Acquisitions, Divestiture and Goodwill

9 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisition

On October 14, 2022, the Company completed the acquisition of EverWatch Corp. (“EverWatch”), a leading provider of advanced solutions to the defense and intelligence communities for approximately $444.8 million, net of post-closing adjustments and transaction costs incurred as part of the acquisition. The acquisition was funded with cash on hand. As a result of the transaction, EverWatch became a wholly owned subsidiary of Booz Allen Hamilton Inc.

Under the terms of the purchase agreement, the Company has 120 days after closing to provide proposed post-closing working capital adjustments to the sellers which are subject to dispute. The final purchase price allocations will be completed after the underlying information has been finalized and agreed upon by the sellers and the Company.

The following table summarizes the consideration and the preliminary allocation of the purchase price paid for EverWatch:


Cash consideration (gross of cash acquired)	$	444,847

Purchase price allocation:
Cash	4,779
Current assets	27,305
Operating lease right-of-use asset	7,894
Other long-term assets	4,119
Intangible assets	125,100
Deferred tax liabilities	(29,525)
Current liabilities	(11,625)
Operating lease liabilities - short-term	(1,362)
Operating lease liabilities - long-term	(6,532)
Total fair value of identifiable net assets acquired	$	120,153

Goodwill	$	324,694

The acquisition is accounted for under the acquisition method of accounting, which requires the total acquisition consideration to be allocated to the assets acquired and liabilities assumed based on an estimate of the acquisition date fair value, with the difference reflected in goodwill. The preliminary goodwill of $324.7 million is primarily attributable to EverWatch's specialized workforce and the expected synergies between the Company and EverWatch.

The Company preliminarily recognized $125.1 million of intangible assets which consists of contract assets and backlog, and will be valued using the excess earnings method discounted cash flow approach, incorporating Level 3 inputs as described under the fair value hierarchy of Topic 820. These unobservable inputs will reflect the Company's own judgment about which assumptions market participants would use in pricing an asset on a non-recurring basis. The intangible assets are expected to be amortized over the estimated useful life of 17 years.

The valuation of assets acquired and liabilities assumed are preliminary and based on valuation estimates and assumptions. The accounting for business combinations requires estimates and judgments regarding expectations of

future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets. The estimates, assumptions and discount rate underlying the preliminary valuations are subject to collection of information necessary to complete the valuations (specifically related to projected financial information) within the measurement period, which is up to one year from the acquisition date. Although the Company does not currently expect material changes to the initial value of net assets acquired, the Company continues to evaluate assumptions related to the valuation of the assets acquired and liabilities assumed. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates.

Pro forma results of operations for this acquisition are not presented because the acquisition is not material to the Company's consolidated results of operations.

Divestitures

Middle East and North Africa Management Consulting Business

On September 1, 2022, the Company completed the divestiture of its management consulting business serving the Middle East and North Africa (“MENA”) region to Oliver Wyman, a global management consulting firm and a business of Marsh McLennan. The divestiture was substantially comprised of the contracts associated with the MENA business, the assets and liabilities associated with those contracts, and the workforce that provides services under those contracts.

As a result of this transaction, during the second quarter the Company de-recognized the assets and liabilities associated with the MENA business and recognized a pre-tax gain of $31.2 million, which is reflected in other income, net, on the condensed consolidated statement of operations. The consideration for the sale of the business is subject to customary working capital adjustments, which may impact the amount of gain recognized.

Managed Threat Services Business

On December 5, 2022, the Company completed the divestiture of its commercial Managed Threat Services (“MTS”) business to Security On-Demand. The divestiture was substantially comprised of the contracts associated with the MTS business, the assets and liabilities associated with those contracts, and the workforce that provides services under those contracts.

As a result of this transaction, during the third quarter the Company de-recognized the assets and liabilities associated with the MTS business and recognized a pre-tax gain of $4.6 million which is reflected in other income, net, on the condensed consolidated statement of operations. The consideration for the sale of the business is subject to customary working capital adjustments and contingent consideration, which may impact the amount of gain recognized.

Business Deconsolidation

In December 2022, the Company forfeited certain participating rights of a consolidated artificial intelligence software platform business which has unrelated third-party interest holders and is classified as a variable interest entity (VIE). As a result of this transaction, the Company determined that it is not the primary beneficiary of the VIE and thus de-recognized the assets, liabilities and non-controlling interest of this business. The Company recorded the fair value of our retained equity investment of $7.6 million which is accounted for under the measurement alternative. The resulting pre-tax gain, calculated as the investment value less the net de-recognized balances, was $8.9 million and is reflected in other income, net, on the condensed consolidated statement of operations.

Goodwill

As of December 31, 2022 and March 31, 2022, goodwill was $2,337.6 million and $2,021.9 million, respectively. The increase in the carrying amount of goodwill was attributable the Company's acquisition of EverWatch, and the $324.7 million goodwill acquired is expected to be non-deductible for tax purposes. The Company allocated approximately $7.0 million and $2.0 million of goodwill to the MENA business and the MTS business, respectively, as part of the divestitures noted above.