 | )
Other current liabilities |  |  | (22.6 | ) |  |  | (12.2 | ) |  |  | (17.5 | ) |  |  | (52.3 | )
Deferred income tax, net |  |  | (16.6 | ) |  |  | — |  |  |  | — |  |  |  | (16.6 | )
Other long-term liabilities |  |  | (14.9 | ) |  |  | (0.2 | ) |  |  | (9.9 | ) |  |  | (25.0 | )
Total liabilities assumed |  |  | (120.2 | ) |  |  | (17.4 | ) |  |  | (66.6 | ) |  |  | (204.2 | )
Net assets acquired |  | $ | 423.0 |  |  | $ | 64.7 |  |  | $ | 305.1 |  |  | $ | 792.8 |
(1) The other column represents current year acquisitions with total net assets acquired of less than $50.0 million and adjustments from prior year acquisitions that were made within the permitted measurement period. (2) The weighted average useful life of purchased customer accounts is 15.0 years. (3) 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 2022 acquisitions of Orchid Underwriters Agency, CrossCover Insurance Services and GRP (Jersey) Holdco Limited and its businesses ("GRP"). Goodwill of $608.7 million, 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 $348.5 million, $239.0 million, and $21.2 million, respectively. Of the total goodwill of $608.7 million, the amount currently deductible for income tax purposes is $64.5 million. Of the remaining $544.2 million of goodwill, $529.0 million relates to goodwill that will not be deductible for income tax purposes and $15.2 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 December 31, 2023 included in the Consolidated Statement of Income for the year ended December 31, 2023 were $67.9 million. The income before income taxes from the acquisitions completed through December 31, 2023, included in the Consolidated Statement of Income for the year ended December 31, 2023, was $23.8 million. Subsequent to Decembe r 31, 2023, and through the date of this filing, the Company completed two acquisitions for initial cash consideration of approximately $37.6 milli on. If the Company's 2023 acquisitions had occurred as of the beginning of 2022, the 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) |  | Year Ended December 31, |
(in millions, except per share data) |  | 2023 |  |  | 2022 |
Total revenues |  | $ | 4,357.6 |  |  | $ | 3,736.9 |
Net income |  | $ | 890.5 |  |  | $ | 703.8 |
Net income per share: |  |  |  |  |  |
Basic |  | $ | 3.18 |  |  | $ | 2.53 |
Diluted |  | $ | 3.17 |  |  | $ | 2.52 |
Acquisition Earn-Out Payables ASC 805 is the authoritative guidance requiring an acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase arrangements) at the acquisition date must be included in the purchase price consideration. The recorded purchase prices for acquisitions include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations will be recorded in the Consolidated Statements of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years. As of December 31, 2023, 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 years ended December 31, 2023, 2022 and 2021 were as follows:
|  | Year Ended December 31, |
(in millions) |  | 2023 |  |  | 2022 |  |  | 2021 |
Balance as of the beginning of the period |  | $ | 251.6 |  |  | $ | 291.0 |  |  | $ | 258.9 |
Additions to estimated acquisition earn-out payables from new acquisitions |  |  | 67.2 |  |  |  | 73.3 |  |  |  | 75.8 |
Assumed estimated acquisition earn-out payables |  |  | 21.1 |  |  |  | 34.8 |  |  |  | — |
Payments for estimated acquisition earn-out payables |  |  | (118.8 | ) |  |  | (106.3 | ) |  |  | (83.6 | )
Subtotal |  |  | 221.1 |  |  |  | 292.8 |  |  |  | 251.1 |
Net change in earnings from estimated acquisition earn-out payables: |  |  |  |  |  |  |  |  |
Change in fair value on estimated acquisition earn-out payables |  |  | 14.1 |  |  |  | (45.9 | ) |  |  | 34.2 |
Interest expense accretion |  |  | 7.7 |  |  |  | 7.0 |  |  |  | 6.2 |
Net change in earnings from estimated acquisition earn- out payables |  |  | 21.8 |  |  |  | (38.9 | ) |  |  | 40.4 |
Foreign currency translation adjustments during the year |  |  | 6.3 |  |  |  | (2.3 | ) |  |  | (0.5 | )
Balance as of December 31, |  | $ | 249.2 |  |  | $ | 251.6 |  |  | $ | 291.0 |
Of the $249.2 million of estimated acquisition earn-out payables as of December 31, 2023, $145.9 million was recorded as current liabilities within the accounts payable caption in the Company's Consolidated Balance Sheets and $103.3 million was recorded as non-current liabilities within the other liabilities caption in the Company's Consolidated Balance Sheets. Included within 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. Of the $251.6 million of estimated acquisition earn-out payables as of December 31, 2022, $119.3 million was recorded as accounts payable, and $132.3 million was recorded as other liabilities. As of December 31, 2023, the maximum future contingency payments related to all acquisitions totaled $640.2 million. Six of the estimated acquisition earn-out payables include provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of December 31, 2023, is $4.7 million. The Company deems a significant increase to this amount to be unlikely.

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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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